Daniel Eran Dilger
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Google’s Nexus One takes on Droid as Apple’s iPhone App Store grows

Flurry AppStore vs Android Mkt Nov-Dec 09 Growth

Prince McLean, AppleInsider

Expectations that Google would jump into the smartphone business itself and directly challenge the iPhone are being squelched by reports that indicate that the company is really only putting its name on a new HTC device to be sold by T-Mobile, which will compete against the Verizon Motorola Droid instead.

Google’s Nexus One takes on Droid as Apple’s iPhone App Store grows
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At the same time, Apple’s month over month App Store download growth over the holidays greatly outpaced the growth of Google’s Android Market by a factor of 2.5 this year, refuting the idea that Google’s last flagship phone, the Verizon/Motorola Droid, had any real impact on the iPhone during the key holiday season, or that it even helped Google to catch up to Apple.

Apple’s phenomenal growth sets up limited prospects for Google’s next attempt to deliver the new Nexus One as an iPhone alternative in partnership with HTC and T-Mobile during the post-holiday season, given that the Droid has already consumed most of Android’s potential market opportunity.

G-Phone 2: This time it’s personal

Rumors of a Google Phone first circulated in late 2007 before the company formally announced that its new Android would be a broadly-licensed platform like Windows Mobile rather than a tightly integrated product like the iPhone.

Two years later, the concept of a new Android phone built “specifically for Google” to market under its own name was again promoted by Michael Arrington of TechCrunch, who described the rumored new Nexus One model as a “pure Google-branded phone.”

Unlike existing offerings from HTC (like the G1, MyTouch, and Verizon Droid Eris) or Motorola (the Verizon Droid), Arrington said “every last piece” of the device would be dictated by Google, similar to how Apple exerts total control over all the details and user experience of the iPhone, iPod touch, and iTunes.

An Android phone without the Android problems

“[There will be] no splintering of the Android OS that makes some applications unusable,” Arrington wrote. “Like the iPhone for Apple, this phone will be Google’s pure vision of what a phone should be.”

As of a month and a half ago, Arrington said that he doubted reports that the new phone would be built by HTC, the company that historically has made nearly all Windows Mobile phones and most of the devices running Android.

Instead, Arrington claimed “fairly good information that suggests” that Google was building the new phone itself using LG or Samsung, an indication that the new device was really a unique iPhone-like product rather than just rebadged model.

Another Android developer phone

However, the latest information shows that the new device is really just an extension and broadening of Google’s development phone program, which allows users to buy an unlocked Android device and use it on T-Mobile.

Rather than just being limited to developers, Google now plans to market the phone under its own name, selling it over the web directly with or without a subsidizing contract, just like it has always sold its Android developer model.

However, there is no indication the phone’s hardware is at all dictated or managed by Google. Instead, it’s just another new phone from HTC, which has always churned out several new models every year.

Like HTC’s previous Windows Mobile and Android phones, the Nexus One is still limited to a relatively small amount of system RAM and internal storage RAM, killing any prospects for the new model to take over the iPhone/iPod touch in terms of sophisticated apps, and in particular games.

Rather than mounting any real competition to the iPhone 3GS, the Nexus One will immediately make HTC’s existing Android phones look long in the tooth, including the HTC Droid Eris Verizon is currently marketing alongside the Motorola Droid.

The Droid Killer

The Nexus One is essentially HTC’s answer to the Motorola Droid. Both sport a high resolution screen and similar specifications that lead the pack of Android offerings. Both also reveal Google’s intent to play its licensees off of each other.

For the first two generations of Android phones, Google worked with HTC, the vendor most interested in and most capable of bringing an Android phone to market. HTC was well positioned because it already had completed Windows Mobile phone designs that could be quickly adapted to run Android.

This fall however, Google appeared to abandon HTC entirely as it devoted exclusive efforts to release Android 2.0 in tandem with Motorola and Verizon on the Droid. The Droid was Motorola’s internal attempt to revitalize its lagging phone handset business, and was originally designed to run Windows Mobile before being conscripted to run Android.

Google did not immediately officially release the Droid’s Android 2.0 for other Android models, and instead left other licensees in the dark to the point where HTC and Sony Ericsson have announced plans to continue to ship future phones running earlier versions of the Android operations system.

Now, Google is returning to HTC to release Android 2.1 on the Nexus One, leaving the Droid to catch up in the background and Sony Ericsson still on track to debut its new phone later in 2010 running Android 1.6. Verizon Droid or Droid Eris users can’t just switch to the slim new Nexus One because it only works on T-Mobile’s GSM/UMTS network. Verizon also charges a steep $350 termination fee on its Android smartphones to prevent any desertion.

Snowballing vs cannibalization

This ensures that Android fans and early adopters simply can’t regularly upgrade as iPhone users could, either in hardware with annual device releases or in software with annual new reference releases and the regular free updates in between. What Android updates are available to end users are a combination of what the vendor and mobile carrier choose to support and deliver, much as was the case with Windows Mobile.

While Apple snowballed interest in its iPhone platform and grew rapidly by word of mouth, Android appears to be cannibalizing itself with competition between vendors not just for potentially incompatible hardware innovations (such as different screen resolutions) but also in a confusing mix of Android operating system versions.

This is splintering the development community and preventing the snowballing growth seen in the cohesive iPhone platform. Android’s fractionalization as a platform prevents it from attaining the interest of key developers, and therefore impedes the critical mass needed to attract users and other commercial developers, resulting in a hobbyist community.

iPhone App Store growing 2.5 times as fast as Android Market

The result of this is that Apple can claim, not just a much larger share in unit sales and software downloads, but also much greater growth in App Store interest in December over the previous month than Google’s Android Market can.

According to mobile analytics firm Flurry, Apple’s App Store download growth increased by more than 50% this month over November, while Google’s much smaller Android Market grew by just 20% over the same period, despite the massive advertising blitz Verizon contributed during the holidays.

Flurry AppStore vs Android Mkt Nov-Dec 09 Growth

With a much smaller unit installed base and a library size of around 15,000 apps compared to Apple’s 100,000, Google should find it easier to increase its percentage of growth faster than Apple, but that simply isn’t happening. Google was left behind in the busiest holiday season of the year.

Google will now have to struggle through 2010 as Apple launches its slate product and the expected 4G iPhone and iPhone 4.0 software this summer.

Rather than rolling out its own incremental upgrades to Android, Google will be juggling the interests of HTC, Motorola, and new offerings planned by Sony Ericsson, LG, and Samsung, while attempting to play the role of both the independent platform licensing agent and a direct competitor, an impossibly difficult task that tripped up Microsoft as it attempted to run PlaysForSure and directly sell the Zune at the same time.

Rather than gaining any ground against the iPod, Microsoft only killed its existing broadly licensed platform and turned the Zune into a tiny property of little consequence.

  • http://berendschotanus.com Berend Schotanus

    For what I’ve read about Google staff policy it must be a lot of fun – still – to work on Android development. You get pampered with free lunches, you can spend 10% or so of your working time at whatever you like. And the remaining 90% of your time you can do what you like as well, as long as it sounds kind of reasonable.
    You can make a nice phone with HTC, build another nice phone with Motorola and then try again with HTC. No hindrance from overall strategy or need for consistency. Just lots of fun.

  • warlock7

    On top of the impending failure of the platform so many other providers are planning to put their own OS in place to supersede the newly placed Android that Google is a mere stepping stone in the path to mobile dominance.

  • sprockkets

    Oh well, the sooner people remember that Android is set to kill winmob and not anything else the better. And for that I’m all for them.

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  • FreeRange

    Another great perspective from Daniel! It is time to bury MSFT in the mobile market, and at least anything Android can do to accelerate that downfall all the better. The innovations we are seeing in mobile spurred by the iPhone in the absence of MSFT domination are indicative have how much MSFT has impeded innovation in the computer industry over the decades.

  • tundraboy

    As someone not steeped in the minutiae of the smartphone market, and thus able to see more of the forest from the trees, I suspect non-techie smartphone customers are confused by the whole Android thing. The same way they are confused by Linux. Is Android a phone or many phones? What is Droid in relation to Android? Why is there an HTC Droid and a Motorola Droid? And what’s this business about 1.5, 1.6, 2.0 & 2.1? Given this whole jumble of information, which is the one I should buy? When consumers get confused, they get intimidated. And when they get intimidated, they walk away.

    Most posters on this site are quite immersed in the smartphone scene and so they don’t see that Android is just one big fuzzy picture for the typical consumer.

    Compare that with the iPhone. It’s made only by Apple. There is only one phone with different storage capacities and if you have a problem with the phone, hardware or software, you call Apple. That’s it. The customer is not confused, the customer is not intimidated, and the customer is walking away . . . with brand new iPhone in tow.

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  • ChuckO

    Tundraboy, I think it’s less than that for the typical consumer. I think the likely scenario is someone goes into verizon, t-mobil, etc and the salesman says “would you like something LIKE the iPhone!” if the person says yes they show them the Android model that carrier has. I think your description of the issues is way more tree than forest for the typical person. The average non-techie’s never going to get to the point of knowing there are three versions of Android out there. I think the shame is they’ll go home with the phone thinking it’s competitive with the iPhone and then find out it’s not because of storage space issues that won’t allow it to run iPhone quality games and other apps never mind as Dan has described the splintering problems. That’s a real problem with the Android coverage in the tech press that they don’t make people aware of the shortcomings they just geek out about the screen on the Droid or whatever. I think Google risks a lot of ill will when people get these phones and are disappointed. I don’t think they’ll remember HTC made it they’ll be pissed at Google.

  • scottkrk

    Daniel, I think your analysis of Android as fragmented and without a clear execution strategy is accurate but I would argue this is probably Google’s best strategy given that Android is a non-core business that is in catch-up mode.

    On the planned vs emergent strategy continuum, Google are way over on the emergent end both philosophically and practically with non-advertising activities. Google have done a very good job of diverting attention to the non-core activities and Android is just another non-core activity designed to shield their core advertising business that delivers the company its rivers of gold.

    Schmidt is fond of saying Google likes to put stuff out there and see what the community does with it. Sounds fairly benevolent but it is a great way to reduce risk and externalize costs to the community. What is interesting with Android is that they have got the carriers and hardware manufactures to play this game!

    Google fanboys like to herald each new Android phone as an iPhone killer but the Google business hardheads know that this is at least a couple of years away. Android won’t be out of beta until about 2011-12 but in the meantime they will develop relationships with manufactures and carriers by delivering phones to Android enthusiasts who are happy to beta test as long as they can mod their phones. The whole Linux proposition.

    So in short Google won’t be a threat to Apple until 2011-12. The question is what will Apple have managed to deliver to keep developers and customers enthralled with the iPhone?

    As an iPhone/Mac user I am happy for Google and M$ to fight it out for dominance in search and OS, this leaves Apple the space to innovate and deliver compelling premium experiences that can eventually become mainstream.

  • sprockkets

    Always amazed at how many ppl read articles like this and think Daniel wrote it.

  • nini

    That’d be because he did, Prince McLean is his pen name for his work for AppleInsider for some reason. I reckon the opposite is true but that’s here nor there,

  • ChuckO

    scottkrk, Android is more important than you think. Computation is, err, has gone mobile and Google needs to protect their core business (ads) on that flank. Apple isn’t in the ad business, at least so far, so they aren’t really battling Apple on that front but Microsoft is and so they need to help Windows Mobile fail. So at this point they’re really throwing the cock block at Microsoft and Bing on the mobile front to keep people using Google search and products on their phones.

  • David Dennis

    Chuck, Tundraboy actually has an excellent point.

    I went into the Verizon store and saw the HTC Droid. “Hmm, there’s the Droid. Doesn’t look anything like the pictures,” I thought.

    I finally managed to find the Motorola Droid, in the front of the store in a space I had not noticed before. Had a really nice looking display. But I played around with it and thought the interface was a bit confusing and poorly thought out compared to iPhone. Not really surprising considering how much time and effort has gone into refining iPhone’s design.

    Later on, I also saw a Droid flyer. Featured both HTC and Motorola versions. There was nothing to say what the differences were or why I should buy one and not the other. As I recall, one of them was $99 and the other was $199 with a $100 rebate, so even price wasn’t much of a differentiator.

    Seems to me competition is tough when both sides have such similar products, but maybe that’s just me. Certainly if I were an Android consumer, I would be confused.

    D

  • ChuckO

    David Dennis, I think you actually agreed with me not Tundraboy. As you said you were confused by the fact that there was two Android phones for sale NOT by the version of android (Android is just the OS so version pertains to only the OS not hardware versions) they were running. That’s what I was saying that most people won’t be aware that the different Android phones run different versions of Android. You didn’t like trying to differentiate based on price and form factor. I would assume that would be a plus for a lot of people though having a couple of different hardware configurations to try out and pick from.

  • MetalboySiSo

    Chuck,

    I believe the different versions thing was only one of Tundraboy’s arguments/points about consumers getting confused by ‘splintering.’ His other points gelled quite well with what you are saying, and I agree with both of you. I am pretty much the only tech-geek in my family (aside from my dad, and he doesn’t even get near being as geeky as I am), and I have seen what both of you are describing in action, both in my family and in my friends, whom I would consider to be perfect real-world examples of “end users.”

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