Google Nexus Offers Little Competition to Apple iPhone

Why Google's new smartphone won't knock Apple off its iPhone throne.

ByABC News
September 11, 2008, 4:36 PM

Jan. 1, 2010 -- Whether the marketplace is ready or not, the Big Guns in consumer electronics are about to make their move at the dawn of the New Year.

Next Tuesday, Google is expected to announce its long-rumored Nexus One smartphone. It is undoubtedly designed to run the Google Android operating system for cellphones, which the search giant introduced more than a year ago. Android was envisioned as a major breakthrough in cellphones because it offered an "open" operating system – i.e., one that other companies could use and design applications for. At the time, this strategy was compared to that of Microsoft Windows, which broke the market hegemony of Apple's decidedly non-open OS in the mid-1980s and within a decade, turned Apple into a niche company. This time around, the new Android phones were supposed to break the hegemony of the Apple iPhone.

So far, it hasn't quite worked out that way with Android. A number of cell phone companies – notably Motorola, HTC, and Samsung – have adopted Android and seen impressive sales. However, this time around Apple, though still exhibiting much of its old "closed" and proprietary ways, has learned some important lessons over the last 20 years.

For one thing, Apple understands, better perhaps than any company on the planet, the importance of being not only perpetually innovative – but with a vast and loyal army of Apple fanatics behind it – to regularly take category-busting risks. Thus, the amazing run, beginning a decade ago, of the iMac, MacBook, iPod and iPhone. These landmark (and in the case of the iPod, historic) products not only were ambitious in their goals and beautifully designed, but they also exhibited multiple features that were so innovative that they forced the competition to spend years catching up – and by then, Apple had already moved on to the next breakthrough.

Military theorists like to say that the goal of combat is to get inside your opponent's "decision horizon" – that is, to move so quickly that the enemy can't respond in time before you have moved on to the next victory. That's exactly what Apple, at its best, has done to the consumer electronics world and in the process has left competitors reeling, loyal customers thrilled, and not least, Apple regaining its lost market share and making its shareholders wealthy.

The Apple iPhone is a classic example of that. It has taken nearly two years for Apple's competitors to field products that are even close to the iPhone; to identify weaknesses in the device (such as the lack of a real keyboard for texters, its commitment to AT&T as service provider) and respond. Apple, meanwhile, has used that time to continuously improve the iPhone – the result being that the company now dominates the smartphone world to a degree Apple hasn't enjoyed since the early years of the Macintosh.

If that was the sum of Apple's advantage, the door might be wide open for Google and the rest to pull a Windows Redux strategy. Apple, after all, is still all about controlling the operating system and suing anyone who tries to copy it. This would seem to open the door for yet another Open Systems assault, pulling together the entire intellectual capital of the entire rest of the phone industry to simply overwhelm Apple's defenses.

But, as I said, even if Apple hasn't reformed its bad old ways, it has grown a whole lot wiser. And, in one of the most brilliant strategic moves in its history, the company opened the door more than a year ago to outside developers to create their own proprietary application programs for the iPhone (and iPod Touch) to be sold through the Apple Store. Here, too, serendipity has been Apple's friend: economic downturns are always times for a burst of entrepreneurial energy as the unemployed and underemployed use the downtime to start new enterprises and then give them a running start. But this crash has been unique in high tech history not only for its depth and duration, but also because, for the first, time, the venture capital industry (largely because of government regulation) is paralyzed and little investment money is available.

This entrepreneurial energy needs to go somewhere and where much of it has headed is toward the design of iPhone apps. The sheer number of these apps that have been created in just 18 months is absolutely mind-boggling: more than 100,000 different programs, from guitar tuners to restaurant ratings to burp generators, and everything else you can imagine. It is one of the greatest outpourings of small, independent entrepreneurship in American business history, and all supported by the Apple Store. There have been more than 1 billion iPhone app downloads.