Google Nexus Offers Little Competition to Apple iPhone

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.

Some of these apps are superb, most are crap. But that doesn't matter. What does matter is that the sheer mass of all of these creations creates a gargantuan barrier to any competing smartphone initiative that wants to take it on. Apple, without surrendering much control, has nevertheless found an alternative way to harness the intellectual capital of thousands of its smartest and most ambitious supporters. So now, to compete with the iPhone you pretty much have to match the best of the iPhone App catalog – and even with a well-developed user community, that won't be easy to do. Android might be able to catch up – and I emphasize "might" – by building its own developer community. But it hasn't happened yet.

The only other ways to catch Apple right now is to either price bomb the iPhone with a super cheap, super powerful smart phone – easier said than done, especially since you're giving away all of your profits – or come out with your own, revolutionary, new design. But nobody's been able to end run Apple yet; revolutionary new design being what that company does better than anybody.

But if any could stun the phone world it would be Google. It, too, is full of smart, arrogant people, the company has lots of dough, and because phones are outside its core business, it can in theory take a big risk without worrying about legacy issues. For example, as many industry insiders have suggested, Google could stun the tech world – and hit Apple at its weakest point – by coming out with a "Webphone," a device that uses the Internet, a la Skype, as its transmission medium and thus escaping forever the tyranny of the phone companies. There's a lot of problems with that strategy, of course, but it would certainly shock the world and put Apple on the defensive.

Unfortunately, the early reports suggest that what Google will introduce next week, the Nexus One, will be a largely conventional smartphone. That's a pity because I suspect Google will never get this chance again.

Meanwhile, strong on momentum and flush with cash, Apple isn't waiting around for the world to catch up with it. Two weeks from now, the company is expected to introduce yet another category-buster: this time it's rumored to be a tablet device – think of an oversized iPod Touch, but no doubt with much of the functionality of a personal computer (not to mention all of those iPhone apps). It will also no doubt, have one or two very cool and unexpected new features that will make it a gotta-have for Apple fanatics everywhere. Once again, Apple will have a new product that challenges convention, seemingly obsoletes an entire multibillion-dollar industry (in this case, handheld computers) while overwhelming a second, newer industry (netbooks, such as the Kindle) and yet is still stunning to look at.

In other words, the Google phone will be a loser, even if it is a winner, because it will probably diminish Google's reputation as a tech juggernaut. Meanwhile, the Apple Tablet will be a winner, even if it is a loser, because (like those wacky iMac cubes and other designs of the last decade) it will continue to advance the company's reputation for risk-taking and cool.

Meanwhile, for the rest of us, at least after a miserable 2009 in tech, 2010 is starting out fun. It's as if the great consumer tech companies have been waiting to get last year over with and are now bouncing around at the starting line, waiting for the new year to begin so they can burst out of the gate. Despite everything else, the New Year in tech looks like fun.

TAD'S TAB: Now that Christmas is over, and your children are safe, check out http://www.sketchysantas.com/. It is a hilarious collection of every bad mall Santa who never should have gotten the job. The Web site even offers greeting cards, featuring your favorite sketchy Santa on the front. Happy Holidays.

This is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, The Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNews.com "Silicon Insider" columnist since 2000. His new book, written with Tom Hayes, is "No Size Fits All."

A version of Malone's "Yes, Virginia" column has run every December since 2001.