How iPhones and Droids Support Google's Success

Every Federer needs a Nadal. Baseball wouldn't be half as much fun without pitching the Red Sox against the Yankees. Good luck getting an Ohio State fan to shake hands with a Michigan peer. Rivalries are so much fun.

Welcome to the mobile jungle!
The same principle holds true in the mobile phone world as well. In this arena, the rivalry picture is more complex: AT&T (NYSE: T  ) faces off against Verizon (NYSE: VZ  ) Wireless (and a gaggle of lesser lights as well) in the service provider segment. They depend on hardware from clashing providers like Apple (Nasdaq: AAPL  ) and Research In Motion (Nasdaq: RIMM  ) , and there's even a somewhat separate software rivalry where the likes of Microsoft (Nasdaq: MSFT  ) and Google (Nasdaq: GOOG  ) join in the fun. Of course, Apple and RIM have their own proprietary software platforms, too.

With an estimated $100 million of marketing budget poured into pushing a new Motorola (NYSE: MOT  ) handset built around Google Android software, the move becomes a bare-knuckled fist on behalf of Verizon, Motorola, and Google in their respective battles for market share and mind share. By the looks of some fresh data, it's a very effective blow.

Great, but not mind-blowingly awesome
The Motorola Droid has been on the market for about a month, and RBC Capital Markets analyst Mark Sue estimates that Verizon has sold about 700,000 units of this smartphone. With the lion's share of the holiday shopping season yet to come, the handset looks set to smash the 1-million-unit goal that Verizon set for the first quarter of availability -- well ahead of schedule.

That's a mighty swift sales pace, though nowhere near the rush for iPhone 3GS handsets that shifted more than 1 million units on the launch weekend alone. However, there are enough differences between the Verizon-Motorola combo and the AT&T-Apple partnership to make this into a comparison between apples and mangosteens.

  • The 3GS is the third generation of Apple's iPhone franchise, where the first two iterations built up a serious fan base. The Droid is the first Android phone from both Verizon and Motorola.
  • The iPhone marketing materials are soft, family friendly, and stylish to a fault. The Droid is presented in a hard technical light alongside robots and stealth bombers.

What's at stake?
Motorola might want to kill the iPhone, and Verizon certainly would love to put a hurting on AT&T. But Google doesn't really have these aggressive goals, being content with simply pushing the handheld Web-browsing market to a quick maturity. Seeing the way Droid sort of slants to a different, more technical and testosterone-laden demographic than the iPhone, I'm thinking that Google had some serious input in how Verizon designed that expensive marketing campaign.

If the Droid continues to sell briskly, which seems nigh-on guaranteed, it's good news for Verizon and great news for Motorola, which sorely needs a big hit to bring back the sheen of the RAZR phone's glory days. But it's no big deal for Google either way. It's a low-risk project for Big G, which doesn't even collect royalties from Android sales. Android is open-source, dude!

So Verizon is effectively launching a $100 million campaign to save Motorola from becoming a footnote in the history of mobile telephony history. On top of that, the company subsidizes each handset sold something fierce, and makes a profit on Droids only after collecting several months' worth of subscription fees and/or the juicy $350 early termination fee attached to Verizon's smartphone contracts.

Who's winning?
In the background, you can hear lawyers and marketing gurus from both Verizon and AT&T arguing over which network map is the best, which phone can do what, and whether the iDroid does or not. (OK, I made the last one up.)

If this round goes to Verizon and Motorola, then Verizon and Motorola will have hosts of happy investors. On the flip side of that coin, Apple and AT&T will probably continue to make truckloads of iPhone cash regardless of the Droid's success or failure. Android could indeed beat the iPhone -- if not with the Motorola Droid, then by flooding the market with gadgets from Samsung, Motorola, HTC, and many others -- but it doesn't really matter much to Google.

Google is laughing all the way to the bank either way. In essence, everyone is fighting to fatten Google's ad-click sales streams. That's what I call a winner for all seasons.

Would you invest differently in the burgeoning smartphone market? Share your strategy in the comments below, dear Fool.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. Microsoft is a Motley Fool Inside Value recommendation, and Motley Fool Options has recommended a diagonal call strategy on the company. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On December 01, 2009, at 4:56 PM, MediaMogul007 wrote:

    If Apple wants to rapidly throw a wrench in the Google handset/media gear-box, all they need to do is thwart Google's On2 merger with a fair counter-offer.

    Google seems to have already (prematurely?) integrated On2's patented revolutionary video CODECs into their future streaming software and apps. Motorola has been indirectly dealing with On2 and On2's subsidiary Hantro Oy for some time to get the embedded On2 / Hantro tech (accepting multiple CODECs) on their handset chips. It all now comes together in December - and for a pitiful $106M in Google Stock!!!

    Wake up APPLE - get On2 on board and stop the Google train in its tracks, Have Google pay YOU for the tech they have already integrated!!

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