"Any customer can have a car painted any color that he wants
so long as it is black."
-- Henry Ford.
When it was revealed that Google (NASDAQ:GOOG) (NASDAQ:GOOGL) was working on its planned wireless service, AT&T and Verizon investors were understandably nervous. Already under threat by aggressive discounting from second-tier carriers T-Mobile and Sprint, the announcement that Google plans to partner with these carriers -- bringing its $64 billion war chest with it -- is another blow to these industry giants.
Not only is Google looking to compete in the wireless market, the company is looking to disrupt the market. Right now, the vast majority of calls are made on wireless networks, not on Wi-Fi. Google, working with Sprint and T-Mobile, wants to change that to give end users the best connection using a "Wi-Fi first approach." According to Google's SVP of products, Sundar Pichai, "We are thinking about how Wi-Fi and cell networks work together and how to make that seamless."
The service currently has one large drawback that could stop widespread adoption. Although Google wants you to have connection options, it apparently doesn't want you to have a choice of devices: The only phone available on Google's planned network is the Nexus 6.
A disappointing lack of choice
When it comes to phone and wireless-provider combinations, exclusive deals never work well for all parties. For some examples, look no further than AT&T's exclusive deals with Apple's iPhone, and more recently, Amazon's Fire Phone for the limitations of this policy. For Amazon, its carrier exclusivity was credited, in part, for poor sales figures and a $170 million inventory writedown.
For Apple, Steve Jobs was itching to get out of the exclusivity agreement due to AT&T's slow network ever since signing the initial deal, and ironically, this arrangement allowed Google's own Android OS to develop strong relationships and substantive market share with Verizon and Sprint. For Google not to see the limits of an exclusivity arrangement is rather odd.
To be fair to Google, these problems are generally focused on the handset maker because exclusivity agreements are rather one-sided. After all, AT&T could sell phones other than Amazon's Fire Phone and the iPhone during the exclusivity agreement. Unfortunately, Google essentially flips that script by only allowing the Nexus 6 to access its wireless service. It makes no sense to unnecessarily limit your network this way -- even if it's your phone line.
A two-prong reason for the service
Perhaps looking at this as a huge revenue-producing venture isn't the best way to classify this. Google's venture could benefit shareholders in two ways unrelated to direct revenue. First, if Google is able to spur innovation by speeding Internet access on mobile devices, its core business of search will be in a good position to take advantage of increased demand.
Obviously, Wi-Fi is a faster connection for Internet browsing; being able to switch seamlessly between Wi-Fi when available and cell networks should lead to more searches... and more revenue for Google
But a more interesting potential reason is that Google wants to lessen smartphone users' dependence on wireless providers. If users are worried about data overages, they will stop browsing -- and searching -- on wireless networks. A recent Wall Street Journal article outlined a writer using his iPhone without a carrier, essentially using Wi-Fi for calls, texts, and emails. He found it "doable," and that's without Google's Wi-Fi push.
It's not just Google that's looking to lessen dependence on carriers. A new rumor is that Apple's planning to equip its iPhone 6s phone with a carrier-agnostic phone so users can quickly change carriers.
In the end, it appears Google is not trying to steal massive amounts of market share away from Verizon and AT&T. After all, Mr. Pichai said: "Carriers in the U.S. are what powers most of our Android phones. That model has worked well for us."
It appears, however, that Google wants to change the way you access the Internet. For data-monetizing telcos like Verizon and AT&T, that's not much better.
Jamal Carnette owns shares of Apple, AT&T, and Sprint. The Motley Fool recommends Amazon.com, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.