Apple, Google vs. Big Wireless

(page 2 of 3)

One expected feature of the gPhone platform, dubbed gPay, would simplify commerce for third-party providers by enabling users to pay for their services via short text messages. Today, carriers force most transactions to flow through a subscriber's monthly bill, keeping up to half the revenue for serving this role as an unwanted intermediary between developers and consumers. Were Google to introduce an alternative billing system that charges developers lower fees, "we could really flourish," says mSpot's Tsui.

Google may also remove obstacles and financial burdens that typically confront developers by offering an alternative wireless network where the selection of applications available to users isn't tightly controlled by mobile carriers. Google has said it may bid for wireless spectrum licenses in early 2008 to build, possibly with a partner, a new mobile network with no restrictions on what applications customers can use.

Smaller Developers Aim to Benefit

If the iPhone's popularity continues to spread with its imminent arrival in Europe and Asia, and if the first gPhone handsets win a large user base, developers may gravitate to those platforms just to save on costs. Compared with the computer market, where there are just three widely used operating systems, the handset industry is fragmented across roughly 40 different software platforms. Only a handful, such as Symbian, Microsoft's (MSFT) Windows Mobile, Palm (PALM), and BlackBerry (RIMM), offer programmers a platform on which they can write an application that will work on multiple devices without much customization.

As a result, smaller software firms are forced to create multiple versions of the same application to make it compatible with even a small subset of the hundreds of phone models available to consumers—an inefficient process at best. "It's extremely expensive," says Jason Whitmore, general manager of mobile devices at Wind River (WIND), a maker of mobile software. But if the market consolidates around certain platforms, including Apple's and Google's, a developer's costs and the time it takes to bring an application to market could both drop by 30%, he figures.

There's yet another tide shift under way in the wireless industry that may strengthen the hands of software developers: Today, consumers primarily choose their wireless service provider based on call quality, according to researcher J.D. Power & Associates, which like BusinessWeek is a unit of The McGraw-Hill Companies (MHP). But with network operators such as Verizon Wireless and Sprint (S) continuously expanding and enhancing their wireless coverage, call quality is becoming less of a concern. In a September survey of more than 25,000 consumers, J.D. Power found that wireless users encountered dropped calls or sound quality problems on 15 of every 100 calls, down nearly a third from the 21 problems per 100 calls they reported a year earlier.

In the Future, Software Over Service

With reliable call quality becoming more of a given, more phone purchases may be driven by special features. The iPhone offers the best proof. At a time when U.S. subscriber growth has been slowing, Apple's U.S. partner just posted its best quarter ever. AT&T's (T) subscriber base grew by 1.2 million, thanks in large measure to the allure of the iPhone's sleek design and applications, from Wi-Fi and Web browsing to the built-in iPod. AT&T's call quality played little role in those decisions. In fact, though perceptions of worse network quality dog AT&T, more than 40% of the 1.4 million people who have bought an iPhone switched from rival carriers to get the device.