Yesterday I posted a few comments about the Google vs. Apple competition, which willÂ determine the direction of digital media in the coming decade. And just as I finished making my case with examples I considered current, Google made all of these seem dated with one of the most important moves the industry has seen since the iPhone introduction. This was not by technology innovation, but by marketing approach. If Apple, with the iPhone, has changed the way we think about the features and quality of smartphones, Google has just changed the way we think about making the purchase, and the way carriers think about subsidizing it. Consequences and speculation are flooding the airwaves already.
Imagine a scenario in which a consumer purchases a cable set-top box, selecting this from a variety of alternatives – maybe the one that’s smallest, or the one that comes with the sleekest remote control, or the one that is guaranteed to never spy on your television viewing habits – plugs it in, and the image that pops up on the TV monitor is a menu of cable companies pitching their services. Say, a traditional operator offers you 6 months of free HBO, while the satellite company promotes its HD lineup. Maybe there’s a telco fiber selection in the mix, offering some kind of tie-in to phone minutes. The consumer considers, compares, picks a delivery pipeline for whatever reason, and that’s that.
The pay television consumption in this scenario begins with the hardware – which is the complex and feature-rich technology – and leads only afterwards to a carrier (content distribution) selection. Alas, this scenario doesn’t yet exist in the world of home video entertainment – although Apple TV and Boxee and the like are moving quickly in that same direction – but it now does in the world of wireless telecom.
With its introduction of the Nexus One smartphone, Google has done much more than dazzle the tech geeks and web aficionados with a new toy that, let’s be honest, is more or less like the old one (i.e., the iPhone). Google has launched a new product marketing approach – and because this is sponsored by Google, it will have legs to be sure – in which the lead sale is the consumer hardware, only later followed by wireless carrier selection. This is precisely in reverse to current norm: as the “store” where the Nexus One will be available is exclusively operated by Google, controlled by Google, and branded by Google, the consumer relationship moves from the place that sells bundled minutes to the place that offers online music and mapping and social networking and cloud computing and whatever else Google will think of next.
And what’s more, the wireless carriers don’t mind. So far, T-Mobile, Verizon, and Vodaphone, are lining up. Yes, they will have to compete for the consumer’s attention like the undifferentiated commodities they are, but there are advantages: Google not only will not ask to be paid for the hardware upfront, will not only not ask for a share of the carrier’s ancillary revenues, both of which practices have been iPhone staples in its relations with AT&T, but would actually allow carriers to share in the advertising revenue generated through its Google mobile search. The carrier’s economic model is thus modified – less customer control, perhaps, but also reduced marketing costs and higher revenue opportunity – and modified in a way that is custom tailored for the present climate: fixed is replaced with variable cost, and the value of this cannot be overstated.
The next move belongs to Apple, but unless the forthcoming tablet is much more than a giant iPod Touch, that may not be enough to win this round. There should in any case be greater anticipation surrounding AppleTV’s true lift-off. This could do to cable the very same thing that Google has done to mobile, and it could really be a big deal.