The balance of power in Apple’s relationship with Verizon has shifted again. Now it’s Apple that needs Verizon more than Verizon needs Apple and the iPhone.
Back a year ago, when the iPhone was the single baddest smartphone on the block, — and Google was still figuring out Android — Apple was in an incredibly strong position of power to negotiate terms with carriers.
Especially Verizon, which was watching AT&T sign up millions of new customers because of the iPhone. Verizon’s only answer to the iPhone was the weak BlackBerry Storm.
That’s no longer the case.
Apple has watched as Android has picked up steam quickly and significantly. And Verizon, the biggest U.S. carrier with tens of millions of loyal customers, is playing a big role: There are great handsets running Android on Verizon, such as the new HTC Droid Incredible. (Apple has even sued an Android phone maker, proof it’s scared of Google.)
That’s probably going to happen by the first quarter of 2011, if not sooner — it’s still definitely in both parties’ best interest. But when it does, Apple probably won’t be able to dictate the terms of the deal as easily as it could have a year ago.
(“This is a decision that is exclusively in Apple’s court,” Verizon CEO Ivan Seidenberg said during Verizon’s third-quarter 2009 earnings call. “We obviously would be interested at any point in the future they thought it would make sense for them to have us as a partner. And so we will leave it with them on that score.”)
Why not now? Because Apple actually needs Verizon now — more than it did a year ago, at least.
Bigger picture, Apple is in a dogfight to own the smartphone platform with Research In Motion and Google’s Android. RIM is the incumbent, and it’s done a good job protecting its turf, thanks in large part to distribution on all major U.S. carriers and price promotions.
But Google is the upstart, and it’s coming on strong. In between them, Apple has grown like a weed, but its share of the U.S. market is flat lining. comScore shows its share of the U.S. smarthone user base around 25% since November.
Meanwhile, Apple’s growth prospects are limited because it is stuck on AT&T. Last quarter AT&T activated 2.7 million new iPhone subscribers. Of those, “more than one-third” of the activations were for customers new to AT&T. But that means that Apple and AT&T is still selling the majority of their iPhones to existing AT&T customers — and it’s barely scratching the surface of the millions of Verizon-loyal people out there.
Meanwhile, Google is putting Android on dozens of handsets, and more importantly, spraying it on all the major U.S. carriers. Unless Apple ditches its exclusive with AT&T, it’s probably only a matter of time before Google passes it.
Why does that matter? Once Google has more users, it will attract more developers, and could become the dominant smartphone platform. Apple could be left in the dust, just like when Microsoft passed it with the desktop. (To be sure, Google still has a lot of commerce-related problems with its platform, which is holding it back. But those can be fixed.)
Google’s phones are selling well now that Verizon is carrying two good Android-based phones — the Motorola Droid and the HTC Incredible. We’ve read glowing reviews on the web, on Twitter, and in the comments of our site about the Incredible, in particular.
It’s not as good as the iPhone 3GS, and we think the new iPhone will be better, too. But, the HTC Incredible is *good enough* for Verizon users. It’s much harder to make the argument to leave Verizon for AT&T’s inferior network just to get the iPhone, which is only a marginally better phone.
That’s how the balance of power has shifted.
We don’t think it’ll result in Verizon not selling the iPhone — it’s still in its best interest to do so. Think of all the iPhone customers that Verizon could pull away from AT&T. But Verizon has more leverage with Apple now than it would have if Android weren’t getting so good.
See Also: What Apple’s New iPhone Means For You
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