Verizon Wireless' Triple [Open] Play
from the competitive-pressures-at-work dept
The recent announcement that Verizon Wireless will support Android, Google’s new software platform for mobile devices, is an early warning sign that the traditional network operator model is fast becoming obsolete. To some this move seems to contradict a widely held presumption that two previous announcements (the choice of LTE with Vodafone and the inclusion of non-Verizon phones on the Verizon Wireless network) were a competitive strike at Google’s position in the upcoming 700 mHz auction. In conjunction, these three publicly declared commitments to openness are indicators that fundamental changes to the Verizon Wireless business model are set to occur over the next 3 – 5 years. Verizon Wireless is preparing to compete in an industry that will resemble more of a free-for-all where innovation and customer value are the rule of the day. Verizon can no longer afford to maintain strict boundaries between the devices and applications “inside” and “outside” their networks. By embracing openness on several different fronts the company is seeking to offload a large chunk of the costs associated with developing devices to a wider ecosystem of participants. Inclusive device policies will retain the same effect that outsourcing the development and support costs for new phones would. It is no longer tenable to develop devices and support customer issues for every single customer on its network, so the company is looking to basically exchange network access for ownership of support issues, with a larger group of handset and application providers.
Particularly, the Android move is to ensure that an assortment of niche devices powered by Google’s platform will have a home on the Verizon Wireless network. The company should begin to feature an increasing number of programs and incentives for an increasing number of handset makers and wireless application developers. Meanwhile Verizon will begin to slash the high costs associated with developing phones with the Samsung and LG types. As a result, the number of phone models actually supported by the company (currently at around 50) is set to drop significantly by 2012 even as the total number of models running on the network will escalate.
As the most profitable U.S. cellular business, Verizon Wireless also has the most impetus to begin the process of expanding a revenue base limited to subscribers who are content to choose from 50 or so the company’s handsets. Spurred by a shrinking number of first time customers it is fast becoming critical to find ways to attract subscribers from rival carriers and open access policies are a good start towards that end. Along the same lines, the aforementioned Vodafone LTE announcement is key to the company’s strategic play for subscribers who, in the past, shunned Verizon Wireless for carriers that enable easier roaming. The goal is to extend the availability of “America’s most reliable network” to both sides of the Atlantic to boost the value proposition of becoming a Verizon wireless customer.
Verizon’s open evolution is a response to the limited growth opportunities faced by US mobile carriers in the face of market saturation (250 million across the country already have cell phones). Over the next 2-3 years what is now a rumbling from consumers will expand into smoldering demand for choices on wireless networks that reflect the nature of those provided on landlines. In effect the company realizes that it must adapt to an open-centric marketplace to compete and survive over the long haul, not just in the upcoming 700 MHz auctions. In doing so, Verizon has begun the transformation from staunch gatekeeper of a closed network into the heart of a more open wireless ecosystem.