Verizon Stupid? No - Apple Smart.

Implications: Verizon's decision to pass on the iPhone is a pragmatic battlefield decision and delaying tactic, hoping that Apple's impact on the cellular industry's walled garden concept will be minimal.   AT&T's assent to hosting the iPhone and Apple will bring valuable short-term growth, but in the longer term can further undermine the walled garden, jeopardizing the industry's ability to force consumers to accept their proprietary value-added services.   Unless someone with similar clout and consumer understanding gets into this game, Apple's ability to change the world may be limited.    

Analysis:

Verizon is no fool. They have constructed an entire universe in which they want to contain their subscribers, and allowing an outsider like Apple in to foment revolution and break down those walls is a dangerous thing.

 

Apple is clearly a market leader in the eyes of the technologically adept consumer and especially the teen/young adult consumers that will drive buying patterns for decades. Apple has an enviable charisma, and brings the focus squarely on the individual through a very personal device itself and its content, services and look-and-feel rather than the network's ability to deliver bits.

 

Can Apple be successful without the network? Well, no, not if they're really trying to sell a mobile phone. Can the carriers be successful without Apple? Yes, for the time being, but there is plenty of network infrastructure owned by a number of players, all with different needs and hunger. There's also nore than one way to build a usable network, and the real threat from alternative network structures is still far enough out that the carriers feel complacent.

 

Apple's native legitimacy and success here allows the concept of the MVNO more credence, and a logical outcome of that is to force the network to concentrate on providing bits and quality of service. For the top few carriers, this strongly threatens their walled garden marketing mentality but can bring the consumer tremendous value.

 

Apple is not secure here. They are one company, certainly extremely formidable, but their market share is miniscule even if they make hordes of cash from millions of iPhones being sold. The handset market is far far greater in size, and the impact of even 10MU iPhones a year is still less than 1% of the market. But, if this breach in the wall emboldens at least one other significant marketmaker to follow, and Nokia is a prime candidate, then this small crack could herald a paradigm shift, where the network is mainly about bits. Nokia has a retail presence, a market cachet, and enough marketing and savvy that could allow them to rapidly enter this model as well. Google is another player with the resources, market mindshare, and vision to take advantage of a network relegated to delivering bits - all it might take is a Google-branded handset, supported in part or fully by advertising revenues.

 

Was Verizon stupid to say no? I think not. Can they really believe that it prevents the dam from bursting? No. But, it buys them time and a belief that perhaps Apple's hand isn't as strong as it seems.