Apple’s 5 Year Lock-In with AT&T Is Actually Good News for Its Rivals

Five years is a long time to wait for a cell phone. My daughter is three and a half months old and by the time the iPhone is potentially available with Verizon she will be entering kindergarten. Not that I could actually use it with Verizon’s current service unless one assumes that they will switch networks from CDMA to GSM in the near future. And somehow I don’t really see that happening. Or, Apple could do them the favor of releasing two versions of their phone, the second of which would support CDMA. Wouldn’t that be just swell of them? Helping out Verizon like that?

Getting back on track though, I think this five year exclusive contract with AT&T is the one of the few bits of good news for Sony, Motorola, and the rest of the cell phone makers out there. Of course, when I say “good news” I mean that in a very relative sense. It’s the best of a heap of bad news. It’s that faint silver lining on the cloud that’s raining flood waters down upon your house. You have to be in the right frame of mind to see it, though. You have to be able to, on one hand, consider the fact that your house is being washed away, while on the other hand remember that at least you don’t have to water the rose bushes anytime soon. Like I said, it’s all relative.

This five year exclusive deal has two main upsides for Apple’s competitors. First, it limits the number of iPhones that will be sold. Regardless of how great it is, there will always be a large group of people who just won’t buy it. I imagine the biggest reasons will be price and availability of service, but in the end the reasons don’t matter, just the fact that they aren’t buying iPhones. Secondly, by limiting themselves to one carrier, customers of Verizon, Nextel/Sprint, and T-Mobile will have no choice but to buy from someone other than Apple.

Basically Nokia, Samsung, LG, Sony, Motorola, etc. have five years, at most, to come up with a killer phone before the full force of the iPhone is unleashed on them. Now, I am not so naive as to think that Apple and AT&T will just be standing still these next few years waiting for the competition to catch up. But I do think that when Apple finally has the option of selling their phones to any carrier who wants them, then they will become one of the bigger players in the cell phone market.

So, my advice to the cellphone makers of the world is this: don’t try and make another iPhone. Why? Because you can’t. And if you try, it will just look like a hideous knock-off of Apple’s amazing design. But if you really don’t believe me, take a look at the Zune to see how well piss-poor copies of Apple gadgets fare in today’s market. So, how then do you compete? Well, how about trying something different? Don’t do another generic candybar/clamshell phone. Why not take your best designers, put them in a room, and say, “come up with something different, the more unique the better” and see what they produce? Give them a challenge. Tell them the phone has to be no thicker than a CD case, can only have 3 buttons and must get 20 hours of battery life. Tell them you want a phone that folds together on 3 recessed hinges or tell them you want a phone that has no display other than a simple LED bar. Tell them to do something, anything, that will be different from the thousands of types of phones currently out there. Tell them all this, then leave them alone for a while and see what they come up with. Worst case scenario is they produce junk, at which point you could always go back to selling the same old crap you’ve been peddling for years now. What have you got to lose?

However, for the immediate future I expect Apple’s rivals to cut their prices (to further highlight the expense of the iPhone) and to pack as many features as they can into this next crop of phones. I don’t expect these features will be very well integrated, but that really won’t matter I suspect.

In a few years’ time I think Apple will have a firm lock on the upper end of the cellphone market. And if that wasn’t bad enough for Motorola et al, what should really worry them is this: what is the cellphone equivalent of the iPod Shuffle? In other words, if Apple decides to enter the lower end of the market, what will their phone look like? And how well will it do? I realize the Shuffle isn’t the most popular MP3 player in its class, but it sure does well considering no one really thought Apple could make a player for that segment of the market. Can you imagine if they decide to make an iPhone Mini? If they do I think at least one of the current cell phone makers won’t be able to ride out that storm. Maybe they will just go out of business or maybe we will see some mergers happening in the next few years; either way we as consumers will reap the benefits. After all, the cell phone industry has been long overdue for a shakeup. I can’t wait to see how it all settles out.