Verizon's iPhone: Angst for Android

Verizon Wireless has always been the most loyal advocate of Android, Google (Nasdaq: GOOG)'s open-source operating system. Granted, it was out of necessity since AT&T Inc. (NYSE: T) had the lockdown on Apple Inc. (Nasdaq: AAPL)'s iPhone. Now that Verizon can sell the iPhone, too, where does that leave Android? (See Bite Into Our CDMA iPhone Coverage.)

"The iPhone will most likely eat into Android's share at Verizon," says Ross Rubin, director of industry analysis at NPD Group Inc. But Verizon also has 4G phones like Motorola Inc. (NYSE: MOT) Bionic 4G planned for 2011, and that's something Apple failed to deliver this time.

With the wide swatch of Android devices already in the market from all four major US carriers, Rubin says a redistribution of Android market share is likely. The iPhone will cut into Verizon's Android smart-phone sales. At AT&T, where the iPhone used to outsell on Verizon smart phones two to one, a pile of new Android devices could make up for sagging iPhone sales. (See CES 2011: Verizon Takes 10 With LTE, Verizon 4G Androids Expected at CES, Moto Readying LTE Smartphone for Verizon and AT&T Drunk on iPhone Success.)

Gartner Inc. Research Director Michael Gartenberg adds that which OS consumers choose will largely be a factor of whether the consumer is loyal to devices or networks. "It's those people who choose the network Verizon is trying to attract first," Gartenberg says. "Verizon is the top of list for networks. That is where the growth is going to come from."

Growing pains at Verizon
Verizon and its partners Motorola and Google threw around $100 million behind its first marketing campaign for the Motorola Droid line. That budget -- and attention -- will now be shared with Apple's wonder phone. Big Red is also making it easy for its customers to abandon phones with other OSs by allowing those subscribers who recently purchased devices to swap them out for the iPhone.

There is thought to be a significant amount of network- and featured-minded Verizon subs that delayed upgrading to a smart phone in anticipation for the iPhone. Only 23 percent of Verizon's 83 million post-paid subscribers own smart phones as of the third quarter. Of course, of the 23 percent, 80 percent were Android based, so there is a large base of potential upgraders and switchers. (See Verizon Reports Q3 and Android Trounces RIM at Verizon.)

On AT&T's network for the same quarter, by the way, 57.3 percent of its 67.7 million postpaid subscribers had "integrated devices," AT&T's parlance for phones with keyboards or touch screens. They didn't break out smart-phone penetration specifically, but it's thought to be much higher than Verizon.

Android's other measures of success
Android has been holding its own in the market, battling it out with Apple for market share, but that's not the only metric by which Google is measuring success. (See Gartner: RIM, Android See Boosts in Q1 and Gadget Watch: Android's Growth Spurt.)

For example, today, for the first time, Android beat out iOS for mobile ad impression share on Millennial Media's network, the third-largest ad network behind Google AdMob and Apple’s iAd.

Even Google wins indirectly by seeing the iPhone do well, Rubin says. "While they don’t have control of the operating system on the iPhone, they still are the default search engine on the iPhone; it's still using Google Maps and other Google services, like Voice, so the iPhone has been significant platform for Google," he says.

In the smartp-hone universe, Android was easily the biggest growth story of 2010. Now that another major service provider is offering the iPhone, we'll see if that was a fluke.

"The remarkable thing isn’t how much market share Android has gained, it's how much Apple has gained and held on to with only one phone," Gartenberg says. "Now they are on other carriers, but there's room in the market for multiple players. We won't see a winner take all." — Sarah Reedy, Senior Reporter, Light Reading Mobile