Why Nexus One changes (next to) nothing, but Android changes everything

Paul Grim is a General Partner at venture capital firm SunBridge Partners. He submitted this to VentureBeat.

Having survived the Nexus One barrage, it’s clear that many reviewers are missing the implications for wireless carriers and handset makers. They are not the losers, nor is Google the sole winner. As Android continues to gain traction, they will all become winners. The big deal, therefore, is not the Googlephone, but the GoogleOS (not Chrome, but Android).

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[Full disclosure – I got my Droid a month ago and am hooked.]

Two years ago, I thought that Android could have taken off faster by partnering with Sprint and Clearwire. Turns out Android was successful thanks to Apple, instead. To see the carriers go from defending their turf to embracing their frenemies so quickly is astonishing. They fought against opening their portals (the “deck”) to third-party applications. The App Store changed their minds, but they still fought against ceding their voice-minutes monopoly to Skype and other VoIP startups. Then came Google Voice. This was the scariest app of all – it was so good from a user-interface perspective, Google would own the customer relationship. Leaving the carriers relegated to the ignominious role of dumb bit-pipe (ugh) utility.

Which brings me back to the Nexus. Many people have been whipping themselves into a frenzy about the Nexus One or asking again if this is the iPhone Killer (cue Talking Heads here) and of course both groups have it wrong. The Nexus is Google’s Concept Car – the snazziest, slickest new thing they can bring out to the showroom to get buyers excited. But it doesn’t yet truly change the wireless value chain, because you still need to connect for it to be useful. Which means you have to pay a carrier eventually – even if it’s no longer to recoup the phone subsidy, you’ll still pay for the cost of maintaining that network that makes your device so darn useful.

And this is where the light bulb went off for me and my Droid. Soon after becoming pleasantly acquainted with my new little friend, I was shocked to find out what Verizon had agreed to in the bargain. Google Voice for all outbound calls? No problem! Can’t wait a few more months to get tethering for $20 a month? No problem – there’s an app for that too! By allowing Android onto its network in a big way, the carriers are about to find out what Android will do for their bottom line.

This may seem counter-intuitive – if they let people make free calls, what happens to voice ARPU? If they let people avoid SMS fees, ringtones, and tethering charges, what happens to data ARPU? Being a dumb bit-pipe utility may not be that bad after all. Once consumers have unfettered access to the real internet via Android, with none of the arcane restrictions of the past, their behavior will change irrevocably in how they interact with the internet, and more of it will be via their mobile device. And the ultimate result? The majority of mobile users will become highly dependent, voracious consumers of data. Once the net neutrality debate ends, all of the costs of incremental data demand will be borne by consumers, and tiered pricing will be the order of the day. And everyone will benefit – the search platforms, the application developers, the carriers, and the consumers.

So at some point in a few years’ time, when people are walking around with Android-powered smart glasses to see the world awash in all its glorious geotagged, layered data, the carriers will happily sit back and collect the utility checks, and Google will still be serving the ads that make the whole thing run so smoothly.