Android Ringing

The real battle for loyalty between mobile phone carriers isn’t the one centered on Apple, Android and BlackBerry, reports Damon Darlin in the New York Times (6/13/10). While it’s true that some "55 million people worldwide use iPhones … there are billions of feature-phone users worldwide." Feature phones are the basic models that can place a call but can’t connect to the internet, and "are discounted by carriers or offered at no cost."

This reality was recently noted by Bill Gurley, a venture capitalist, who writes a blog called abovethecrowd. The thing is that these billions of feature-phone users "will make the move up to smartphones as the cost of both the phones and the service drops (And it will. The cost of delivering bits drops about 50 percent with every generation of network technology)." Because of this, Bill suggests that the Android doesn’t need to be as good as the iPhone to prevail.

"It only needs to be as good as an Apple phone to entice new customers," he writes. "Which it is." Once Android has those customers, chances are it will keep them, not necessarily by making improvements to the phone, but by raising the barriers to switching to a point where, for one reason or another, it’s too bothersome to switch. And as soon as they’ve got you hooked, they can raise their prices on you. Economists refer to this little trick as "switching costs," while marketers probably would call it "loyalty marketing."