Wall Street Journal
When Verizon Wireless and Google Inc. set out to challenge the iPhone, they started from less than scratch. They stood on opposite sides of major industry issues and had never worked closely together.Now they're counting on an unlikely but growing friendship between their chief executives, Eric Schmidt of Google and Lowell McAdam of Verizon Wireless, to pave the way forward.
On Friday, Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone PLC, started selling two phones that are the network's first to run on Google's Android software. Verizon is putting the muscle of its largest marketing campaign ever behind the Droid from Motorola Inc., one of the two new devices.
In recent weeks, Messrs. McAdam and Schmidt have appeared at joint news conferences and co-authored a blog post on telecom regulation. They regularly visit each other when they travel cross-country. Mr. Schmidt even likes to send Mr. McAdam updates on his visits to Verizon stores.
While both men are trained as engineers, they have different personalities. Mr. Schmidt, a Silicon Valley veteran with a professorial demeanor, is comfortable in the spotlight. Mr. McAdam, who served six years with the Navy Engineer Corps and is a telecom veteran, is soft-spoken and publicity shy.
The relationship had a lot of history to overcome, including differences over "net neutrality," a hot-button idea about how the Internet should be managed. Google had called for stronger regulation to prevent telecom carriers like Verizon from slowing certain data traffic in favor of others. Carriers said new regulations could hurt their ability to manage the quickly growing demands on their networks. The Federal Communications Commission is deliberating on new net neutrality guidelines.
The two companies have butted heads elsewhere. Last year, Google participated in a government auction of wireless spectrum on the condition that the winners open the airwaves to any device. That condition forced Verizon, which paid $9.36 billion for its share of licenses, to further open up its network.
But soon after the auctions ended, in March of last year, Mr. McAdam visited Mr. Schmidt at Google's sprawling campus in Mountain View, Calif., and lobbed a pitch at him. The two men, who had spoken only sporadically before, talked for an hour and a half, taking a late-morning meeting into lunch at Google's free cafeteria.
Mr. McAdam said Verizon was willing to relinquish some control over the applications that run on its network. "We thought: Why don't we try to do something like Android on steroids?" Mr. McAdam says. Given the opportunity to work with a big player in the wireless industry, Google bit.
When Google released Android in 2008, it made it free and customizable, in hopes that some phone makers would just incorporate it into their devices without serious assistance from the company. Since then, however, it has given special attention to wireless carriers including Deutsche Telekom's T-Mobile USA and now Verizon, to build products that highlight Google services such as search and mapping.
Overshadowing—and spurring—the talks were rivals AT&T Inc. and Apple Inc., whose iPhone has been the main engine of AT&T's recent growth. In the last quarter, AT&T added two million new subscribers, more than half from new iPhone activations, while Verizon added 1.2 million customers in the same period.
But making Google and Verizon work together wasn't that easy. For one thing, Verizon was jittery that it had only a handshake agreement, without the contract it usually requires, according to Mr. McAdam. But the two CEOs kept meeting over the next months, bonding over episodes like a snake escaping from its tank while they were meeting in Google's New York office.
Meanwhile, the talks "oscillated" between various layers of Verizon and Google executives, says Andy Rubin, a Google vice president of engineering who was involved in the negotiations. Mr. Rubin and John Stratton, Verizon Wireless's chief marketing officer, began to hone the fine points of the phone that would become the Droid.
The companies brought in Motorola to design and make the flagship Android phone, the Droid, and roped in Motorola's co-CEO Sanjay Jha to take the lead. Mr. Jha, looking to add a much-needed hit product to Motorola's lackluster lineup, started talking every couple of weeks with Mr. McAdam as the phone's design reached its conclusion.
Mr. McAdam pushed Google's Android programmers to write more applications, a key match-up to the more than 100,000 applications available on the iPhone's App Store. He was looking to be "wowed," Mr. McAdam says.
Verizon, in turn, had to give over some decisions to Google, an unusual move for carriers, which have traditionally exerted strong control over the development of phones.
"Lowell, you can't be open if you don't have Google Voice on this," Mr. Schmidt said at one meeting, referring to the controversial mobile application that lets Google route calls to multiple phones. Mr. McAdam acquiesced. (Apple has yet to allow Google Voice to run on the iPhone, a dispute the FCC is investigating.)
Another challenge was balancing the phone talks with ongoing negotiations on a separate search deal. Verizon was looking for a search engine to feature on its phones and was nearing a final agreement with Google. In November, Microsoft Corp. put in an offer of about $600 million for its Internet search engine, nearly doubling Google's offer, according to people familiar with the deal. Google declined to comment. Verizon went with Microsoft. The search deal didn't derail talks on the Android phones, thanks in part to the growing relationship between Messrs. McAdam and Schmidt.
When Google released Android in 2008, it made it free and customizable, in hopes that some phone makers would just incorporate it into their devices without serious assistance from the company. Since then, however, it has given special attention to wireless carriers including Deutsche Telekom's T-Mobile USA and now Verizon, to build products that highlight Google services such as search and mapping.
Overshadowing—and spurring—the talks were rivals AT&T Inc. and Apple Inc., whose iPhone has been the main engine of AT&T's recent growth. In the last quarter, AT&T added two million new subscribers, more than half from new iPhone activations, while Verizon added 1.2 million customers in the same period.
But making Google and Verizon work together wasn't that easy. For one thing, Verizon was jittery that it had only a handshake agreement, without the contract it usually requires, according to Mr. McAdam. But the two CEOs kept meeting over the next months, bonding over episodes like a snake escaping from its tank while they were meeting in Google's New York office.
Meanwhile, the talks "oscillated" between various layers of Verizon and Google executives, says Andy Rubin, a Google vice president of engineering who was involved in the negotiations. Mr. Rubin and John Stratton, Verizon Wireless's chief marketing officer, began to hone the fine points of the phone that would become the Droid.
The companies brought in Motorola to design and make the flagship Android phone, the Droid, and roped in Motorola's co-CEO Sanjay Jha to take the lead. Mr. Jha, looking to add a much-needed hit product to Motorola's lackluster lineup, started talking every couple of weeks with Mr. McAdam as the phone's design reached its conclusion.
Mr. McAdam pushed Google's Android programmers to write more applications, a key match-up to the more than 100,000 applications available on the iPhone's App Store. He was looking to be "wowed," Mr. McAdam says.
Verizon, in turn, had to give over some decisions to Google, an unusual move for carriers, which have traditionally exerted strong control over the development of phones.
"Lowell, you can't be open if you don't have Google Voice on this," Mr. Schmidt said at one meeting, referring to the controversial mobile application that lets Google route calls to multiple phones. Mr. McAdam acquiesced. (Apple has yet to allow Google Voice to run on the iPhone, a dispute the FCC is investigating.)
Another challenge was balancing the phone talks with ongoing negotiations on a separate search deal. Verizon was looking for a search engine to feature on its phones and was nearing a final agreement with Google. In November, Microsoft Corp. put in an offer of about $600 million for its Internet search engine, nearly doubling Google's offer, according to people familiar with the deal. Google declined to comment. Verizon went with Microsoft. The search deal didn't derail talks on the Android phones, thanks in part to the growing relationship between Messrs. McAdam and Schmidt.
