Verizon: these are the Droids you're looking for

July 15, 2010: 12:10 PM ET

High-end branding helps the carrier blast away at AT&T and Sprint, but a Verizon iPhone could encase the campaign in carbonite

By Alex Konrad, contributor

New smartphones are popping up nearly every day now, as the market pioneered by Blackberry (RIMM) years ago has finally reached critical mass. That said, the most recognized and best-selling brand continues to be the Apple iPhone -- antenna problems aside. Android-based phones, however, are on the rise -- and Verizon's unique branding approach has added name recognition punch to its strength.

A name from a galaxy far away

Among all the major American wireless carriers, only Verizon (VZ) has name-branded a line-up of its Android models. That name is "Droid," a word that first appeared in the film "Star Wars" in 1977. George Lucas and his company Lucasfilm own the trademark to the term and have fiercely protected it ever since.

Verizon Wireless licensed the term for exclusive use with mobile phones in the U.S., and currently, Android-based phones using the "Droid" name in the U.S. operate under different names in other markets. Yet Lucas Licensing, Lucasfilm's subsidiary in charge of licensing and merchandising, said that the "door is still open" for Droid's expansion into Europe. That would be on the initiative of Vodafone Group (VOD), the UK-based company that operates Verizon Wireless in a joint venture with Manhattan-based Verizon Communications.

Lucasfilm agreed to work with Verizon because of its appreciation for the Android brand, though the company maintains it is platform neutral. In this particular case, however, "The thing that was significant to us was that they had a formidable new phone introduction that they were making," said Howard Roffman, president of Lucas Licensing.

In the past, brand licensing in mobile phones has occurred through partnerships with brands such as Ferrari or Dolce and Gabbana. But these deals tended to be one-off and on a small scale. "[Droid's branding] is fairly unprecedented," said Alex Spektor, handset analyst for Strategy Analytics.

Ahead of the Android Pack

Phones based on Android, a free Linux-based operating system distributed by Google (GOOG), have proved successful. Collectively, Android OS phones outsold the iPhone OS in Q1 this year, by 28% to 21% market share. Android's strength derives partly from its ready accessibility, with all major wireless carriers offering their own Android products -- which are in turn produced by a variety of manufacturers, but notably Motorola (MOT) and HTC.

Verizon's jumping on the Droid brand for its high-end smartphones has given it a first-mover advantage in marketing that rival carriers envy. The similarity of the word "Droid" to "Android," its etymological source, gives Verizon a copyrightable way to brand the otherwise open-source OS that is dominating its lineup. That leaves its Android-carrying competitors in the lurch.

The Droid name has also succeeded as perhaps the best "anti-iPhone" brand in the marketplace, by combining the brand's high-end appeal with entreaties to tech-savvy fans regarding the OS's power and flexibility. A recent full-page ad in The New York Times, for example, poked fun at iPhone 4's antenna interference headaches. It probably doesn't hurt that there are plenty of "Star Wars" fans in the smartphone customer base, for whom the geeky brand name surely scratches an itch, and perhaps salves the pain of abandoning an early model iPhone.

Analysts spoke of Verizon's proprietary "sense of ownership" of Droid as a determining factor in their long-term investment in the brand, and Verizon acknowledged that its Droid phones are "very high profile right now."

Verizon Wireless has stressed that it maintains a cross-platform portfolio that does not depend on any one brand. A spokeswoman added that the company will sell phones that meet consumers' needs without favoring any brand, saying the carrier is always looking to carry the best products and technology available.

Droid and the iPhone: Rivals or future friends?

Surely, the pursuit of those "best" efforts could lead to a Verizon iPhone in the near future. The media and analysts have been buzzing for some time with speculation on when Apple will end its exclusive partnership with AT&T (T). A recent Bloomberg report declared a January 2011 Verizon iPhone release, but some have speculated that Droid's marketing disputes that possibility.

Significantly, Verizon distanced itself from anti-iPhone marketing in its comments to Fortune, perhaps creating breathing space in case it does eventually sell the iPhone and Droid side-by-side. "Our advertising is all about Droid, it's not directed at a competitor," the spokeswoman said. "Campaigns change all the time."

If carefully managed, offering both brands could give Verizon a leg-up in sales without causing undue conflict. "[The smartphone market] is in a very early stage compared to the PC market. It doesn't have to become a zero-sum game," said Ashok Kumar, an analyst at Rodman & Renshaw.

Whether or not Droids are soon sharing display space with iPhones, they have managed to capture the public's attention in a way few other smartphones since the iPhone have. With Android's success accelerating, the wireless carrier that maximizes its Android offerings could enjoy the perks of being king of the Android segment of the smartphone market much the way Apple is with its iPhone.

"You could see a scenario where the Android platform takes the role that in the PC world, Windows did," said Barclays' James Ratcliffe. While that eventuality is speculative at best, there is no question that operating the best-known brand within the Android OS will help Verizon outdistance its smartphone carrier competitors.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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