Apple and Google sending competition straight to voicemail

As we all know, people are using mobile devices for news, photos, movies, and music. We manage our bank balances and increasingly our 401(k)s on mobile. And applications downloaded from iPhone or Android “app stores” are the best way to run these programs. Increasingly, mobile executives are betting there will be big revenue in from sales of premium applications and especially from advertising on free applications.

Betting on this trend, in late 2009, Google and Apple agreed to pay over $1 billion combined to acquire two mobile advertising network startups, AdMob and Quattro. (Conflict alert: As a General Partner in venture capital firm Valhalla Partners, I am a major investor in a tier-1 mobile advertising network named JumpTap.)

Applications deliver better performance because the content is loaded onto the device. When reading the New York Times on your iPhone, there is no delay as you move from story to story. One day in the future, the mobile web will be so fast you won’t need an application to read the New York Times in real time, but we are not there yet.

People still like the Blackberry keyboard. But, a keyboard can be replicated. A rich application developer and advertising ecosystem cannot. Today, many businesses buy Blackberries for their employees to enable mobile e-mail. In the future, businesses will buy iPhones or cheaper Android-based devices for their employees which not only manage e-mail but offer rich business applications.

Why will there be only two mobile phone giants? The market wants a high and a low end phone/application business. End users, handset makers, carriers, and handset makers don’t want a monopolist to achieve control over both.

Why not more than two given that Microsoft, RIM and Nokia badly want robust app stores? The application developer ecosystems around iPhone and Android are so deep that it is futile for rivals to enter. As an analogy, remember the failure of Amazon to offer a rival auction ecosystem to eBay. A marketplace of buyers, sellers and inventory, whether for mobile games or Pez dispensers, is very hard to replicate. We should all thank Google for building Android and offering billions of dollars of subsidies to the handset makers to create a second tier-1 mobile application store. Or else, there might have been only one. I love Apple, but not that much.

Charles Curran is a General Partner with Valhalla Partners, a $440 million venture capital firm based in Northern Virginia.