How DROID Can Bruise Apple

BURLINGAME, Calif. -- Apple better hurry up and get Verizon the iPhone, because one of these days the wireless carrier might just introduce something that knocks the iPhone on its butt.

Verizon's ( VZ - news - people ) iPhone killers just keep coming. It's already got two: the HTC Imagio and the BlackBerry Storm. The iPhone, however, just keeps skipping merrily along.

Verizon's latest effort might just do some damage. And that's not because Motorola's ( MOT - news - people ) DROID, announced Wednesday, is its best attempt to build an "iPhone Killer" yet.

Rather, DROID ups the pressure on Apple ( AAPL - news - people ) to abandon its lucrative--and exclusive--deal with AT&T ( T - news - people ), and start pushing handsets through other carriers.

Analysts are already penciling a deal with Verizon in 2010, without the $450 subsidy offered by AT&T as part of its exclusive deal. Competition from the likes of DROID makes such a move a near certainty.

Until then, however, DROID, which Verizon will begin selling Nov. 6, is at least a credible offering. Its touch-sensitive screen is slightly bigger than the iPhone's. Its body is slightly thicker--and it sports the slide out keyboard the iPhone doesn't have. DROID's $199 price, with a two-year agreement and after a $100 rebate, puts it in the same league as the iPhone.

Like the iPhone, however, it's software and services, not hardware, that makes this phone dangerous. DROID comes with the latest version of Google's ( GOOG - news - people ) AnDROID operating system. It's also loaded with Google services, such as Google Maps, Gmail, YouTube, Google's Talk instant messaging service and AnDROID Market, Google's answer to the iPhone's App Store.

So will it kill the iPhone? Almost certainly, if Apple lets it. If Google's software and services--rather than Apple's--become the standard for smart phones, the search company could do to the iPhone what Microsoft's ( MSFT - news - people ) Windows did to the Mac. That's not going to happen.

The only problem for Apple? Giving up the kinds of fat margins from its exclusive arrangement with AT&T is going to sting. Apple will have to make it up on volume. If not, Google and Motorola just might.