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Cover Story
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Is Android a double-disaster for Google?
First, it sucks-in huge dollars and time. Then, it blesses the maker (and partners) with lawsuits and mere crumbs in the name of revenues. The Android project has proven a double-trouble in Google land. Will Google stop playing Santa, and prove a lost-case-won? Or will obstinacy get the better of logic?
Issue Date - 19/01/2012
"Cash” is a four-letter word which companies love to swear by. “Free” too, is another four-letter word. Only this, consumers love and companies hate. And this admixture of the two four-letter words is what makes for a shotgun wedding across corporate boardrooms and R&D labs. Google Inc’s Android project is the biggest example of such a marriage. Android OS, which has helped many handset and tablet makers live to see the present (like HTC, Motorola and Dell), has earned global fame (read 67.23 million handsets sold in 2010, as per Gartner, accounting for a 22.7% market share). In the process, the OS platform has become powerful. As Gartner estimates, the platform will become the #1 mobile OS by the time this very year ends, with a 38.7% market share. Volumes, yes. But it is turning out to be a “much fame, no gain” recital for Google.

Trouble is, Google has little to earn from Android – its “free” and open-source form proving to be a failed Parthian shot for the Mountain View giant. Over $1.5 billion has been burnt in the labs to develop the OS, and the net earnings, six years post-acquisition of the OS maker, don’t seem to be justifying the dollars and the half-a-decade of lab work. Some even argue that Google’s mobile ad revenue which stood at $1 billion annually (as per CNN), makes the Android a cash-cow already. Wrong. During the past 2 years, the Android platform has been able to generate just $243 million for Google. Out of this, only $130 million have been made as Internet ad-revenues (the company’s breadwinner). In short, Google’s Android OS, accounted for only 6.5% of the total ad-revenues that Google earned through mobility devices. Translation – 93.5% of the earnings from mobile Internet ad-clicks for Google came from non-Android phones – a big cause of concern.

Google at the moment, is in need of a mind-changing note, which can force it to relinquish its suicidal Android pricing & sales strategy. So, with no cynicism about the obsession with which the company has forked out billions to make Android a success amongst handset & tablet-makers who love what is “free”, question is – will we see a price tag on the platform soon? Many doubt it. Problem is, if it does not happen soon, the fired-up start story will only lead to a thin (and insufficient) stream to support investments to nurture Google’s mobile dreams.

That Google is turning on the heat comes as a relief. In the past couple of months, it has communicated to major carriers and handset makers that it will not allow any more tweaking of the Android platform without permission. This will help put an end to all forms of fragmentation on the Android platform. It will also solve the problem of many apps on the Android Market Place not being compatible on all Android devices. Though this comes as a shocker to many who were initially impressed by Google’s benevolence to allow royalty-free usage and fragmentation of the platform. Till date, every time Google plans a release of a version of Android (six versions have been released so far), it shares the initial secret platform with only a particular handset maker and chipmaker first, who then tweak the platform accordingly. This makes it impossible for any handset maker to prepare a platform where all the apps prepare by developers for Android can work hassle-free. This way, it has been estimated that of the 294,738 apps that are available in the market place (as on May 1, 2011), at best 30% can be run hassle-free in all Android handsets. In other words, its very Open Source nature which led to the initial Android wildfire may prove too damaging for its sustained growth due to fragmentation, perhaps crushing Google’s hopes to make it big in the mobile category after the fiasco called Nexus One phone.

Issue is: if you are giving “exclusive rights” to handset makers, why do social service for all the bells and whistles that third party handsets can flaunt? A minimum royalty will not disturb the price elasticity. You make HTC a brand again, and you charge nothing for the very product it is selling. You give Motorola and Acer shots at mobiles & tablets, and you do so ex-gratia. Shareholders surely deserve a greater show of capitalism.

Perhaps – and it remains a big question – Google is waiting for the day when the count of Android handsets sold crosses the threshold mark. This could be as early as the first quarter of 2013 (Gartner estimates that more than 310 million Android handsets will be sold in 2012, accounting for 49.2% of the mobile OS market). So, where does the company begin? As Rajan Anandan, MD and VP for Sales & Operations, Google India, tells B&E, “We have plans to separate the OS and differentiate Android for tablets and smartphones.” So the plan is set – first create a differentiated Android for the two product categories. Then perhaps try and charge licensing royalty on at least one of them. If Google takes the lower risk path, it will be the tablet wars which will get hotter soon. But it’s easier said than done. Experts doubt whether the world of handset and tablet makers will accept a marriage with a dowry clause. It will be an awkward stage to perform on. Truth is – Google’s very business model defies economics. A price which is too high can be corrected by lowering it. Setting a price for an OS at zero, and then trying to monetise it later, is not a proven business model and is subject to failure. Indeed. And that is another reason why Google may keep Android as it is. There is a historical analogy here. In the early 1990s this is what killed Gopher, an early competitor to the “www”. When the University of Minnesota (that owned Gopher) announced that would charge for its server software, commercial Gopher developers abandoned the service because they did not want to risk working on a platform for which they might some day be subject to fees. Google’s case is not different.

The Android story is a cloud with no silver lining. The case with Google is no different. Even the new OS the company is planning for netbooks (which again, will be “free”; the first launch of such a netbook will be from Acer later this year), is bound to be a repeat of the Android mistake. Only this time, it may not even find buyers. Dismissing all optimism, NY-based Sascha Segan, Managing Editor (Mobility) at The PC Magazine, tells B&E, “Chrome OS is a dead end. It mostly exists because Google wants an OS play on Intel-based laptops, but nobody really knows what to do with it. Chrome OS is a stub. No consumer wants a crippled laptop that requires network access for most functions; that’s been tried and has failed many times.” Forget about success, even mistakes can be replicated. For Google, the margin of error gets bigger and it comes in the form of the Chrome OS – free and far from being a best-selling OS.


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