Why Android Is Winning The Battles But Google Is Losing The War: Part 5

by John Kirk   |   November 16th, 2012

A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia

Series Schedule:

  • Mon: The Battle for the PC
  • Tue: The Battle for Mobile Phones Won
  • Wed: The War for Mobile Phones Lost
  • Thu: The Battle for Tablets
  • Fri: Picking Your Battles Is As Important as Winning Them
  • 5) Picking Your Battles Is As Important as Winning Them

    Recap

    “If we are victorious in one more (such) battle…we shall be utterly ruined.” ~ Pyrrhus

    Google, inarguably, won the war for the desktop. Their search strategy was brilliant, brilliantly executed and brilliantly successful. But they knew that mobile was the future and they knew that they needed to find a way to extend their business model to embrace mobile or they would eventually be isolated on the desktop with ever decreasing customers and ever decreasing revenues.

    Android was Google’s answer to how to monetize mobile. It would serve two purposes. It would transfer Google’s successful desktop search paradigm to mobile devices and it would disrupt the incumbent mobile operators.

    DISRUPTION

    In the latter, Android was entirely successful. The one-two punch of Apple’s iOS and Google’s Android demolished the then crown princes of mobile computing. Palm is gone. RIM is on its last legs. Nokia is no more than a vassal of Microsoft. Windows Mobile was utterly destroyed, its replacement, Windows Phone 7, has come and gone, and Microsoft is now rebooting the franchise for a third time with Windows Phone 8. Seldom, if ever, has an industry been turned on its head quite so thoroughly and quite so fast.

    PROFITS

    However, with regard to transferring Google’s desktop search model to mobile, Android has utterly failed. Google search on the desktop is one of the most profitable businesses in the world. Android on mobile is not only virtually profitless but, if your subtract the extraordinary expenditures involved in creating and supporting it, it is almost certainly a net loss for Google.

    SEARCH, APPS AND PLATFORM

    There are at least three reasons why Android is failing to serve Google’s purposes: search, apps, and platform.

    When Google created Android, they didn’t know, and probably couldn’t have known, how ineffective search would be on mobile devices. For a variety of reasons – but mostly due to the small screen size – search simply does not work on mobile devices the way it does on desktop devices.

    The popularity – and the peril – of apps was probably another unforeseeable development. In 2006, and long afterwards one could have, and many did, make the argument that web apps were the future. It just didn’t work out that way. Apps have proven to be far more successful than anyone could have predicted. And apps are a direct threat to Google’s search model since they can’t be “crawled” by Google’s search engines and since they entirely bypass Google’s advertising business model.

    Yes, search and apps were threats that Google may not have been able to previse, but their real failure was a failure to understand what platform was all about. To be fair, most industry analysts and pundits still, to this day, seem blinded as to what truly makes a platform successful.

    Units and Users vs. Dollars and Developers

    When it comes to platform everyone is focused on units and users. What they should be focused on is dollars and developers.

    A consumer who is willing to spend $100 is 100 times more important to developers, retailers, content providers and advertisers than is a consumer who is only willing to spend $1. More importantly, a consumer who is willing to spend $1 is infinitely more valuable than the consumer who spends nothing. Unit sales and users are important to hardware manufacturers like Samsung and Apple because hardware manufacturers get paid up front when the purchase of the hardware is made. But so far as a platform goes, the consumer who consumes nothing is a non-entity – they might as well not exist.

    All that market share that Android has? Toss it out. Start counting again and this time, instead of counting units and users, count the dollars that those users spend. If you do that, suddenly all of Android’s seeming paradoxes quickly dissipate.

    — Users who don’t spend money don’t attract developers, retailers, content providers or advertisers.

    — Users who don’t buy into the platform have no loyalty to the platform. They’re not customers for life. They’re customers until they get their next mobile device.

    — Users who don’t spend money have no network effect. Non-using users are not a boon to a network, they’re the bane of a network.

    Why Don’t Android Users Spend More Money?

    This all begs the question: “Why don’t Android users spend more money?” I know this is going to be dismaying to read, but I simply don’t know.

    I find all the current theories unsatisfying. Many of them are undoubtedly true. And some of them explain some of why Android owners spend less. But none of them – even in concert – fully explain to my satisfaction why Android users spend so very much less.

    I think that I could make a pretty good case that Google’s inattentiveness to their platform is the biggest culprit. And even Google seems to be waking up to this fact. Last month they initiated new guidelines for creating tablet optimized apps. Yesterday they modified their legal agreement with developers working on Android apps to specifically prohibit them from any action that could contribute to further fragmentation of the mobile platform.

    Will this be enough to increase user spending and purchasing? Who knows. For now we simply have to live with the fact that Android owners do not spend money and the consequences of that fact. The rationale for why it is so will have to wait upon further analysis.

    The Trojan Horse

    As I discussed, above, Android was terribly disrupting to the mobile device industry. Industry stalwarts such as Palm, RIM, Nokia and Microsoft Windows are either gone or are on the ropes. But Android may have been disruptive to at least one other company too – Google.

    There’s no evidence that Android is contributing to Google’s success. On the contrary, Android appears to be cannibalizing Google’s profitable businesses without generating any profits of its own. Android thoroughly destroyed the business models of the previous mobile moguls but it did not stop there. Android has now turned on its creator and it is destroying the value in Google’s advertising business, virtually eating the company up from the inside out.

    Picking Your Battles Is As Important as Winning Them

    The story of Android is still being written but the story being told by most pundits and industry observers is very different from the one that is actually occurring. Android has won the battle for market share but it is a Pyrrhic victory because it is coming at the expense of Google’s current profits and future prospects.

    Like Pyrrhus of old, Google, needs to learn that winning isn’t everything. Picking your battles is as important as winning them because each battle has a cost and some victories come at too high a price. In spite of its perceived success, Android is not serving Google’s interests. Its march needs to be altered else its victories will ultimately prove ruinous to the victor.

    Tags: ,

    John Kirk

    John R. Kirk is a recovering attorney. He has also worked as a financial advisor and a business coach. His love affair with computing started with his purchase of the original Mac in 1985. His primary interest is the field of personal computing (which includes phones, tablets, notebooks and desktops) and his primary focus is on long-term business strategies: What makes a company unique; How do those unique qualities aid or inhibit the success of the company; and why don’t (or can’t) other companies adopt the successful attributes of their competitors?
    • terry

      Hi John. I followed your posts since day 1. Wat I am interested in is “has won the battle for market share but it is a Pyrrhic victory because it is coming at the expense of Google’s current profits and future “”. I do understand that google’s current profit is cpromised by android research and development. But can uou please elaborate on future as well ? Thanks and have a great fayprospects.

      • FalKirk

        Google is making a lot of money from its desktop search and advertising model. Operating systems like Android and iOS are allowing people to perform searches on their mobile devices instead of on their desktops. This represents a significant loss of income to Google. But, so far, Google is not making those profits back. Android is destroying Google’s desktop income but it is not “cannibalizing” it. The profits are not being transferred – they are being destroyed. In essence, Google – via Android – is disrupting itself.

        Google is a large and prosperous business. Even if desktop search has “peaked” that still means that there will be a lot of value there for Google for some time to come. And Google is run by a couple of the smartest people on the planet. I am not, in any way, writing Google off.

        What I am saying is that the public doesn’t see the danger that Android poses to Google’s business model. I’d like to say that they’ve been bamboozled, but self-delusion might be a more accurate way of describing it. The market share numbers have blinded us. They shine so brightly that we can’t see the pit that lies beneath them.

        The future of Google? Who knows. As I said, the company is run by some very bright people. And I’m confident that, unlike the public at large, they are aware of the issues and are trying to deal with them. Their efforts to dramatically change how they run their Android platform are a big step in the right direction.

        Android is a runaway stagecoach that can’t be stopped. But perhaps it can be re-routed. I’m not willing to speculate on how Google is going to change Android. Only those who are in charge of Android and Google know that for sure. But I am willing to predict that big changes ARE going to happen. Android is spinning out of Google’s control. Heck, it may already be too late to for Google to re-grasp the reins. But I expect Google to make one heck of an effort. Their long-term prospects may depend on it.

        • sean

          Those searches would be happening on the mobile OS if Google created the tool or not. Some other search engine would be happy to take it on. At least Google had the foresight of being in the middle of it, rather then fighting later on to be part of it.

          • FalKirk

            “Those searches would be happening on the mobile OS if Google created the tool or not.” – Sean

            Ironically, Android has ACCELERATED the pace of mobile search thus hurting their own desktop search revenues. But their own OS has failed to then monetize that same mobile search.

    • mhikl

      “Why don’t Android users spend more money?” Kirk.

      Possibly there’s an inverse way of asking that question. Ask instead: “Why do iOS users spend more money?”

      I know from experience that when I purchase a luxury item, a car, a suit, a camera, I don’t adorn it with products from a dollar store. I’m willing to put a little more effort and money into my choices. Maybe that is why Apple’s well crafted products do so well by its followers in App purchases and Apple add ons. If the original product is perceived to come from the bargain bin, even if it is quite well crafted, is there a psychological perception that takes place?

      • Walt French

        Check out Asymco’s recent series on “engagement.” Apple devices are not used dramatically differently than desktop devices. Androids are the outlier.

    • Adam Bowers

      I’m an avid Android user and enthusiast. Is is really that big of a mystery why Android users don’t spend as much money? It seems rather straight forward; why spend the money if you don’t have to?

      Apple’s ecosystem simply costs more; much more in most cases. Up until mid 2011 or so you could make a strong case that Apple had the superior product. This made the ridiculous profit margins on Apple products worth it to many customers. Now, though, that’s a much more difficult argument to make. Most people (not techies necessarily) are going to look at what Apple and Google are offering and come to the conclusion that the experience is going to be mostly a wash between the ecosystems. What they aren’t going to miss is the cost and in these economic times lower cost is a big plus.

      That being said, does Google have a lot of work to do to start making Android more profitable to them? Sure. In the end, though, do we (customers, not investors) really want Google to be another Apple? I don’t know. I doubt it.

      • JDL

        Your confucing the price of hardware with the price of software. Apps, music, services and video are not more expensive on IOS devices. In many cases they are non existant on Android devices. For tablets no one will confuce the the difference between the 2, the Android experience is so bad that Microsoft boast’s of having more surface apps than Android, that is telling. I don’t know if it’s true but the fact that Microsoft thinks it can say that indicates how poor the app situation on Android tablets is.

        As for cost, thats a wash, a tablet is not needed, no one is going to buy an Android tablet because they can’t afford an iPad (maybe some will for kids in xmas). Tablets are not ‘must have devices’. And again most people will buy a tablet becauce of the ecosystem, watch the iPad adds, it’s all about the Apps, nothing about the hardware and yes the retina display has nothing to do with the hardware as Apple never bothered to define to the public what retina display meant beyond ‘it looks much better’.

        Apple is selling an ecosystem lifestyle vs everyone else selling ‘this hardware is cheeper than that’. It’s a good strategy as you can’t compete by saying ‘we have better hardware’.

        • http://twitter.com/qka qka

          Tablets are not ‘must have devices’.

          Not yet. Not so long ago, desktop PCs were not must have devices. Likewise the mobile phone.

          Other than that, I agree with you.

      • Walt French

        @Adam wrote, “Apple’s ecosystem simply costs more; much more in most cases.”

        Adam, perhaps you’re not in the US, where a typical smartphone, irrespective of platform, costs maybe $1000 per year to use.

        Now I have one app that cost maybe $75 and prices equivalently on both iOS and Android (now that it’s recently been ported), and maybe as many as 10 apps that I’ve paid perhaps $15 total for. The rest, free.

        I’ve been using my phone(s) for about 4 years now, so the Apple surcharge works out to about 0.4% more expensive than the Android one. Which, when my RAZR bit the dust and I switched to the iPhone, was almost infinitely better than the pitiful early Androids.

        So yes, I’ll grant it costs a bit more. But it has delivered solid service for 4 years. In my experience, on my schedule, the Apple ecosystem has been outstandingly the better product.

    • sean

      John … your missing the way bigger picture that you even eluded to in your column. The industry is going mobile … Everyone knows this. If Google does nothing but sit on desktop profits, they will be doomed to fail in the future. I think they are doing all the right things right now in doing what they can to be front and center of where the business is going. Better to take a hit financially now, then to be irrelevant in the future. It’s really easy to look in the rear view mirror and say that’s where where we messed up. Just ask RIM.

    • Glaurung-Quena

      I would have liked to read some discussion of the various theories as to why android device owners don’t spend money on apps. And to how that fits in with the web usage data we keep seeing over and over that gives Apple devices over 90% of the share of mobile web traffic. Maybe for a future column.

      One explanation that occurs to me is that most of the android devices out there are “smartphones in name only” – either because the free OS was used by the manufacturer to power a feature phone (posssibly a lot of the bargain basement android models made by no-name builders in china are this), or because the device owner is using their smartphone as a feature phone — maybe they were upsold a smartphone and data plan that they never use by the mobile store salesman, or maybe they use only a few of the built in smart features — email, gps, etc — but they almost never surf or download apps; give them a feature phone with gps and email and they’d be good.

      • mhikl

        “or because the device owner is using their smartphone as a feature phone” Good point GQ. I have Apple and Android friends who do just this.

      • FalKirk

        “I would have liked to read some discussion of the various theories as to why android device owners don’t spend money on apps.”

        As you say, maybe in a future column.

      • http://www.facebook.com/johnnyrodgersmorris John Morris

        Incorrect. http://en.wikipedia.org/wiki/List_of_best-selling_mobile_phones#2011 the best selling phones are top end phones not low end phones.

        • dgrayson98

          So why is Samsung’s smartphone ASP $200?

          • Propa

            Opposed to Apple…who is also selling their phone for 200 dollars….

            • dgrayson98

              No. Apple ASP is $650. Unsubsidized. Samsung is $200 unsubsidized, most are $0 subsidized.

            • Darkness690

              The Galaxy S3 is not $200 unsubsidized and it’s not $0 subsidized.

            • dgrayson98

              Galaxy S3 is a small fraction of Samsung’s smartphone sales, probably 20-30%. The majority of them are considered junk by US standards and are only sold in emerging markets.

      • http://www.facebook.com/profile.php?id=1573495479 Rene Stein

        I know I’ve met people in less developed countries who buy inexpensive Android phones because they offer a phone, camera and various other feature, but they can’t really afford the data to use the phone as a smart phone. Also, there are so many models at the low end that there is no way one model could ever be the top selling phone.

    • dgrayson98

      The answer to why Android users don’t spend money is obvious. Don’t feel guilty for admitting it. Android users are a self-selected audience. They wanted a free phone to replace their feature phone, and the sales guy at the cell phone store gave them an Android phone. That is it. They don’t have money to spend on phones, so they don’t have money to buy things on their phones.

      Yes, there are gadget geeks with money who buy things, but they’re outnumbered 10:1 by the rest. Normal consumers are on iOS. It’s the 80/20 rule. 80% percent of the profit comes from 20% of the consumers, and those are mostly on iOS.

      Google accelerated the move from desktop to mobile by allowing consumers access to a decent smartphone for free (on contract) vs. $199 (iPhone). And now those users don’t view ads. Android is Frankenstein, destroying its creator.

      • rattyuk

        I hate to be a pedant. But Android is Frankenstein’s Monster, destroying its creator.

    • ArchivedAnnals

      I would have liked some real analysis.

      For starters the link you posted, it gave no breakdown on the costs/revenue for android development, it just said google probably spent $20 B, of which $12.5 B was for motorola, and expects $10 back per user (if this is per device, or per year wasn’t even specified…).

      Firstly, Google has never planned to earn money from the direct distribution of Android, hence the open source model. Secondly, I don’t know cost/revenues for the Google Play store, but I know the Apple Store is theoretically meant to break even, it’s there to service the hardware sales (where Apple makes the majority of profits). It wouldn’t surprise me if Google Play was break even, with secondary income from app advertisements.

      I’m still not sure what your overarching criticism is. I think we both agree that if google didn’t adapt to a mobile and local tech environment then its long term profit prospects would be 0. So to say that it is cannabalising its own profits is a little disingenuous. I mean it’s better to canabalise your own profits then have someone else come in (both Nokia and Kodak have learnt this lesson the hard way).

      Your “analysis” of the app markets is also… fantastic. Whilst initial figures may determine which platform app developers prioritise, the fact that they can still make a profit from an Android release will ensure platform exclusivity will decline (that’s if it still exists for any substantial app). If you can spend $20,000 to make $70,000 that’s great.
      I don’t know if you’ve seen it, but the lag time from iOS release to Android release has been shrinking (anecdotally), and more apps that wouldn’t have seen an Android port have been ported to Android. Likewise we are seeing more apps released on both platforms at the same time.

      Apps may be promising for content engagement in the longer term for certain product categories, but you still need a mechanism for product discovery, a universal search. It may take some refinement to get a model that works as well for google as desktop search has, but they aren’t going to rest on their laurels either…

      @Money spend, you are comparing averages across an ecosystem with over 72% market share with one with 14%, and the one with 14% is priced quite highly. It is a false comparison to say the least. I’ve read commentary that says early adopters should fill out this revenue gap, but that a joke (the market is just too big, and a sizable chunk of that market are going to be open source enthusiasts).

      Most pundits aren’t trying to criticise google in some warped profit frame, that is why this piece is a little different from commentary elsewhere. I think you would benefit from a brief stakeholder analysis.

      Consumers: Get subsidise OS development connected to google’s products
      OEMs: Are free to move, they have android, windows, webOS, eventually firefox, samsung even has bada… they have options.
      Google: Would be hemmorrhaging horrendously without adopting to mobile.

      You look at the profits without the context of the product development lifespan. Every time that google has made the right decision in your books you’ve criticised them for being too slow.
      I haven’t seen them replicate any of the massive screw ups that apple have accomplished recently, just saying, for comparisons sake.

      My prediction: Android will continue to gain market share, albeit it slowly due to market share saturation (and smaller focus on tablets) over the 2-4 years. Robust profit models will be developed before the mobile space fully matures (my guess is 5 years), and that revenue from Android will continue to support its development.

      My prediction for apple: The reign of Hail Mary products is over.

      • mhikl

        “and that revenue from Android will continue to support its development.” AA, could you expand upon this. From where do Android revenues come?

        • ArchivedAnnals

          No your right, that phrasing was an oversight on my part. I meant to say any surplus revenues from the google play store, and mobile advertising revenue derived from android devices.

    • SixnaHalfFeet

      People are people and they are the same in all sphere’s. If you get a government handout you expect the government to take care of you. You paid nothing, but expect everything. If you pay your own way in life you expect to get exactly what you pay for.

      Android users expect everything to be free or nearly so, after all their phone was free or nearly free. iPhone users expect to pay and because they pay they want an excellent experience. Both conditions are self fulfilling prophecies.

      • http://www.facebook.com/johnnyrodgersmorris John Morris

        Need I say this again, the best selling android phones are high end phones http://en.wikipedia.org/wiki/List_of_best-selling_mobile_phones#2011 grief, you snobby iOS ppl are so rude

        • mhikl

          We try our best.

        • def4

          It sounds rough, but it surely rings true.

        • Walt French

          @John Morris, @John Kirk previously said it was the facts that were rude to Android.

          Really, even to somebody like myself who’s mostly interested in a level-headed understanding of what’s going on with my favorite technology, the lack of Android “engagement” (to use Asymco’s recent term) is striking. There seem to be LOTS of Android users but they don’t show up in app purchases, in online purchases for Black Friday, in visits to websites.

          Personally, I’m glad to be a careful value shopper (I drive a 10-year-old car that rides harshly but takes corners quickly) and fully approve of my kids’ care with their budgets as they flutter away from the nest. So I wouldn’t think it pejorative to assert that perhaps Android users are, on average, more tight-fisted.

          But your observation that many Androids are pricey, simply exacerbates the question of WHY well-off Android users don’t spend. I personally think the high-price Androids can be the best-selling, but that there is a great number of undifferentiated, low-cost phones that are used (as my daughter-in-law does) as little more than feature phones. Nothing wrong with that.

          Alternatively, our understanding of the number of US Androids is WAAAAY off base, since carriers’ sales figures show iPhones with a plurality. Looking at the engagement figures in Europe, where iPhones are more obviously in the minority, might clarify that possibility.

        • tz

          I love the inherently oxymoronic nature of your statement
          “you snobby iOS ppl are so rude”
          The projection is built right in.

    • Rich

      “Palm is gone. RIM is on its last legs. Nokia is no more than a vassal of Microsoft. Windows Mobile was utterly destroyed, its replacement, Windows Phone 7, has come and gone, and Microsoft is now rebooting the franchise for a third time with Windows Phone 8.”

      “Android has now turned on its creator and it is destroying the value in Google’s advertising business, virtually eating the company up from the inside out.”

      It could make you think the tech world itself is a predator.

    • Armando

      I’m thinking there could be something to be said for the iOS curated environment. I’m totally comfortable with Apple/iTunes, Amazon and other major online retailers having my credit card info and so I purchase with confidence. On the other hand, I have a few friends with Android phones and they tell me that they love their phones but they’re not comfortable making purchases. In the end, It could be that Google has not yet provided (in the minds of its users) a safe, secure and confident purchasing experience. I’m certain Google is working to change this (if this is true) and to some how some way convince Apple to offer an iTunes app for Android.

      • Reagan

        There’ll be a cold day in hell when Apple makes an iTunes app for Android. While we’re at it, Apple could also think about licensing iOS to Samsung.

    • Sumpter Carter

      One thing people don’t think about when talking about the monetization of Android is that, even with the huge expenditures into Google Play, Google is still making money off the ads in the Android OS. They aren’t built-in, but Android encourages the use of Google’s search engine, thus allowing for more ad-traffic.

      • FalKirk

        ‘Google is still making money off the ads in the Android OS” – Sumpter Carter

        It appears that Google is making twice as much ad revenue from iOS as they are on Android devices. (A Google representative testified that two-thirds of their mobile revenue came via iOS.) This simply makes no sense, but that’s what all the evidence to date is telling us.

    • Darwin Phish

      John,

      I have quiet enjoyed reading this series and you have provided some valuable insights. If I may, let me add a few comments and criticisms.

      I agree that too much importance is given to Android’s marketshare dominance, especially when it is used to predict doom for Apple and iOS. The smartphone market is big enough and varied enough to support more than one strong platform. However, I think you might actually be understating the importance of the raw size of Android. Absolute size does matter even if most of those users do not buy any apps. A lot of develpment dollars go to apps which are free to the end user. Think of a bank — if they want an online banking app, they want it available to as many customers as possible and that means developing for Android.

      I don’t think Android’s problem is that it’s users do not spend much, but that Android does not have many hooks that lock users into its ecosystem (though, admittedly, the two are related). Without such hooks, Android is vulnerable.

      Finally, if you want an answer, though certainly not the only answer, to why Android users seem to spend so little, consider that upwards of 1/3rd of Android devices have been sold in China. Most of these, including high-end Galaxy devices, are sold with all Google services stripped out (see http://www.forbes.com/sites/benedictevans/2012/11/22/android-china-and-addressable-markets/).

    • Walt French

      @John Kirk wrote, “I think that I could make a pretty good case that Google’s inattentiveness to their platform is the biggest culprit. ”

      Here’s another theory for you… freshly hatched, so take it as worth what it cost you.

      Google doesn’t want to make near-term profits on mobile (or much of anything else that it has to compete for). They are quite happy to simply prevent anybody else from establishing enough of a presence that the shape of “the internet” has any features other than a bland, flat plain. Maybe an AOL City, or Zynga Themepark, but no Apple toll roads or United States of Microsoft border crossing that’d cause you to use specialized (proprietary) tools to operate within, and in which Google can’t be the tollgate.

      Just as Google originally had no monetizing strategy for their “relevance engine,” but turned that portal into an advertising powerhouse, they needn’t have a way to make profits now — as long as they can prevent anybody else from being able to profit from proprietary solutions.

      • benbajarin

        I have actually believed this may be the case for a while Walt. Google is simply not interested in helping anyone make money but themselves, and for a while I have gotten the impression that Android is a torpedo strategy for the rest of the market. That is why it was genuinely positioned as an open source project to begin with even though it isn’t and hasn’t been for a while. Google stands to benefit the most from a hardware commodity world.

        This was in fact my original assumption in my analysis last August of why Google should buy Motorola, which I wrote prior to them buying Motorola. My whole underlying thought was that Google could give all the hardware away for free, tie it to their services and hope to make money that way, and make it very difficult for others to make money.

        I do not believe the torpedo strategy has worked or will work, but I do believe there was some underlying strategy around this from the beginning. Google is a services company who is working backward from services, then to software, then to hardware. Apple goes the other way, hardware, software then services. Microsoft somewhere in the middle now.

        So although I can agree with you that they needn’t make profits now, I’m not sure the underlying tactics or execution is working the way they planned, in particular how Android is being stolen from them in ways I’m not sure they comprehended. Turns out the kernel was more important than the services. I’m sure they believed the two would go hand in hand.

      • jfutral

        “Google doesn’t want to make near-term profits on mobile”

        “they needn’t have a way to make profits now—as long as they can prevent anybody else from being able to profit from proprietary solutions.”

        How well do you think this strategy is working for them?

        Joe

        • Walt French

          Methinks they’re doing fine with extending their desktop monopoly into mobile. Essentially, 100% of search and the ads that come with it. Only now, a bit less than 100% of maps, plus the paid placement & ads there. The lion’s share of mobile ads on *ALL* browsers. Tie-in to their cradle-to-grave portal/ecosystem.

          Mobile is disrupting the hell out of desktop/notebook, and Google is doing a pretty good job of picking up the pieces. Meanwhile, Microsoft and Intel, Dell, HP and others are not; pioneer mobile firms such as Nokia, RIM, Sony, Ericcson, … are not. Adobe looks to be hangng in there, refocusing on mobile tools they can actually get to work, rather than the mobile Flash fiasco that threatened to suck up all their energy.

          Doesn’t mean that Google will be enjoying rising profits, but that they should be around until more disruptions undercut the very source of their current profits, ads, ads and ads. I’m a bit biased of an observer ‘cuz I’ve never liked ads, and mostly think they cost users so much more of their lives (wasted eyeball & download time; distractions; higher prices for products to pay for adverts) than they deliver to the advertisers’ bottom lines. So I’ll defer on guessing how well a 100% ad-supported business will do medium- or long-term. Short-term, they seem in good shape.

    • http://www.facebook.com/rock.smith.96199 Rock Smith

      This article is thought provoking but I think author has missed certain points. Personally, I don’t see android loosing the subscriber. Smartphone is still relatively new phenomena compared to other platform and it’s true that Apple got the upper hand because they brought smartphone phenomena on the main stream but Android still has highest share. Android might not be as profitable as compared to Apple in term of revenue per customer but they are building a user base and foundation. This is the opportunity cost they are paying to spread Android phone in every market and segment.

      As per article and as many comments posted on this forum, Apple is for the high end people who are willing to spend money but as majority of people in this world are not rich they will always have demand for lower end cheaper phone. So it goes like this Rich people may be able to buy cheap smartphone ( aka androind, even considering disposable phone) but poor people will more likely not buy expensive phone ( aka Apple). So Android has strength in number. The correct analogy will be Dollar stores will be making money in good time because poor people will be still shopping there as compared to name brand expensive store and Dollar store will be still making money in bad time as then poor and previously not much poor people shopping there.

      Getting on every device with licencing is what made MS a major player. one of the reason Apple did not become very successful because they followed restrictive business model and we all know how good that model is. If not Apple coming up with innovative and good design product such as Ipod and then Iphone, Applce PC devision on decline and still does not have more than 10% market share. Android should had charged some money rather than giving it free and then Google would have more control of their product. Once Android succesfully penetrate in to the Mobile then Google can port Android to desktop and again become relevant in the desktop search area. This is what exactly MS is trying to do with their Metro UI on the desktop but from opposite direction.

    • Scott Brunermer

      John, I know it’s been about 18 months since you wrote this, but I think it still pertains to todays market.