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

on November 16, 2012
Reading Time: 5 minutes

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.