Speculation surrounding an announcement from Google on its mobile phone strategy has been rising over recent weeks. News last week of advanced discussions about distribution with two of the major US operators, Sprint Nextel and Verizon Wireless, sent the market into overdrive. When it came, the announcement was met with a mix of half-hearted enthusiasm from Google supporters in the media and outright disappointment from others.
We believe that the critics of Google’s mobile strategy have got it right. As a strategy to bring fundamental change to the mobile phone industry, Android is way off target. Conversely, as a means of driving the use of Google search, it may turn out to be an effective Trojan horse.
In the context of the acclaim that greeted the launch of the Apple iPhone, the prospect of Google bringing a revolutionary iPhone-style device to market, in conjunction with major original equipment manufacturers (OEMs) such as LG and Samsung, had created a wave of excitement in the market. What Google actually announced was Android – an open source software platform enabling third parties to develop applications. Google’s message to the industry was that this platform, and the partners that supported it, would provide a common foundation for creating an open and vibrant mobile Internet ecosystem, similar to the environment in which Google has so successfully built its business. In this mobile ecosystem, users would benefit from the increasing availability of developed applications and content, and the need for Google's search functionality will increase as the content market grows.
While the move appears sound on the surface, in reality the introduction of another mobile operating system – even one backed by Google – does little to change the dynamics of the mobile Internet market. Over recent years, many mobile operating systems have appeared. These have included Symbian OS (Symbian Ltd), Windows Mobile (Microsoft), mobile Mac OS X (Apple), Java (Sun), SavaJe (SavaJe Technologies), intent (Tao) and MontaVista Linux (MontaVista). Indeed, companies have spent hundreds of millions of dollars creating viable mobile operating system platforms from open sources such as Linux.
Although handset manufacturers have shipped tens of millions of handsets that are compatible with these operating systems in the past few years, the industry has failed to create a vibrant developer-oriented environment on any of those systems. It is our contention that this is not a result of the drawbacks of the technology (although each arguably has its faults), rather, one fundamental issue prevents the mobile Internet evolving in the same manner as the fixed Internet; the fragmentation of the mobile handset market. This is an issue that even Android cannot address.
The basis of competition between OEMs today is differentiation in size, form and capability of handsets. Motorola and Nokia each produce over 60 new models per year, ranging from simple devices that cost less than USD50 and are aimed at emerging markets, to multimedia computers such as the N81 or N95 from Nokia, which cost USD1000. Product development groups – and indeed terminal buyers within operators – are constantly seeking to bring new and differentiated handset designs to market in order to provide consumer choice, which time and again is demonstrated in the market as being key to increasing handset sales. As a result, diversity in the handset market is huge in terms of feature sets and performance and much greater than in the PC market. The impact of this proliferation of handset models is that application developers and content suppliers are required to build their businesses either by focusing on very small subsets of the handset market, or by developing complex and costly mediation layers that create many hundreds of versions of applications and services that will run on each of the hundreds of handset models. There is nothing about Android that will change this dynamic.
Google is offering the operating system for free, bundling in a range of applications, and involving a wide range of partners to support the platform, in an attempt to create the impression that it can provide a level of commonality in handset design that will seek to address this fragmentation. In reality, a free operating system, in itself, will not be sufficient incentive for major players to write off the investment they have made in their existing software platforms and adopt a platform that, from the software development perspective, offers nothing new. The fact that Android is an open platform creates its own problems; OEMs have a financial liability for the devices that they produce and so the prospect of open-source operating systems that may release a virus or trojan into the market is not one they can contemplate. As a result, they will have to invest tens, if not hundreds, of millions of dollars in creating their own version of Android in order to ensure that it is stable and secure enough to install on millions of devices. This is precisely the process they have been through with all mobile operating systems before Android.
Google is also suggesting that, with its Android operating system framework, an application may access any area of the core functionality of the device. This open access would include making calls, sending text messages or using the camera in order to create a “richer and more cohesive experience for users”. While the claim sounds laudable, the reality might prove somewhat different. It potentially paves the way for less scrupulous development houses or individuals to design applications that may use this core functionality to create rogue calls or messages to an entire address book. In extreme cases, this may even bring down an operator’s entire network. Such functionality is not new. It existed in the original incarnation of Symbian and was withdrawn precisely because of the fear of misuse. It would appear that the “new” or “rich” applications that Android would support are seemingly not that different to what already exists or might be developed in the near future.
These are all issues that those inside the industry will be very familiar with, including those partners that have signed up to the Open Handset Alliance, a group of mobile and technology players that have developed Android. So what is really going on with this group?
Firstly, it costs the industry partners nothing to sign up to an initiative of this type. If you are Qualcomm (to take a random example), do you want to be seen by your shareholders to be part of a Google initiative in mobile or to be sitting on the sidelines? Surely it is better to be on the inside exploiting the publicity. If the initiative has a measure of success then you are party to it. If it fails, you were just backing another horse in the race, and you were in good company. In cash terms, very little will be invested in R&D by a partner in supporting this programme.
The CEO of Google, Eric Schmidt, has stated that the three key strategic issues for Google this year are: “Mobile, mobile, and mobile”. He therefore has to be seen to be following through on his commitment. Yet at the same time, Google would not be the first major corporation to underestimate the scope and complexity of the mobile market. After all, Microsoft is on its sixth iteration of Windows Mobile, and it has arguably still failed to crack the market.
Ultimately, Google’s strategic objective is to encourage the use of its search engine. This is its key revenue objective. If, by backing an operating system alliance, Google can expand the scope of its search box placement by cementing the relationships with existing partners and developing deals with new partners, arguably Android will have done its job.
