How Amazon Is Making a Sucker Out of Google

Wednesday Nov 23rd 2011 by Mike Elgan
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It’s time for Google to change its self-defeating, anything-goes policy on Android before Amazon makes a fool it.

It’s time for Google to change its self-defeating, anything-goes policy on Android before Amazon makes a fool it.

Google's semi-official motto is: "Don't be evil." But I wonder: Is Google evil *enough?*

Amazon is taking advantage of Google’s open Android policy in a way that could cost Google billions and destroy the Android ecosystem.

Google bought Android in order to create an open ecosystem for mobile devices like phones and tablets not subject to the control of rivals like Apple, Microsoft, RIM and others.

That’s nice. But Google isn’t a nonprofit. Google intends to make money from Android.

The first and most obvious source of Android revenue is search advertising. As the world goes increasingly mobile, all the mobile platforms come with their own mobile web browsers. And while most currently use Google as the default search engine, Google has no control over this. Any mobile platform vendor can simply throw a switch and kill Google’s revenue on that platform by switching search engines.

So above all, Android exists to protect Google from the whims of competitors.

More important than existing mobile revenue is the future of mobile advertising, which is location-based, context-aware advertising. If companies know what products you like and where you are, they can tell your phone to alert you to nearby money-spending opportunities.

Google can also make big bucks on advertising on other cloud-based mobile apps and mobile services, like maps, email and so on, as well as direct sales of downloadable content like music, movies, ebooks and electronic magazines.

The future of computing is mobile. The future of advertising is mobile. And therefore, the future of Google’s revenue is mobile. Google launched Android in order to participate in that future without fear of being shut down by rivals who control the mobile platforms.

 

The Fox in the Henhouse

According to Google's own policy, any company can use Android for any purpose without even asking Google permission. This policy helps drive Android usage. Google has gained 55 percent market share for smartphone handsets worldwide. Google's don't-be-evil platform is doing very well on phones.

On tablets? Not so much.

In the tablet space, Apple's iPad dominates utterly. With iPad as the preferred brand, Android tablets that cost about the same as iPad have failed spectacularly.

Amazon’s new Kindle Fire is the first touch tablet with a killer feature: It costs only $199, far less than any other big-brand tablet.

Unfortunately for Google, this price will barely dent the iPad universe, but will suffocate the Android tablet market.

The Amazon Kindle Fire is cheap because it’s sold at a loss.

Pundits and analysts disagree about exactly how much money Amazon loses on each Kindle Fire. When you account for all costs, including manufacturing, parts, marketing and distribution, Amazon could be losing between $50 and $100 per tablet.

Amazon loses money on the hardware, but intends to make it up later on sales of books, magazines, movies and everything Amazon sells. To Amazon, the Kindle Fire isn’t a hardware product, but an Amazon.com cash register in the hands of millions of customers.

Meanwhile, other Android tablet makers can’t afford to lose money on tablets.

The result is a new Android tablet market where dozens of companies are trying to make money, but are competing against Amazon, which is undercutting the market by selling at a loss.

Android tablets were already struggling to compete against iPad. And now they have zero chance of success.

Changewave Research surveyed buyers and asked which tablet they’re planning on buying. Nearly two thirds said iPad. Some 22 percent said Amazon Kindle Fire. And only 4 percent expressed plans to buy the Samsung Galaxy Tab. No other Android tablet maker can expect more than 1percent.

Changewave concluded that the Kindle Fire is, “wreaking a devastating blow to a range of second-tier tablet manufacturers, including Motorola, RIM, Dell, HTC, HP and Toshiba.” They didn’t even bother to mention Android tablet makers Asus, Sony, LG, Archos and the rest.

The high-quality market will go to iPad. The low-cost market will go to Amazon. And all the other players will have to compete with each other for scraps and crumbs.

Beyond the Kindle Fire, the Android tablet market is a dead man walking. Game over.

But wait. It gets worse.

 

How Amazon Uses Android Against Google

Amazon doesn’t even care about selling tablets. They’re not a consumer electronics company. Amazon sells Kindles in order to sell products and services on the Amazon.com web site. And nearly all these products and services directly compete with Google’s.

For example, when you visit Google’s own Android Market site, you see the four categories of downloadable content Google would like to sell to Android users: “Apps,” “Music,” “Books” and “Movies.”

The main, Amazon-customized interface of the Kindle Fire shows bold links to “Newsstand,” “Books,” “Music,” “Video,” “Docs,” “Apps” and “Web.”

Four of these are identical to the categories highlighted by Google. However, they go to Amazon’s services, not Google’s.

The “Newsstand,” “Docs” and “Web” links cut Google out, too.

“Newsstand” is just Kindle newspapers and magazines. “Docs” isn’t Google Docs, but merely a cloud storage location for any documents you want to put there.

 

The Kindle Fire is the cloudiest of cloud tablets. To use the device is to become a user of Amazon’s cloud services. Cloud storage is free and unlimited for Kindle Fire users, which means there’s no reason to bother with Google’s cloud services.

Google would love to get everyone buying things via Google Wallet. But with the Kindle Fire, there’s no need for that, either. Amazon already has your credit card, and makes it easy to buy everything on Amazon. The Fire comes with a month of Amazon Prime, too, which should lock you in for life once you try it.

Ultimately, Google is an advertising company, at least from a revenue standpoint. Most of Google’s revenue comes from Search advertising.

Google Search is the default search engine for Kindle Fire, at least for now. Google may even be paying Amazon for the privilege. But Amazon’s in control, and could simply switch to Bing or some other alternative at any time.

The mobile ad market is already hurting for advertisers. There are far too many companies, including Google, selling space. The Kindle Fire is likely to become yet another major entrant in this crowded market, further lowering prices and sapping Google of ad dollars.

Instead of using a standard or existing mobile web browser, Amazon created its own “cloud-accelerated” Silk browser. The way it works is that Amazon’s cloud service loads the page you request, then re-bundles a Fire-optimized version of it for delivery to your device.

This cloud acceleration also enables Amazon to capture everything you do, and find out where you surf on the Internet and what you read.

Amazon says they record the web addresses you visit -- plus the fact that it’s you who’s visiting -- for only 30 days, and offer an “off-cloud” option to users.

But this user data gathering browser infrastructure puts Amazon squarely into competition with Google, as well as Facebook and Apple, for the future of location-based, context-aware marketing.

Remember that it was Amazon that pioneered algorithm-based buying recommendations before Google even existed.

 

So let's sum up the ugly truth about Amazon’s Kindle Fire tablet.

The Kindle Fire uses Google’s own free mobile operating system to kill the Android ecosystem and compete directly with Google for all the services Google hoped to promote with Android.

If Android on tablets does nothing but hurt Google and help Amazon, what’s the point of even continuing tablet support?

It’s time for Google to change its self-defeating, anything-goes policy on Android. Google needs to change its Android licensing rules to ban Amazon.

“Don’t be evil” is a good motto.

Here’s another good motto: “Don’t be a sucker.”

 

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