Is Android Worth the Trouble?

Wednesday May 9th 2012 by Mike Elgan
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The Android platform provides Google with plenty of headaches.

Google’s Android mobile platform is great -- for users. But is it bad for Google?

The company’s acquisition of Android seven years ago, and its cultivation of the platform since, has provided the handset industry, mobile carriers and users with a powerful alternative to the Apple iOS steamroller.

In fact, without Android, Apple would completely control the mobile market. The only significant alternatives to iPhone and iPad run Android.

For example, out of the dozens of major companies making mobile phone handsets, only three make money: Apple, Samsung and HTC. Both Samsung and HTC rely on Android.

The other handset makers, including all that don’t use either iOS or Android, are losing money.

In the tablet space, Amazon is the only company with significant market share. And their best tablet, the Amazon Kindle Fire, runs Android.

On the carrier side, the Android platform has provided wireless companies with a welcome, low-maintenance platform. The iPhone is generally profitable for carriers in the long run, but Apple is a tough partner, demanding to be paid a whopping $450 per phone on average by the carriers, which is much higher than Android devices cost them.

Google’s larger strategy for Android is to create a mobile and all-purpose platform that generally favors Google services, such as Search, Gmail, Play and Docs. The business benefit is advertising and content revenue. But is this strategy paying off?

While device makers, carriers and users get huge benefits from Android, Google is left paying most of the costs. And the downsides of Android keep piling up for Google.

Here’s what Android costs Google:

Patent hassles. As a mobile phone platform company, Google is inevitably dragged into court over patents. The company has been slugging it out with Oracle in recent weeks over the use of Java.

Google is rich. They’ll pay any eventual outcome of the case without serious damage to their pile of cash. But the trial is a distraction for key executives, and has forced into the public eye a variety of statements and details Google would rather keep to itself. (More on that below.)

The Oracle fiasco is just one more irritant in an endless line of patent wars that come with the mobile platform territory. Google or its Android partners have been sued by Microsoft and Apple, too. And there will be more lawsuits in the future.

Motorola distraction. Google’s big play to defend itself in the patent wars is the acquisition of Motorola Mobility for $12.5 billion. Google says it will run the company as a separate entity, but use its patents to defend itself in court.

Still, the acquisition alienates the company from its handset partners, because now powerful companies like Samsung get their OS software from the company that owns a direct competitor.

Also: Google itself is a lean, innovative company that offers radically scalable businesses. But now it’s saddled itself with a bloated, bureaucratic, money-losing hardware company. It’s a distraction, and not a small one.

Platform headaches. Managing a major software operating system and development platform is really hard. It comes with a universe of challenging developer-relations issues, and constant vigilance on the security front.

The headaches are worth it for companies like Apple, who reap billions in profit each quarter from the platform. But are they worth it for Google, which gives the software away for free?

Apple relationship. Android has cost Google its single most valuable partner: Apple. The late Apple founder and CEO Steve Jobs was livid over Android and promised to spend whatever it took to destroy it, his famous “thermonuclear” war.

I believe, and recent events support the idea, that Apple’s “thermonuclear” war involves gradually replacing Google services on iOS devices with competing alternatives.

Apple has already replaced, for example, Latitude with Find My Friends, and has started to replace Google Maps. Its Siri uses, but hides and de-emphasizes, Google Search, giving results without the advertising. And I believe Google Search will be completely replaced on iOS devices in the future.

Amazon embarrassment. The Amazon Kindle Fire has taken more than half -- 54 percent -- of the Android tablet market. There’s just one problem: Amazon doesn’t help Google in any way. In fact, Amazon actively uses Google’s own platform to compete directly with Google on advertising, content downloads, and even the harvesting of user personal information via its proprietary Silk browser.

That means more than half of all Android tablet installations are actively taking business away from Google, rather than adding to it.

Why Google Might Sell Android

Last month Google CEO Larry Page said during the Oracle lawsuit that while Android is “important,” it’s not “critical” to Google.

After Page left the stand, Android founder and chief Andy Rubin was asked by Oracle’s attorney if he expected Android to “contribute substantially” to Google’s ad revenues, and Rubin said he believed the answer is no.

The first year of Page’s leadership as CEO has been characterized by a dramatic reduction in acquisitions, and a widespread program of closing non-critical products and services.

Another uncomfortable fact emerged in the Oracle lawsuit: Android was a money-losing business for Google in every quarter of 2010. We don’t know how well it did last year, or for the first quarter of this year. But even if Android has been making money for Google, it’s probably not much.

Should Google get rid of Android?

So far, Android has cost Google enormous time and money, burned countless bridges in the industry, and alienated both handset makers and rival mobile platform companies.

The whole purpose of Android is to promote Google Search and other services. But so far, it’s been a mixed bag, threatening the termination of those services on other platforms, and even on some Android installations.

Would Google sell more ads and downloadable services if they sold off Android? They would give up control, but would probably still make advertising and content revenue from most Android handsets, and possibly on other platforms as well, including iOS. They could save themselves from constant patent battles, and ditch the Motorola albatross.

Android isn’t going away. And Google might support it indefinitely. But is it a good idea?

Maybe Android just isn’t worth the trouble.

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