Google Android and why I think it will succeed

Over the course of the last two days, I’ve now had three conversations with very smart people about Google’s launch into the mobile phone market with Android. As I’ve disagreed with all three of them, I’ve decided to write up my reasons for being so bullish about it.

I think the mobile telephone market is at a giant crossroads right now, and Google is entering the marketplace with absolutely perfect timing. In the western world, mobile phone operators need to find new ways of generating revenue. They primarily generate revenue by selling voice contracts – and that market is very much saturated. Operators have spent billions of dollars buying wireless spectrum for data access, hoping this will become their next major revenue generator, but over the past decade, they have barely made back the interest they could have earned if they had not purchased the spectrum in the first place. To add insult to injury, they have invested in new technology that has also cost billions, which hasn’t been recouped yet. Therefore, the only way to increase revenue is to poach customers from existing carriers.

Enter Apple. In one fell swoop, Apple helped AT&T do both of these things. Apple’s iPhone poached hundreds of thousands of customers almost immediately from Sprint and Verizon. The results of this can be seen by examining AT&T’s performance in Q2 2007 vs. Sprint. Secondly, for the first time – AT&T is selling data access plans to consumers. Almost all iPhone customers take a data plan along with the voice plan.

All of this comes at a cost. It’s been rumored that AT&T is paying Apple $18/month for EACH subscriber! Apple is speculated to be making $800+ PER IPHONE, over a two year period. Apple is the only carrier that receives revenue from the services side of an operator’s business. You don’t have to imagine that AT&T wants leverage to extract Steve Job’s hand from that cookie jar.

Also – all the other carriers have iPhone envy. They need something to compete with AT&T & sell data plans.

Now – where is AT&T going to get their leverage? Where are the competitors going to find competitive offerings? Apple’s success stems from marrying beautiful hardware design, beautiful software usability & fantastic marketing/buzz making ability. The now dominate OEMs – Nokia, SonyEricsson, Motorola and the rest – can make beautiful hardware, but are lousy at software & buzz. They clearly have underinvested in software and are way, way behind in their ability to compete with Apple. At the Symbian smartphone show last month, the “new” innovations coming to the next version of Symbian & S60 are all Apple UI ripoffs. By the time they make it to market – Apple will be on to the next thing. They are currently pouring millions and millions of dollars into catching up – but they never will. I’ve been privileged to work with Apple & many of the OEMs software engineers. Apples’ will always out innovate them.

The mobile phone OS platforms are in terrible shape. They are all using are dated technology or are too business focused. Symbian’s architecture dates from the early 90s. They struggle attracting developers because the OS is so specialized and requires very specific training or years of on the job training. Each and every one of the major OEMs that develops Symbian phones/software is short of qualified Symbian engineers. Symbian itself can’t recruit. Rumor has it that they struggle hiring in the UK because Moto, Nokia and SonyEricsson are all competing for the same people and the OEMs are paying more.

The rest of the smartphone OS platforms are business focused. Windows Mobile is only successful because IT organizations have adopted it due to its “closeness” with Microsoft platform offerings like Windows, Exchange, and SQL Server, .NET and Visual Basic. Otherwise, it’s just awful. It’s bloated, crashes, is hard to use and a general pain in the ass. Microsoft has been working for years to improve it… and it nowhere near ready to compete head on with Apple. RIM is too niche-y and everything else has meaningless market share.

Now – enter Google. They have a large number of benefits…

  1. Shaking the mobile phone apple cart is HUGELY strategic for them. They will throw hundreds if not more of their smartest engineers at creating a winning product. They have more money and will spend more money than other mobile phone OS competitors. Plus – they GET the Internet. Their products will tightly integrate their web based services and I predict be on par with Apple’s software offerings.
  2. They are not charging any licensing fees for Android. This is a **HUGE** differentiator from Symbian, S60, Windows Mobile and every other flavor of mobile phone operating system. An OEM that takes advantage of Android will be able to leap frog their competitors without the expense of designing the software. This is a big deal – specially considering how much they are struggling to staff their software engineering operations.
  3. Their platform will be Linux based, modern and open. Any hacker that messes around with Linux will immediately know how to write native programs for Android. University students can extend it and write software without specialized training. (Recall that almost all the world’s major web brands came directly from university student projects.)
  4. Google is a giant buzz machine – rivaled only by Apple. OEMs and operators that take advantage of Google will get use of that hype.

Therefore, I strongly believe Google’s entrance to the marketplace will be game changing at a time when both operators & OEMs are desperate for something game changing. Using Google’s offering, OEMs will be able to match Apple’s hardware + software + buzz model. Operators will have some leverage against Apple & use Google’s Internet savvy to sell data access plans.

Of course, there are risks. Google’s first generation system might be awful, Apple could fall flat on its face outside the US (The iPhone goes on sale in the UK on Friday…), operators might continue to be retarded… I do believe that my vision will take a while to manifest, but I claim that it will.

As for Google’s business model – and what they get out of this huge investment… read the last post.

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