The Android OS Alliance Begins to Fracture
August 19th, 2011All right, let’s see how this is supposed to work. Google releases the Android OS under an open source license, meaning that any handset maker can download the code and use it to power their smartphones. Only it hasn’t quite worked the way they expected. Each handset maker and wireless carrier is free to change the user interface and even the bundled software. Customers aren’t even assured that they can get the latest OS updates, even if they contain important security fixes. So you can say that there is no single Android OS branding that customers can count on.
In a curious decision, Google this week announced a $12.5 billion deal to acquire Motorola Mobility, a fading mobile handset maker. This will give them, according to revised estimates, some 24,500 patents, many network related. It means that Google is spending over $510 thousand for each patent. But it’s not certain how many of those patents will actually impact the current round of smartphone patent portfolio fights.
While the fallout from this move is only beginning to emerge, clearly Google is taking a drubbing. They don’t have any experience whatever in building hardware. Their previous attempt, the Google Nexus One smartphone, assembled by HTC, was an abject failure. At the time, Google was roundly, and justifiably criticized for having no clue about providing customer support. It’s not that you can expect them to fare better with Motorola Mobility, which sells products to wireless carriers and, by dint of their set top boxes, cable companies. It’s those customers who provide most of the technical support to end users, so Google gains nothing from this transaction.
The biggest problem of all involves Google’s other Android OS partners, particularly Samsung and HTC. Sure, they have already claimed that they are pleased with the acquisition, and are assured of continued access to Google technology. At least that’s what they say in public. Privately, you have believe that executives throughout these companies are using such terms as “dirty-so-and-so” and worse to describe Google’s clear betrayal of trust.
Certainly betraying one’s partners is nothing new. Microsoft did that to their PlaysForSure licensees when they created the failed Zune music player. When they couldn’t mount a workable defense against the iPod, they attempted to imitate Apple’s infamous walled garden, with tight integration between hardware and software. It didn’t work.
No doubt Google wants to accomplish the same thing, making Motorola Mobility their first among equals Android OS partner. But you can bet that other Android licensees are looking for alternatives even as I write this column.
Some might consider Windows Phone 7, although that OS hasn’t really caught on. Besides, Microsoft is lavishing their attention — and billions of dollars — on Nokia. There’s no chance other handset makers will get a fair shake.
There’s already a published report that Kim Soon-taek, the head of the Samsung Group, has already ordered his employees to expand a development push for Bada, their home-grown mobile OS. If Bada appears on more and more Samsung smartphones, it’ll come at the expense of Android. Besides, that way they won’t have to continue to confront the wrath, and ongoing intellectual property lawsuits, from Apple. That assumes Bada is free of potential patent issues.
Sure, there’s no guarantee that Bada will succeed in the marketplace, but that move might seriously erode the Android OS’s market share moving forward. If other handset makers cut their losses, Google might find that Motorola Mobility is their only credible licensee. But at least they’ll earn real profits from Android OS, rather than depend on customers clicking targeted ads to generate profits. Or maybe not, since Motorola Holdings has been drowning in red ink of late.
Meantime, there is that report that HP is discontinuing the WebOS, and, of course, the poor selling TouchPad tablet. WebOS, acquired when HP purchased Palm, hasn’t done very well, so maybe it’s not a big deal. HP is also planning to spin off their PC division, a source of stagnant sales and slim profits. And some believe the RIM BlackBerry PlayBook may be next on the chopping block.
So where does all this leave Apple? Well, if the various handset makes cannot coalesce around a single OS, and offer loads of incompatible mobile gadgets instead, the iOS will shine brighter than ever. And if you count the sales of the iPad into the overall figures of mobile computer sales, Apple is number one with a bullet around the world.
Of course, how Mac sales are faring won’t be certain until the quarter nears an end. Yes, there is one industry analyst who polled the sales over a weekend from four university stores and imagined that Mac sales are plummeting, but there’s no evidence such a thing is happening elsewhere.
Meantime, it doesn’t appear that this week’s developments are going to have any immediate impact on the patent-related lawsuits. Sure, they are huge and expensive distractions to a company actually doing business. But as long as the patent system is broken, things won’t change.
No doubt Google hoped to leverage all those Motorola Mobility patents to mount a defense, and rely on cross-licensing agreements to keep the wolves at bay. But few expect that acquisition, when it closes as expected next year, is going to accomplish anything but halt the growth of the Android OS. How could it be otherwise?
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When Steve Jobs came back to Apple, he put forth a new business plan. After he was pushed out Apple ended up losing money, losing to a copycat, Microsoft, and losing to the Mac clone makers. Given the task of creating the Mac OS of the future, Mr. Jobs wanted the Mac hardware look to be distinctive and would be protective to deal with future copycats. Being on the losing end of the PC market share battle, Mr. Jobs moved Apple into new direction of being a music player maker, the iPod and a new service provider, the iTunes Music Store. Unfortunately, iPod copied some ideals from another prominent MP3 player maker. A lawsuit prompted a settlement.
The lessons learned, building a new product and new service for the long term provided a future path to prosperity.
Um, there were no prominent MP3 players before the iPod. They were all strictly geek territory.
@Harv Stinnet, And tablets before the iPad were abject failures, except in a few vertical markets.
Peace,
Gene
Ooh, Gene! You’re becoming quite the FUD-master in your old age.
“Google doesn’t know anything about building handsets.”
Gee, perhaps they bought Motorola to bring in some expertise in this area?
“Privately, you have believe that executives […]”
Based on no evidence whatever. Google has been upfront–they love Motorola for their patents.
Take the Apple example: Claris. Way back when, Apple had the problem that nobody wanted to do Word Processing software for Macs because they’d be competing directly against Apple. Their solution was to spin off a separate company called Claris. So developers were no longer competing against an Apple product. Claris was a wholly owned subsidiary of Apple.
Motorola is going to be a wholly owned subsidiary of Google in much the same way Apple spun off Claris. Thus, Google gets the benefits of Motorola’s patents but not the headaches of trying to run a hardware company.
Now, let’s apply a little Occam’s Razor. In regards to Motorola, Google is going to:
a) Spend the time, effort, and money to absorb Motorola into Google so that they can produce “Google Phones” and try to compete against their partners in the phone business. This will upset their partners who will drop them and Google will end up selling less phones which means that they will make less money in advertising.
b) Keep Motorola as a wholly owned subsidiary such that there is no advantage that Motorola gets that other companies do not get (a la Claris). This appeases their partners and gives Google access to the patents necessary to help their partners defend their businesses from Apple.
c) Grab the patents and sell off the hardware division to someone else (thus recouping some of the $12 Billion and making Wall Street happy). Google’s partners are ecstatic, as Google has essentially crippled a competitor.
Your theory is that Google–despite statements made by the company–is completely changing their business strategy in regards to smartphones, despite the fact that Google has a much higher market share than Apple and is making money on mobile search advertising and In-App advertising (which is a benefit to higher marketshare). Nope, they’re going to throw that whole thing away and leverage Motorola’s skills to try to imitate Apple–something that hasn’t been really successful for other companies.
Gene, I trust you can’t really believe that. What has happened is that Google has taken control of some very important patents that can be used to force Apple to negotiate. The handset business is of little importance to them.
Consider this scenario: Google now controls patents which are used in LTE. Apple will probably want to license those patents. Of course, at the moment, the only phones that use LTE run Android. So Google basically offers free licenses to phones running Android. If you run another operating system, you have to pay. But how much will Apple have to pay Google to license those patents? I’m sure Google will come up with a number and Apple will protest and it will go to court and be battled over. Meanwhile, the iPhone LTE languishes. Anybody who wants 4G LTE goodness in their phone has to go get an Android or carry around a WiFi/LTE brick.
That’s a pretty scary scenario for Apple. No iPhone 4G LTE ’til 2015?
So what’s happening is that you’re spreading FUD. “Ooh! Samsung’s gonna drop Android! HTC’s gonna drop Android! Your smartphone purchase will be useless! YOOOOOOOSSSSLESSSSS! Be Afraid! Be Afraid! Buy Apple! They’re the safe bet!”
I’m waiting for you to start talking about how Google’s going to be going out of business any day now…
@Peter, Interesting fact-free speculation.
But here’s the deal: Motorola Mobility, as an independent company, demonstrated no ability to advance in the smartphone market, where their share has consistently dropped. If those patents were so important, they could have leveraged them against Apple, but haven’t done so.
What makes YOU think that all this will magically change when Google is in charge?
How do you take a company that isn’t succeeding and, without your own hardware expertise, make it a success?
You did see the reports that the head of Samsung is already looking to leverage their own OS, right? Oh yes, you ignored that one.
And, no, I didn’t suggest Google is going out of business. I simply engaged in informed speculation as to the possible impact of this merger.
Peace,
Gene
@Gene Steinberg, These Android-iOS patent wars are fascinating stuff. Gene, thanks for your excellent commentary here and on your radio show.
@Gene Steinberg, well, we’re both speculating fact-free, I’ll grant you.
“But here’s the deal: Motorola Mobility, as an independent company, demonstrated no ability to advance in the smartphone market, where their share has consistently dropped. If those patents were so important, they could have leveraged them against Apple, but haven’t done so.”
Bzzt. Thanks for playing.
“You did see the reports that the head of Samsung is already looking to leverage their own OS, right? Oh yes, you ignored that one.”
Yup. Saw them. Let’s see…stick with Android and continue being the #2 vendor or go out on your own. Of course, you also neglected the parts of the article that talked about Google buying Motorola and Apple’s lawsuits. Between the two of them, Samsung is smart to have a fall-back position. I don’t blame them one bit.
But I think you’re spreading FUD by saying the alliance is “beginning to fracture.” Again, I don’t see Google’s advantage in competing with their partners. Their partners have led Android to 48% world-wide market share in smart phones. You’re telling me that Google is going to punt all that and go into the hardware business? Ridiculous!
So start up the FUD guns. “Google’s gonna Zune their partners! They’ll all run for the hills! Better buy that nice and safe iPhone!”
@Peter, Just look at your history and you’ll see that Google will have little choice but to favor their own when it comes to Android technology. Other companies will seek fallback positions for their own survival. It’s all business, not charity!
Just watch what happens after this deal is consummated.
Peace,
Gene
@Gene Steinberg,
Also remember that Moto was threatening to sue, not Apple but other Android OEMs! Now that would have been fun for the open handset alliance. I think Moto pushed Google’s buttons and they completely overpaid for Moto–60% over market value. From Roughly Drafted comes the best summary of of Moto acquisition:
“When the iPhone appeared in 2007, Motorola was chasing Nokia for second place in the mobile business. It had 18.4% of the mobile market. It then slipped behind Samsung and then LG, and by the end of 2010 was in seventh place behind RIM, Apple and even Sony Ericsson. This isn’t an upward trajectory.
From 2009 through 2010, Motorola lost half of its market share as sales fell from 58.4 million units to 38.5 million. Note that this was the Year of Android when Verizon was heavily promoting Motorola’s Droid phones. The company now faces intense competition from Samsung and HTC, both of which actually make money selling Android phones, while it continues to lose money selling smartphones.
In the first half of 2011, Motorola Mobility lost $137 million. A year prior, the company had lost $132 million over the same time period. That’s not an upward trajectory.”
It is very difficult to justify spending $12 billion on that kind of company. Google could have joined the consortium and taken a lot of patents off the table for a lot less. I predict that Moto will be dismembered in a couple years.
@Synth,
It looks like both HP and Google may have panicked during the past several days and made very self-destructive strategic moves. And the common thread linking these two companies is this: fear of competing with Apple.
I’m especially flabbergasted by HP. They all but said in their Q2 earnings conference call that fear of competing against the iPad caused them to abandon their PC division and their Web OS mobile efforts.
If Web OS dies because no other company is willing to pick up the pieces, it will be a real shame. I think that HP CEO Leo Apotheker is making a big mistake. It’s a total surrender by HP to Apple.
I think one key indicator of the Motorola deal’s wisdom is what Google was doing in the auction for Nortel patents. If they were actually competing for them, then it strikes me that the Motorola bid is the Hail Mary attempt to catch up from that loss. If they were, as some have speculated, cleverly distracting Apple, et al, while secretly working on the Motorola deal, then perhaps they’ve done enough due diligence and clever planning that it really is the best deal.
On a side note, I think we can see why Apple has accumulated the large cash hoard it has. One is to cut big deals with suppliers to keep competitors away from new technology, and the other is to be able to bid on things like Motorola, if it chose to do so.
Fragmented OS, fragmented business plan/strategy.
Wow! What a mess Android is.
Looming patent infringement court cases un-affected.
Wow! Oracle, Apple and Microsoft still planning to eat Google’s partner’s lunch.
Looming FTC investigation.
Wow! Like all these small and not so small firms are going to complain, and show, how Google’s is using it’s search and ads market dominance to belittle and over power their efforts.
Oh, well, that’s what happens when your business strategy is growth at any cost.