Android vs. Google

When I heard about Android being positioned against the iPhone, I thought about how that decision must have been justified internally at Google. I wondered how Andy Rubin added up the benefits of his product vs. the risks of losing whatever value Google derived from the iPhone.

On the benefits side, Android’s original business plan called for zero direct revenues with indirect revenues from search. The actual value would be somewhat dubious during the half decade it will take to get a significant installed base. Of course, with the Google-as-retailer model, Android can also be justified as earning some margin from devices, but as we’ve seen, these numbers don’t add up to much.

On the risk side there is the potential loss of the screen real estate on the iPhone (see photo above). Being the default search engine in mobile Safari might be worth hundreds of millions to Google.

Silicon Alley Insider reports a rumor that Apple’s current deal with Google to provide default search functionality for the iPhone is currently worth over $100 million per year to Apple in revenue sharing.

So the iPhone may be a bigger money maker for Google than Android will, at least for a long time.

Which begs the question of whether by picking a fight with Apple, Android is biting the hand that feeds it.

If there is any logic to this Android adventure it might be that Google really feels it needs to have an option on the future mobile computing platform and that Android is worth the risk of losing placement on the iPhone.

I, for one, don’t think this is a risk worth taking.

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  • Tom Ross

    I wonder if Steve Jobs will be able to whip Microsoft's search unit into a shape where they can offer Apple an internationally competitive white label search engine that Apple can turn into its own Apple Search, as the preselected* search engine for both Safari and Mobile Safari, with somewhat superior usability and device integration compared to Google Search. Google might lose 5 % of total company revenues on that day which in the software business means: Profit margins shrink while costs stay largely the same.

    Of course, that's a big IF, but companies like Verizon and AT&T are already doing similar deals for some of their Android smartphones today, replacing Google Search and Google Apps with wares from Bing and Yahoo.

    *of course the would have to be the option to change to Google or Yahoo for those who care.

    • I expect search will either commoditize or be replaced with a new "curated" experience that Apple could very well offer. Search is one part algorithms, 10 parts infrastructure. Google's second largest fixed cost item (after R&D) is CapEx. That's a lot of servers. Would Apple spend its cash hoard on data centers for search? Maybe, it's not such a crazy idea if they can find a way to earn a return from it.

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