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Breaking Android: How Google's lack of control affects their value chain

A few years ago I read a book called “Breaking Windows” which was the story of the DOJ investigation into Microsoft’s abuse of monopoly. The book was written by a journalist who tried to summarize some of the findings from the published internal emails.

One of the takeaways was the logic of Microsoft’s entry into the Office market. The main internal justification was not that it would be a hugely lucrative new business, but that it was a necessity to the maintenance of the Windows business.

The story was that Lotus, having a huge installed base, could (and did) arbitrarily refuse to upgrade their software to the latest Windows version and in so doing, could kill the franchise. Lotus owned the “killer app” and could hold Windows hostage. Users would rather keep their applications than upgrade a largely invisible OS.

Another way to read this was that Microsoft needed to “vertically integrate” Windows so that it encompassed not only the OS but also the key applications that ran on the platform. A purely horizontal OS platform was obviously not viable as a business even back in the early 90s.

What reminded me of this story was the news that Dell is launching a new smartphone in the US.  Called Aero, it will run Android 1.5, an ancient version released in April of 2009, 18 months ago.

Now think about the idea of Adobe coming to market next week with a new version of Photoshop that ran only on Windows XP. Or even more poignantly, if Office were not part of Microsoft, seeing a *new* version of Word that only worked with Vista.

Through an aggressive acquisition plan twenty years ago, Microsoft avoided this scenario. Google today is faced with the prospect that not only the devices (which sit on its OS) but also services and apps on top would choose to remain on old versions of Android. There is nothing to stop them from doing just that. Unlike Microsoft, Google does not enforce licensing terms for Android. It is at the mercy of the value chain.

Couldn’t Google crack down and deprecate Cupcake? It’s not as easy as that. Not only do they not have license terms that permit that but in the phone business, development lead times are so long and global distribution can be so elastic that a low volume vendor like Dell has no choice but to sell multiple OS versions of their own products. Microsoft has almost the same problem with Windows Mobile, with a variety of given-up-for-dead Windows Mobile 6.5 powered devices still in the pipeline while Windows Phone 7 is imminent.

  • http://artisancomputer.com Zack

    Compare this to the very public Adobe/Apple spat regarding their dropping of the Carbon 64 bit framework, which delayed a 64-bit version of Photoshop from CS4 to CS5 on Mac.

    This was totally for Apple's benefit – they don't have to support legacy code, thus less bugs and lower development costs, and pretty much forced Adobe to get with their program. It's also helpful to customers who get the benefits of Cocoa applications (services, integration with the rest of the OS, etc.)

    Apple picks what they support in their OS, and they have the muscle to make 3rd parties toe the line.

    • Bob Peterson

      Integrating the hardware, O/S and killer apps in vertical integration can only go so far to assert control: getting most customers to upgrade is a problem Apple faces during the growing recession. Indeed they blew it with iOS4.0 on 3G. I expect a significant market owning aging devices, which crucially affects app developers too, I dunno, maybe the price point is so low people will buy new iOS devices instead of buying houses, and toss their old iOS devices with no second-hand market to snap them up.

      • http://www.asymco.com asymco

        A survey done at the beginning of the recession showed that their mobile phone service was among the last things people would give up, nearly the same rank as broadband. Devices have limited lifetimes. They really do wear out as well as become obsolete more quickly than almost any other consumer product. From the history of the non-smart phone market, I can say that there is very limited value in old devices.

      • Tom Ross

        Considering that the 3G was on sale until June 2010 and those devices were crippled by OS 4, I have to agree with Bob: Apple blew it.

      • Yowsers

        I hear what you say, and agree with it in part, but I expect there will be a 2nd-hand market for quite some time.

        There's a difference in the build quality with Apple's stuff — it's not ugly, cheap-@ss and disposable as everyone else's gear, or suffer from a premature life-cycle that is (to my eyes) nearly indistinguishable from "planned obsolescence". I am thinking of how a PC last 2-3 years (reasonably), but a Mac soldiers on well past that. Or – this is merely anecdotal, admittedly – but I and a number of iPhone users I talked to found that we remained very pleased with the iPhone a great deal longer than we ever did with any other make/model of phone. The iPhone was the first phone I didn't hate — had a kick using it up until the end, even.

        These downstream markets for Apple's stuff may be for refurb's at a price point that look pretty good as a value proposition. I'm not sure how it is ex-US, but here I've met and worked with a lot of people who are allergic to buying new anything and paying top price. They love hunting down deals on used gear and extending it all years beyond its "use by" date (I've been that guy myself, sometimes…) You and I may question the value proposition there, but they're really in it for the hunt, and for not being taken for a ride by "the man" (that is, paying full retail.)

        I've been pleasantly shocked that my 2 yr old MBPro 15" had trade-in value. Never saw that on a PC. I wondered if that extended to iPhones. It did. I sold my 2yr old 3G for $115 to a refurber. Heard I could've gotten more going direct on Craigslist (whatever…) I had iOS 4 on it — some glitches, but nothing fatal. Mostly it was waiting for all the app writers to update to the new OS. I'll agree that it was a bit of a misstep for Apple, which was all the more glaring that it was Apple stepping wrong — whereas we just assume that would be the case with MSFT and PCs. However, that misstep was nowhere near the endemic and unrelenting suckiness that forced me from PCs to Macs in 2006 (I'll forever be known as a 'switcher' — a non-native, late arrival to the tribe.)

      • Gandhi

        Except the key difference is Apple pushes out iOS updates directly to the consumer. The user gets a prompt whenever they connect the device to iTunes.

        Contrast that with Android, where the updates are pushed out at the whim of the carrier, whenever they feel like getting around to it.

      • Sevket Zaimoglu

        What differentiates an Android update from one particular model to another is not the carrier but the phone model and its manufacturer. Once the manufacturer rolls the update, it is very easy for users to get rid of operator specific branding and install the update themselves.

      • Gandhi

        Dunno about elsewhere, but there is a vibrant second hand market in the US for iPhones thanks to AT&T exclusivity. I sold two original iPhones ($100 each) and one 3G iPhone ($200) in less than a day and there were lots of people lining up to buy.

  • http://www.littlebigtomatoes.com gyurisc

    I am not that convinced that the vendors use of older versions of Android is a problem to Google or they really care about it. Google feeds on the traffic generated by the users of these phones, the ads downloaded. The users are more likely to use services provided by google such as mail, calendar, contacts. The phone and the OS is not relevant here until they use Google services.

    • Gandhi

      "The users are more likely to use services provided by google such as mail, calendar, contacts."

      May be on a dumb phone, but not on smart phones.

      For any new mobile phone OS to compete against the benchmark leader (Apple iOS) and succeed, quantity and quality of apps available in the app store is a key metric.

      Developing Android 1.5 versus Android 2.2 is a hassle, to say nothing of whether one develops for a device with or without a physical keyboard.

    • http://www.asymco.com asymco

      If Google does not care about anything but basic services, why do they bother to upgrade Android? Why bother with Android at all since basic services are great on almost any browser-enabled phone?

      • Sevket Zaimoglu

        Most people access Google services on their phones through specific Google apps. For example, apart from the ubiquitous web browser, my phone has the following Google apps installed: Google Mail, Google Search, Google Sky Map, Google Earth, Latitude, Maps, My Tracks, Places, Talk, Voice Search. All in all, 10 Google Apps, and I have not even counted Youtube.

        Google has a total of 7 apps (including Youtube) for iphone. Google simply wants to ensure that if Apple kicks its apps from the Walled Garden of Apple Kingdom, people will still be able to access Google services, and Android is the means to secure that freedom of choice, not only for Android users but for iphone users, too.

      • http://www.asymco.com asymco

        AT&T Backflip is an Android phone where Yahoo is the default search engine. Many Android devices ship with apps which cannot be removed and those apps can steer users to any number of competing services. There is no guarantee or even implied preference for Google services on Android devices.

        Indeed, if Google does not pay for the privilege of being featured on Operator branded Android devices they will be replaced by those who do pay.

        In other words, Google did not buy distribution by developing Android.

      • Sevket Zaimoglu

        Are you claiming that an AT&T customer using Backflip cannot install a Google app, say Google Search, on the phone from the Android marketplace? Or cannot change the default search engine from Yahoo to Google? If the answer to both questions are No, then it means Android has served its purpose of providing Google access to that Backflip user.

        Last week, I have upgraded three PC's at the office to Windows 7 and each one of them came with IE preinstalled and Bing set as the default search engine. I have promptly changed the default search engine from Bing to Google, and installed Firefox.

        In other words, Google does not need to buy distribution. It only needs to ensure willing users can access its services.

      • colt45

        That's what has been bugging me for a while. What is Google's end game with Android? The iPhone was already leveraging a lot of Google's services such as search, Maps, YouTube, etc… Is the goal with Android to rapidly increase the number of handsets capable of using those services? Does that actually drive more revenue? It always seemed to me that Google working with Apple was a better strategy than competing with them.

      • http://www.asymco.com asymco

        In Google vs. Android, my money's on Google.
        http://www.asymco.com/2010/06/08/android-vs-googl

      • Tom

        Google wants as many phones out there running google searches for results plastered in "ads by google" as they can get. The OS is secondary for google. Just give em a phone they can see more google ads on. WP7 is just more phones for more google ads.

        I call this blind greed.

      • ChuckO

        I think Google's main target is (still) Microsoft. They want/need to be Apple's main competition. That's how you beat MS. It's about replacing Windows with Google cloud services more than AndroidChrome. They probably see a future like MS's where instead of having WindowsOffice Google has adsservices (gMail,doc suite,etc) paid for by enterprise customers.

  • Iphoned

    There is no question Android ecosystem is likely a mess; at least for now. But even a messy competitor can inflict serious damage.

    • Sevket Zaimoglu

      Just like the Windows ecosystem has been, for a long time. If Microsoft could supply device drivers for thousands of different graphics cards, sound cards, printers, modems, ethernet cards, graphics tablets, keyboards, mice etc, it should not be hard to support hundreds of different android phones.

      • http://www.asymco.com asymco

        The resources Microsoft applies to Windows are orders of magnitude higher than the resources Google applies to Android. The revenues generated by Windows which permit this level of investment are also significant. The revenues generated by Android are currently immaterial and forecast to be immaterial.

      • Sevket Zaimoglu

        I was replying to the contention that the hardware fragmentation of the Android platform could be a headache. Google does not need to allocate resources comparable to those of Microsoft, because the hardware fragmentation problem Google faces is orders of magnitude smaller than that faced by Microsoft.

        Secondly, Android already generates lots of revenues for Google through ads, this revenue stream can only grow. Google Search can now search application data in android phones. Imagine a calorie counting software in which you have meticulously recorded every food you consumed in the past year. You search for pizza, and Google Search gives you a list of every day you have eaten pizza, with their brands, calories, etc. This is basically a search problem, and Google is a search company making money through ads.

  • Jobowofoho

    Are you sure that Lotus actually did "arbitrarily refuse to update their software"? I'm under the impression that during the development of OS/2, Microsoft purposefully steered many software companies towards development for that platform, implying that OS/2 was where Microsoft saw the future heading. By so doing they ensured there was little competition for Office for Windows upon launch. So in the situation you're referring to, was Lotus arbitrarily ignoring Windows, or were they concentrating on OS/2, as they'd been led to believe they ought?

  • Iphoned

    Speaking of Windows and ISV support. I remember it well, those times. When MS first came out with Windows in the late 80's, no one wanted to buy/deploy it, partly because it was so lame (not even overlapping Windows). So businesses just stuck with DOS and DOS applications and as a result no ISV wanted to port to Windows. Then MS started shipping the then-version of "Office" (I think it was just Excell and PowerPoint at that time) for Windows and got a huge head start as a result over the then-dominant "Office" competitors.)

  • Sevket Zaimoglu

    "Now think about the idea of Adobe coming to market next week with a new version of Photoshop that ran only on Windows XP."

    This analogy is not correct. With Aero, Dell is selling both a hardware (phone) and a software (android 1.5). In the example, you are imagining Adobe selling only a software that will run on a specific legacy software (Windows XP).

    A better analogy would be, Apple coming up with a new iphone, lacking some features of the iphone4 and even iphone 3GS, say a black and white screen or a screen with low resolution, and running only on iOS 3.

    I don't know about the business plan behind Dell's latest offering, but if the iphone I have just described costs just half of iphone 3GS, it might well be a profitable offering.

    • http://www.asymco.com asymco

      The article is concerned with the relationship between Google and Android licensees. The lack of control over the version of the OS shipping at any one time encourages fragmentation and can cripple a platform.

  • Mark Hernandez

    There are certainly many dynamics at play here.

    In reading all this, it made me realize that, being the iPhone expert amongst my many physical and Facebook friends, what I see is iPhone users looking for any excuse to upgrade to the iPhone 4. $200 to move up to the next model and throw the old one in their drawer with their old iPods is not a problem. Add that to the dynamics at play which make comparisons challenging.