21
Nov
071212-google-china

A few days ago, Harvard Business Review writer James Allworth posted on the HBR blog and argued that Google has effectively shot itself in the foot by making Android such an open system. To boil the 800 word post down, Mr. Allworth's argument is that the openness of the system has led to competitors taking the Google out of Android - namely, Baidu in China and Bing on Verizon. The issue is that Google's revenue comes from the ads on their services; consequently, a de-Googled Android would result in no income for Google. Further, there's another problem that he doesn't mention at all: Chinese carriers have replaced the Android Market with their own proprietary market.

This may simply be because of my flying-by-the-seat-of-my-pants mindset, but I don't really think things are nearly as bad as James makes things out to be. The issue with China could be a problem long-term, but America still has the largest economy in the world, and even in our post-recession environment of heightened savings rates, we're still a consumption economy. While it's true that China has been experiencing phenomenal growth, they're not without their share of problems (not to mention they save a substantially higher percentage of their income).

unfair_fight

The big one is America.

Further, only a minor fraction of Google's revenue comes from China, and even with China's explosive economic growth, that's unlikely to change. At a time when many major companies have to rely on emerging markets for growth (think Coca-Cola and McDonalds), Google doesn't. They're like Apple: they rely on innovation and ubiquity for their growth, and it works well. Don't get me wrong, though: China is definitely a huge market and is likely to be one of the largest factors for global economic growth in the future, but the country isn't integral to Google. Hell, they've already pulled out of China altogether.

As for Bing on Android devices in the US, I think that's also fairly insignificant. Google controls such a huge portion of all online advertising that I doubt having Bing rather than Google on Verizon 'Droids is going to have anything more than a marginal impact on revenues. Google has always been pretty hush-hush about how much different aspects of business contribute to their bottom line, but I'd imagine mobile search isn't a huge chunk; even smaller considering that Verizon is the only carrier that's switched thus far. (Then again, recent research analyst reports say that Yahoo is in talks to bring Yahoo Search to another carrier's Android devices, so the problem could get bigger; again, though, "bigger" is a matter of perspective, and is unlikely to be anything more than marginal.)

A final consideration is Android's versatility. Phones are fairly simple to knock off and de-Google, but it's hard to imagine many Chinese people have a use for Google TV. Assuming the product is successful (and I'm betting it will be, given that it's being integrated directly into TVs), that's another stream of revenue that is, for the time being, relatively out-of-reach to Baidu and the Chinese. Further, given the versatility of GTV, it's still providing Google with income streams aside from search ads. Who knows where else Android will end up?

Artem has argued with me that Google should simply lock down search, forcing all Android devices to use only Google. He's of the opinion that people wouldn't have minded in the slightest; I disagree completely. I don't think locking down search is a major issue per se, but it goes against Android's mantra of openness. They didn't add options for other searches, but there's no reason they should devote time and money to that support when competitors can (and should do it); and thus, we have Bing and Yahoo! for Android on the Market today, freely available to be used on any Android device.

I agree that Android is certainly presenting a few problems to Google, but it's hard to imagine that they don't recognize the problems and aren't working on ways to make up the lost revenue while keeping the "soul" of Android intact. In the meantime, they have plenty of revenue rolling in from all sorts of directions (Gmail, YouTube, AdSense, AdMob, Android Market, Search...), and they're always innovating. Coupled with the fact that so many of their services are used so heavily by so many, and the data from those sources is interlinked, collected, analyzed, and put to use, it's hard to imagine them running into trouble anytime soon.

[Website Referenced: Harvard Business Review blog]

Aaron Gingrich
Aaron is a geek who has always had a passion for technology. When not working or writing, he can be found spending time with his family, playing a game, or watching a movie.

  • http://androidpolice.com Jaroslav Stekl

    In related news, James Allworth plans to think before he writes next time... or so we hope.

  • whiteythomson

    You should also consider that aside from Android being "de-Googled" with Bing think of all the people who use every other type of phone and OS system that still set their main web search to Google.

    I think Mr Schmidt even made mention of it recently - it doesn't matter that Bing is the main search app for Verizon - because they make all their money back straight away from people using Google on their iPhones, Nokia's etc...

    • Aaron Gingrich

      I agree that they're still getting revenue from other sources (as I say in the post), but you're missing the point that they're still losing revenue when people/companies use something other than Google with Android. Either way, it's still lost revenue.

      Again, though, I think it ultimately pays off.

  • http://www.toysdiva.com PixelSlave

    The answer is not to lock Android down, but to promote what a Google-enabled Android should be. Up until now, Google has done almost NOTHING to market Android to the general public by itself.

    Most of the marketing campaign you've seen are from the carriers and the handset makers. To the people who know little about technology, Android != Google Mobile OS. What Google should do now is to heavily promote Android as a platform of Google -- show all kinds of things that can be done in a Google enabled Android device. Such campaigns will make the Google experience a de factor standard. This won't require locking down Android, but would be very effective because Yahoo, Microsoft will not be wasting money in promoting Google's mobile OS, so no one is going to dilute their marketing message.

    IMO, Google should even go one step forward and make a Google Android logo, then market it like crazy, but to display the logo, an Android device must be a Google experience device. Any modification must be done on top of the stock OS, not replacing it.

    • Aaron Gingrich

      Google marketing Android directly is a good idea, but the downside is that manufacturers have a ton of control over the consumer experience. Google marketing Android doesn't make as much sense when so many manufacturers use such heavy custom UI's and, even worse, when it takes so incredibly long for some updates to roll around. Having your phone update 8 months after it should have would look really late, and people would blame Google.

      • http://androidpolice.com android ftw lol…

        Same thought I had, but his post does have a good idea behind it.

        IMO - What Google should do, is just promote android and its simple features I.e. widgets, simple customizations, available on phones, tv's, tablets, etc, and tell them its available from their carriers / retail stores nearby - meaning don't promise an experience you'll get on n1 type of phones, but that the OS is made by them & contains more features than other OS's that you might be interested in.

        Not sure if saying "go to your retail store nearby" is a negative comment to retail competition, but it's up to each retail chain to promote their items competitively...I hope it all makes sense...

        • Aaron Gingrich

          Not a bad idea at all :)

        • Keith

          +1

          Google really needs to promote Android. Most people still don't know what Android is. They need to promote it as a brand. And the more Google promotes Android, the harder it'll be for carriers to tie Android to non-Google services.

      • http://www.toysdiva.com PixelSlave

        >> Google marketing Android doesn’t make as much sense when so many manufacturers use such heavy custom UI’s and, even worse, when it takes so incredibly long for some updates to roll around.

        Well, that's exactly the reason why they should promote a "Google-ify Android". The Google funded campaign will give handset makers/carriers an incentive to release a phone that could be updated in a timely manner, and at least has a way to be reverted back to the stock Google experience. Sure, they could still release a non-Google Android phones, but they will then have to be marketed by themselves.

        Verizon's Droid campaign has already told us that most consumers' mind can be hi-jacked. I've known people who only know about the "Droids", but not "Androids". With Google's name recognition, it can turn the tide easily.

        • http://nextparadigms.com Lucian Armasu

          I've been thinking about this for a while, too. Google needs to promote stock Android directly, so that more manufacturers choose stock Android on their phones, because there will be demand created by the Google campaign for it.
          I think the perfect moment to create the campaign will be with Android 3.0 launch. Android 3.0 Honeycomb should have an overhauled UI, so manufacturers won't be able to change it for a while, even if they want to. It's the perfect opportunity for Google to show manufacturers that they don't need to bother adding a skin on top of Honeycomb, because people want it as it is.
          Carriers barely promote the Android OS, also. They don't mention it in their campaigns because they know that "Android" doesn't say much to many of their potential customers. If people actually knew what "Android" means, then they'll trip over themselves to say that their latest phones come with "Android OS".

          This is very important and I hope blogs like AndroidPolice and others will start making posts about this, and promote this idea so Google can hear it in time, and get convinced to do it. So what say you, AndroidPolice?

        • http://nextparadigms.com Lucian Armasu

          Oh, and I hope AndroidPolice and other Android blogs can start talking about this in their posts. We need to get this idea to Google's ears and convince them to do it.

          So what say you, AndroidPolice?

        • Aaron Gingrich

          @Lucian: I doubt having a majorly overhauled UI is going to stop manufacturers from slapping their own breed on top. Android is fast becoming ubiquitous, and custom UI's provide differentiation for manufacturers.

          Not that I like it, I'm just saying that when done well, it helps set them apart from the pack.

  • john anthony

    i'm not sure that the US is the big one.
    http://www.nytimes.com/2008/07/26/business/worldbusiness/26internet.html
    "China said the number of Internet users in the country reached about 253 million last month, putting it ahead of the United States as the world’s biggest Internet market."

    and if google had locked android to google's services, then all those android users in china would be using google. not baidu. they missed out bad

    • Aaron Gingrich

      http://www.nytimes.com/2010/01/15/world/asia/15google.html: "Google’s business in China, for now, remains small. Estimates put Google’s China revenue last year at about $300 million, a tiny fraction of its more than $22 billion in global sales." - and that's revenue, not profit.

      I work for an investment firm, and the last chart I saw breaking down Google's revenue (granted, it was at least 8 months old) showed the UK alone contributed to roughly 25% and the US was about 50% of Google's bottom line.

  • http://twitter.com/anujahooja Anuj Ahooja

    It's a Linux distro. If you don't understand the nature of that, you can't understand the nature of Android's "business model" - if you want to call it that. So whoever wrote that "shooting in the foot" article needs to go out of his Apple & Microsoft guided world.

  • http://tech.shantanugoel.com/ Shantanu

    There is another aspect to this discussion. Google didn't make android so that it could be the sole user of it. They made it so that they still stand a chance of getting some revenue in the mobile market which would have otherwise been completely lost (e.g. to Apple).
    And if they didn't keep it open for others to play with, they might not have seen so much of spreading or would have been killed by antitrust laws.
    I had written some thoughts on this a few days ago here:
    http://tech.shantanugoel.com/2010/11/19/zdnet-fail-answer-is-stop-tech-blogging.html

  • http://www.twitter.com/mytharak mytharak

    Google's vision and the reason behind creating Android and the Open Handset Alliance was to bring to the world an open mobile ecosystem. The fact that they can make money off of it is just a bonus.

    • http://twitter.com/anujahooja Anuj Ahooja

      Exactly - well said.

    • http://www.google.com/profiles/dbin78 Dain Binder

      Perfectly said!

    • http://www.AndroidPolice.com Artem Russakovskii

      I think this is an extremely naive point of view, but that's certainly part of it. They need and want to make money, just more altruistically than other companies.

      • http://dangerismymiddlename.com Paul Danger Kile

        Actually, that's why they did it. The elevator-speach proposal was: "If we don't do this, then one man will rule the world." They don't actually sell Android. The money that they claim to make from it is attribution from ads. It's money that they would have made if the user used an iPhone.

  • http://www.google.com/profiles/dbin78 Dain Binder

    I think Google is just fine and making much more than they ever dreamed from Android.

    If I understand correctly, Google could always take the open source version in house and modify it and not release the code (Apache license). Then stop supporting the open source version.

    Either way, they know what they are doing. We also must remeber that many of the average consumers do not know Google is behind Android.

  • GergS

    Eric Schmidt already said that they believe that Google's search is so strong that merely getting people online will grow their search, even if various companies decide to switch.

  • thebuilder

    China is a losing battle. If they didn't use Android, they would develop their own (and likely inferior) mobile OS. At best, it keeps Apple's market share in China a bay, and they can hope that consumers there will actually reject the Baidu-versions for the more up to date and mature Google Experience devices, with Google Market access, etc.

    The Chinese government will allow foreign companies and products into the marketplace on two conditions :

    1. They don't have the technology currently, and by letting that company into their marketplace, they get their usual kickbacks or 51% control

    2. They have a development track in motion to replace the foreign company with their own homegrown stuff

    For example, see the aerospace industry. They let Airbus into the marketplace bigtime, but only after getting access to the tooling and requiring Airbus to setup shop there with factories. And last week, China's first major aerospace company (COMAC) announced it was launching almost 100 plane orders of a new airliner. Once its up and running, the government will force these planes on the domestic carriers in China regardless of capabilities.

  • Keith

    What Google should do is define Google Search as part of the Google experience. If you want to have the Android Market, Google Maps, GMail, etc. pre-installed on the phone, then you have to install Google search as default as well.

    I just don't understand why Google let's OEMs and carriers offer only parts of the Google experience.

    Changing this practice would not in anyway impact the openness of Android. It just wouldn't let OEMs and Carrier take advantage of that openness to the detriment of Google and Android users.

  • http://dangerismymiddlename.com Paul Danger Kile

    The HBR writer mentioned should stop using HBR to promote Steve Jobs' BS. Is he sincere? Probably. Apple fans do sincerely lose the ability to form unique opinions.