The Android Paradox

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Dr. Johnny Ryan, Senior Researcher, Institute of International & European Affairs

Johnny Ryan is a Dublin-based expert in web technologies. Besides being an author, he is also a public speaker, having presented his views at forums like the United Nations, the OSCE, the European Commission, et al. A regular contributor to Fortune, Businessweek, Reuters, BBC and the Associated Press, he speaks to B&E on one of his latest favourite subjects – the Android OS.

B&E: Of late there has been some dissatisfaction shown by Google and Android developers over earnings from Android OS, despite the fact that consumers are activating 300,000 Android handsets each day. Do you see this “low” earnings from apps as a major reason for Google to make the very Android OS a “not free” platform – along the lines of the Apple iOS model?
Johnny Ryan (JR): No, and there are two reasons. First, I do not think that Google is like most other companies. I have a feeling that, especially now, under its new CEO, Larry Page, Google is driven at the top by “nerd norms”, a kind of engineers’ ethics. This may not apply across the company, on all decisions, but I think if the question were asked of the founders, “Do we want to close Android and make more money”, the answer would be – no! Second, while there may be tweaking at certain points to push mobile handset manufacturers to conform to minimum standards of devices, Google can not afford to exclude the low price market.

B&E: How about handset makers who have invested so much towards teh Android OS project. Will Google making Android a paid platform bring suffering onto these handset makers?
JR: Indeed. And that is another reason why Google will keep Android as it is.

B&E: There are also tablet makers – like Samsung, Sony & Dell – who rely on Android OS. Do you think Google’s intentions to increasingly monetise Android OS will hurt these players as well?
JR: No. Were Google to more aggressively pursue monetisation, it would be good news for Samsung, Sony & Dell because tablet manufacturers target the higher end of the market. These devices are the ones to compete with Apple et al, on an equal hardware footing, equipped with expensive hardware capable of accelerated games and other leisure activities. Users of these devices are far more likely to pay for apps and services than a new adopter of a low-cost smart phone.

B&E: Revenue from Android app store grew to $102 million in 2010. By comparison, the Apple App Store saw 131.9% growth y-o-y jumping to $1.7 billion. More surprisingly, the BlackBerry App World had revenues of $165 million, and the Nokia Ovi store saw revenue of $105 million – both larger than Android despite a much smaller selection of available apps. Will Google do something about this soon?
JR: There are two driving factors here: Google is, fundamentally, a search company. The more users of smart phones, even if they do not purchase apps or content via the Android Market, the better for Google. Android users in particular are likely to use Google search and GMail. However, this is not necessarily the case for App developers. The risk is that the Android Market is unable to support a sufficient number of app developers, and that the Android apps will be of low quality. I call this the “Android Paradox”. Google wants more people using Search, so it needs to keep the number of new smart phone adopters high, and must keep costs down. But at the same time, it is preferable that at least some of these new adopters pay for the apps that will keep the Android market attractive to App developers.

B&E: Not many have raised objections as to why Google does not make money by licensing out its OS. If it did at even $15 per device sold, it could possibly have made up to $1 billion in 2010 alone (67.23 million units of android devices sold around the world x $15/device) assuming people were willing to actually pay for it. Can Google try and correct its course in this regard?
JR: I do not think it would be easy. Neither would it be easy, nor would it prove desirable for Google.

B&E: The ‘Android paradox’ you mentioned. There must be a way that Google can capitalise on the fact that its app store can’t support high-quality apps?
JR: Were I be advising Google, I would counsel it to capitalise on the Android Paradox. Increase the spectrum between the highest and lowest specification of mobile handset. At the low end of the market, Google is capturing new arrivals to the smart phone by working with manufacturers who produce low and medium specification devices. It could even invade Apple’s space at the high end of the market by, working on handsets that offer the finest media/gaming experience at a very high price points. The high end of the market may be the secret to keeping the ecosystem attractive to developers, helping Google retain them.

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Google bullies Android Device Makers

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Florian Müller, Founder, FOSS Patents & Co-founder of Rival Networks

Munich (Germany)-based Florian Müller is an award-winning IPR activist with 25 years of software industry expertise spanning across different market segments and a variety of technical & commercial areas. Müller was perhaps amongst the first IPR experts to accuse Google of copying code from Oracle for its Android OS. He shares his opinions on the subject with B&E.

B&E: Many questions have been raised over copyright issues related to Android OS. How big are these problems for Google and the handset makers?
Floriam Müller (FM): They are a big problem for Google, but a far bigger one for its device makers. Most of the time it is the device makers who get sued, not Google. There are a few cases in which Google itself is named as a defendant, most notably Oracle’s lawsuit over seven patents and various copyrights. But for the most part it’s the device makers’ problem. Indirectly, that turns it into a problem for Google because if the intellectual property situation doesn’t come under control, some device makers may drop Android. Recently there was a rumor that Motorola is developing a mobile operating system of its own. There was some speculation that Motorola – which is being sued by Apple, Microsoft and a significant number of other companies for patent infringement – could be very concerned over the intellectual problems surrounding Android as well as Google’s heavy-handed control over Android.

B&E: You mentioned that most of the time, it is the device makers who get the stick in court. Could you explain this?
FM: By my count, 42 Android-related patent infringement suits have already been filed, and only two of them (Oracle and Skyhook) target Google exclusively, while the others name device makers as defendants. Most of the time it is just device makers being dragged to court.

B&E: With the cloud of lawsuits, can Google turn Android into a cash cow?
FM: In Google’s case, the cost of resolving all of the intellectual property issues Google faces could exceed the actual revenue opportunity, possibly even by far.

B&E: If patent claims against Android build up at this rate, what is the amount we are looking for that Google might have to pay up on order of the courts?
FM: It is very hard to estimate litigation costs, but the real strategic issue for Google won’t be one-time costs such as for litigation. They will mostly be concerned about per-unit royalties that make Android-based devices more expensive, hence less competitive.

B&E: Will payouts in settling patent infringement cases show on Google’s net earnings from Android?
FM: Since Google itself is rarely sued, the impact on the net earnings of device makers will be greater than on Google’s earnings. The Oracle lawsuit could, however, require Google to pay something on the order of a billion dollars depending on the exact outcome. The extent to which Android is accused of infringement is unpredecented. 42 lawsuits in a little more than a year show that there are fundamental problems. There are definitely some Android-specific reasons, such as Google’s ‘loose management’ of intellectual property issues, that contribute greatly to this mess.

B&E: Some have even pointed to security issues related to the Android OS. Is that something which handset makers and buyers should be wary of?
FM: By emphasising that the software is “free”, Google positioned Android as the poor man’s iPhone. But the security issues come with it. The Android Market is not managed well by Google. It contains programs infected by malware. I use a Samsung Galaxy, a high-end Android phone, and I like it for the most part, but I don’t have confidence in Google’s app store and never buy anything there.

B&E: Android Market Place is not giving Google enough topline push. Are the earnings enough to sustain stable Android OS projects in future?
FM: App stores can but only be a small part of a revenue mix. In Google’s case, there’s not enough money to be made there to sustain development of an OS.

B&E: Finally, will the Andoird connection enable handset and tablet makers like HTC, Samsung, LG, Dell, Acer et al, to make money in times to come?
FM: There are about three dozen device makers who have adopted Android by now and it’s clear to me that when growth rates flatten, most of them won’t make money with Android-based devices anymore. For now the explosive growth of the smartphone market creates some short-term opportunities, but strategically those device makers are in a difficult position because Google controls the platform. Google bullies Android device makers and forces them to do what it wants. Right now the biggest problem for makers of Android-based tablet makers is a lack of demand. Android tablets are a failure so far. They also turn out to be too expensive.

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