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Summary:

Although not confirmed, reports indicate that Google is sharing advertising revenues with handset makers that build Android devices. If you know the history of Google’s revenue growth, this shouldn’t surprise. The question is: should Google be paying to broaden its mobile market share?

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How do you grow a business? There are many ways, but one is to pay others to help you. And according to paidContent and “sources who are familiar with the deals,” that’s how Google is growing it’s Android business. Apparently, Google is sharing advertising revenues with handset makers that build Android handsets. And here I thought that Android was simply a solid operating system.

I don’t know if the report is true, but I’m not sure I care all that much and more importantly, I wouldn’t be surprised by such a deal. Google’s core competency from a revenue perspective is in advertising. But it can’t simply earn advertising dollars on it’s own — it has to partner with other entities in some way. Today, Google matches up ad content with created content to show contextual, targeted ads. It makes a cut and so does the content partner. There’s a precedent for “browser money” too — Google pays Mozilla to be the default search engine in Firefox, for example. There could even be revenue sharing at work here, but even if not, Google is essentially paying Mozilla to get its product in front of more eyeballs, which in turn, potentially generates more ad revenue for Google. With that approach, why would anyone be surprised that Google could be sharing advertising revenues with handset makers? It’s the Google way and it’s also worth noting that it accounts for nearly 90% of Mozilla’s revenue.

Now the other question is — should Google be doing this? That’s not an easy one to answer and opinions are going to vary wildly. I’d rather see a product deployed solely because it’s a good product, but maybe that’s an old-school mindset. Times are changing, as are business models. And the reality is, Android actually is a good product. If it wasn’t, handset makers wouldn’t continue using it no matter how much they were getting paid — and I doubt that they’re making a mint off of mobile ad revenue sharing just yet, anyway. If they put out a crap hardware product due to a poor operating system, sooner or later, their reputation would be shot to pieces and their hardware business would slowly die.

Instead, I see more handset makers adopting Android and — more importantly — more consumers buying Android phones. Is that because Google is paying companies to build Android devices? It could be part of the reason, but don’t overlook the fact that Android isn’t a bad mobile platform. And aside from the fact that we’re potentially talking about revenue sharing for hardware and not software, how is this different than the business model Google has followed for years? Personally, if it’s true, I think it’s ingenious and it explains why the Android logo is green.

Related research on GigaOM Pro (sub req’d):

Google’s Mobile Strategy: Understanding the Nexus One

  1. I really don’t like the idea and really changes the “playing field” and consumer choice. Maybe Google put pressure on Verizon to not promote Palm so much so it can promote Android instead? I might sound alarmist but I don’t want so much invisible collusion and without disclosure. I know it’s not that simple but it doesn’t sit well with me. Also, I heard that they also did a revenue sharing with the carriers also.

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  2. Personally I think Apple needs competition because their system is too locked down.

    I’m glad Linux & open source is becoming so mainstream.

    I don’t want a propriatory handset manufacturer’s OS from Samsung, LG, etc too much fragmentation & software compatibility issues.

    On the downside Google are members of the “Council on Foreign Relations” and are becoming a bit big brother but if it wasn’t them it would be someone-else. Nokia are in the CFR too. Far too much data on our where-abouts etc is available. At least we have more hope if the software monitoring us is open source.

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  3. Phonescoop posted a response from Google. Perhaps the “browser wars” of the past will cause the “search wars” of the present to force a “search ballot” in the future. With Bing at least the end user has chance to make a few dollars off of all of this. I wonder if google gets to keep all that money they usually share when they sell the Nexus 1? Perhaps the Nexus 2 will have more ways for them to generate revenue or perhaps customized ads so that they can sell the phones at a much lower cost than their competitors.

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