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Summary:

All this talk about how much money Google may or may not have made off of Android misses the point. Google’s decision to enter the mobile operating system battle wasn’t primarily about money — it was about ensuring competition in the next great personal computer market.

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Not all investments are made with the expectation that a big payoff is around the corner. Google’s decision to bankroll the development of Android was just such an investment, which makes the past week’s back and forth over just how much money Google has garnered from that investment quite silly.

For some reason, the Guardian (a partial investor in GigaOM, mind you) ran a story last Thursday purporting to have discovered how much revenue Google has earned from Android since its launch in 2008: $550 million. It derived that number from documents filed as part of Google’s legal battle with Oracle over Oracle’s claim that Android infringes patents related to Java, taking Google’s proposed royalty payments to Oracle should it lose the case as a baseline. Google declined to comment on the numbers and Danny Sullivan at Marketing Land quickly challenged the reasoning behind the Guardian’s figures, but he admitted there’s no way to know for sure when Google refuses to provide its own numbers.

The supposedly damning point is that Google’s revenue from Android pales in comparison to its mobile revenue in general, which is on a $2.5 billion annual pace driven mostly by mobile searches on iOS devices and in-app advertising through Google’s AdMob subsidiary. This, however, should come as no surprise to anyone who has followed the mobile market: over the last several years, iOS users have browsed the Web, downloaded apps, and otherwise engaged with their handsets at a far greater rate than Android users until recently.

The mistake is assuming that Google views this as a big problem, as if Android has been a waste of money because Google makes more money from its competitor. Would Google like to make more revenue from Android? Sure. Money is nice. But Android was a defensive move on Google’s part, and one that wasn’t primarily motivated by desire for revenue or profit.

Back Where It All Begins

Let’s recall 2007, which one day we’ll probably consider a pivotal year in the history of the tech industry. In January, Apple unveiled the iPhone, making it clear (to everyone but Research in Motion, anyway) that the company had come up with a mobile computing concept far beyond anything else on the radar.  In November, Google and its partners unveiled Android and the Open Handset Alliance, pledging to give other handset makers and carriers a modern mobile operating system to compete with the iPhone.

Five years later, Android is the only thing that has prevented Apple from completely taking over the mobile market.  All Google ever hoped to do was provide a shell-shocked smartphone industry with the tools to build a credible alternative to the iPhone that didn’t come with Apple’s tight-fisted control. The potential upside was that those partners would expand the overall pool of people with access to the mobile Web, therefore ensuring that Google could compete for mobile searches without having to kowtow to Apple.

As Apple CEO Tim Cook reminds everyone as often as he can, we’re still in the infancy of this mobile computing revolution. There are billions of people around the world who have yet to fire up their first smartphone, and over the rest of this decade we can be sure that those people will have at least two choices: iOS and Android.

Without Android, where we would be? It’s quite arguable that Android hurt the rest of the mobile industry more than it hurts Apple (again, see RIM) but its success has ensured that the world will have access to a modern mobile operating system governed by different principles than Apple’s. Sure, Android isn’t quite as “open” as Google might have once vowed, but for the most part, Android is a freewheeling development platform–for better or worse.

There’s no doubt that Android can frustrate those who want the best experience they can get in mobile computing. While it has gotten a lot better, it still seems like it was designed by robots rather than humans, and its wholesale embrace of wireless carriers — the favored punching bag of the modern mobile consumer — puts it in an awkward position among those who might ordinarily be sympathetic to its goals.

But Android represents mobile competition. No other mobile company has been able to provide credible competition to Apple: RIM is on the rocks, HP has given up on WebOS, and Microsoft and Nokia remain an afterthought among consumers despite having built decent products. Google Chairman Eric Schmidt, having spent most of his pre-Google career prior chafing under the thumb of a computer industry dominated by a single company, realized long ago that Google was in a position to make sure that didn’t happen again.

No Owners, Only Spenders

Even if Google did generate more mobile revenue from Android than it did the iPhone, Google’s mobile revenue ($2.5 billion) is a very small part of its overall financial picture ($38 billion in total revenue during 2011). And while it seems like very old news, Android has really only been a mobile phenomenon since late 2010 and into 2011. Google can afford to take the long view on Android revenue given its overall financial picture and (as mentioned above) the fact that mobile growth has a long way to go.

This isn’t like Microsoft pouring money down the Bing drain in a fruitless attempt to dent Google’s search dominance: Android is actually the world’s leading mobile operating system, and the market itself is growing strongly. And even if Google derives most of its mobile revenue from iOS, it would be hard for Apple to drop Google: Google’s share of mobile searches is even greater than its share of desktop Web searches and when Apple started making noise about barring AdMob from the iPhone, the federal government raised an eyebrow. Meanwhile, Android Web usage is growing.

Google has a lot of things to worry about in 2012, but when it looks at its finances, its Android strategy isn’t one of them.

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  1. Good writing.

    1. Of course you think it is because you would like to believe it. But in the real world it matters very much and Google knows it.

    2. I’m afraid not. It may be compellingly crafted, but the basic premise of the argument is wrong. Google would be in a far better position if they had partnered with Apple to the benefit of all parties rather than started a war with a better run, more wealthy company.

    3. Actually, very bad writing with made up “facts”.

      Android was purchased as a defense against Windows Mobile and MS’s online advertising. it had little to do, originally, with the iPhone.

      1. Where can I get more articles on this? Do I just “Google” it?

    4. “For some reason, the Guardian (a partial investor in GigaOM, mind you)”

      Which means that Microsoft is an investor in GigaOm, doesn’t it Om?

  2. Curios that so many articles about how much Google makes from iOS are coming out right before Apple makes a big push to de-Google iOS.

    1. The article is in response to an article that extrapolated how much Google made with Android after, for the first time, it released data upon which the number could be guessed at. That’s really the only cause-and-effect going on here.

  3. Personally, I have always thought of Google as a ad revenue company. They just create things like Chrome OS, Chrome browser and Android to help them get more information and sell more ads. They have never been in my mind a company like Microsoft who makes money off of hardware and software.

    1. RationalAdult John Sunday, April 1, 2012

      I’d say that Google is an information company. Ads are a way of making money with the information. Android and chrome are information distribution/acquisition tools.

    2. It was Microsoft that Google was initially worried about, not Apple.

      Some years ago, Google feared that Microsoft would extend its desktop monopoly into smartphones, locking out Google’s services. Android was insurance against this happening.

      In the end, Microsoft was asleep at the wheel, and failed at smartphones. But pre-2007 we didn’t know that’s how things would turn out.

      1. Pre-2007, when most people still owned ‘dumb’ phones, Microsoft owned the ‘smart’ phone market, small as it was at the time with Pocket PC. You are right that while MS was asleep at the wheel, Apple and later Google ate their lunch and MS has been playing catchup ever since.

  4. Thanks Tom,I know it is the trendy thing to do now to bash Google and reading this really resonated With me. Google is taking the long road when it comes to capitalizing android. Plus more importantly than anything you wrote. It adds the most important piece to the puzzle, which is building Google’s vast ecosystem. Because now if you are not aware Google is one product. Its about the ecosystem and Google is bringing it home. Literally. Soon we will have android everything in the house even self driving cars to robots in the future.

    1. Idon’t Know todd Monday, April 2, 2012

      So because Android is failing to bring in revenue now they are taking the long road. It’s actually a brilliant strategy instead of a massive failure. Right.

  5. How does everyone magically claim “iPhone revolutionized” the mobile world? I remember HTC windows, a Nokia symbian, and palm devices with the same capabilities as phones now. The software got dumber and commericals got smarter. Google ran software only (until they had to purchase Motorola or they would see extinction alike palm.)

    You forgot.to.mention something too: companies make more money selling android than iPhone. Thus, they are a mere fad. The ego of Steve jobs and their mantra will be short lived and this will exit like every other fad. You remember the Jerry curl, right?

    1. Just for discussion’s sake: it was the multi-touch UI.

      Before, mobile browsers only accessed dorky mobile sites, which were few and shrunk down to useless.

      After, a user could go to a regular site — the NYTimes was used as a demo, and it’s still good — and double-tap on a block of text to have it expand from illegibly small to filling the screen.

      One simple little insight into how people actually could make pages legible without all sorts of contortions. And totally taken for granted these days.

      Except, that Apple patented some of these things. Things like recognizing that if a scroll motion was close enough to horizontal or vertical, that you don’t move the text off the viewable area (duh!). That patent, BTW, just got upheld last week.

      There you go. Maybe somebody else would’ve done it. They just didn’t.

    2. Everything you said is wrong. Those phones were close to unusable and very few people owned smartphones other than Blackberries which were corporate devices.
      Its extremely well known that the iPhone and associated developer app ecosystem make dramatically more money than Android. So you are very ignorant on the subject of which makes the most revenue.

  6. I’m just waiting for the finalization of the merger between Google and Motorola so that those phones start shipping with unlocked bootloaders. yaay open-source

    1. Idon’t Know eric Monday, April 2, 2012

      Heh. Not, gonna,happen.

      1. Why won’t it happen? Honest question. I find this whole conversation fascinating.

      2. Android’s customers are the cellphone carriers, and they don’t want an unlocked bootloader, they want to keep control.

  7. I’m thinking that the dots connected aren’t quite in the picture. Android was defensive, but not against Apple, which at the time of Android’s purchase was quite friendly with Google (employment non-poaching agreements, Schmidt on Apple’s Board). It was more likely defensive against Microsoft and Bing. Microsoft, after all, did have an os in the mobile space.

    Your scenario of, sans Android, Apple takes over the entire smartphone space is rather crippled by the facts of the US-AT&T exclusivity deal.

    I’m not sure that Google cared about Apple’s control of its platform. After all, they were in the garden, apparently doing nice business.

    However, if you are a phone manufacturer and you see Apple with a desirable product and your only answer is to enhance Linux-based open platforms, such as Symbian, or Microsoft, who seemed to not only miss the boat, but was waiting for a train somewhere else, then Google delivers in a year the chance to get in the game. In retrospect, we see that the carriers and OEMs have been rather indifferent to the openness quotient and, in fact, resent Apple because its control used to be their control.

    1. Yes, this is massively revisionist.

      Google thought Microsoft was the biggest threat. Even with the clear market leadership of the iPhone, no one ever feared Apple would completely own the market. (How many times do we have to hear that Apple prices itself out of the market for most users?)

      I’m also tired of the double-speak (Amazon Fire is Android when it’s helpful, not Android when it’s not helpful. Android is winning and is going to some day reap massive benefits (even though it’s a blip on the bottom line with over 50% of the market), Android was never meant to make any money. Android was intended to make sure they had a presence on all devices on the mobile web, they are being corralled into Android as Google services are being dropped left and right from other mobile devices and web services. Rinse, lather, repeat.

      1. Indeed. Android was announced before the iPhone shipped (but after it was announced) and while much of the industry opinion was that Apple was going to fail in that venture.

        Blackberry was the enterprise standard and Samsung was copying them with devices like the Blackjack running Windows Mobile. Palm was still a viable company, though it had largely given up on Palm OS for Windows Mobile. The smartphone market was rounded out Symbian devices from a number of manufacturers, including Samsung, Sony Ericsson, and Nokia. Of those, Nokia was in the enviable position of being both the largest player in the entire mobile phone market while also having some of the most desirable high-end phones.

        The diversity of that landscape is now largely gone, replaced by a very polarized market that has Android pitted against iOS. I think there’s more material to argue a case that Google’s efforts have stifled competition and diversity in the market.

        Apple, of course, was also a much smaller company in 2007 and its success was far from certain. Perhaps the most likely case is that Google saw what Apple planned to do with the iPhone and wanted its own piece of that action. By 2010 it was probably easier to paint that as a fight for open vs. closed, rather than a strategic misstep that showed little sign of Apple-scale profitability for either Google or its manufacturing partners.

      2. @Casey: Android was announced in November 2007. The iPhone shipped in June 2007. And it shipped as the most hyped product ever: I don’t think “much of the industry opinion was that Apple was going to fail,” my recollection was that the mobile industry (sans RIM) instantly realized that Apple was onto something.

        The other companies you mention were not going to be competitive against Apple regardless of whether Android ever existed. “The diversity of that landscape” was obsolete the minute the iPhone shipped, and they all knew it: which is why Samsung now uses Android, Nokia was forced to adopt Windows Phone, RIM is in big trouble, and Windows Mobile, Symbian, Palm OS, and WebOS are all but dead.

        Google knew it would never enjoy “Apple-scale profitability” with Android. It licensed the software for free in hopes of spreading it far and wide, which worked. It would have had to charge a massive fee to earn as much gross margin as Apple does on the iPhone, and that would have doomed Android to failure: they’re just different business models.

        It’s true that Android handset makers don’t make nearly as much profit as Apple, but that’s not necessarily Google’s fault: Apple has entered into very shrewd component-acquisition agreements with suppliers, and quite smartly focuses its development efforts on just a few products. Where else are those handset makers going to go in search of more profit? Windows Phone (licensed for a fee)? WebOS? Would they dare attempt to build their own OS a la Apple?

        Android isn’t pretty, but when it was announced it was the only mobile OS that could have hoped to compete with Apple. Look at Apple’s current iPhone product lineup: without Android, a $199 iPhone 4S, a $99 iPhone 4, and a free iPhone 3GS would be dominating the market.

      3. That’s so true… they count KindleFire when they’re desperate to pop up Android’s low market share within the tablet space, then go 180 and completely trash talk KF since it’s not “pure google experience” …. whatever that buzz word really means anymore

    2. Vic Gundotra, Google I/O, 2010: “If we did not act, we faced a draconian future where one man, one company, one carrier would be our future.” He wasn’t talking about Microsoft.

      1. Except that Google bought Android before there much even in the way of rumors about the iPhone. And the Android model of a licensed OS was designed to disrupt WM, in the same way that WM had disrupted the single-manufacturer OS’s.

        It might also be noted, at least in passing, that Microsoft actually competed head-to-head with Google in 2006. Whereas Apple competes primarily in mobile OSes, and by the famous Jobs rant, seemingly never expected to go head-to-head with Google.

        For Google to have foreseen Apple as the sole competitor in mobile, they would have had to imagined Apple knocking out Microsoft, long before it was even recognized as a serious contender.

        I don’t imagine for a moment that Google would be comfortable being utterly dependent on Apple for its mobile business. But Google actually finds itself in more or less that situation, PLUS having pointedly encouraged Apple to reduce its exposure to Google, whether by Siri, Bing, Baidu or whatever, and in the last 8 months it has also put OSA members on noice that by strengthening the ”Android ecosystem” they are building their 2012 and 2013 competitor, on whom THEY are today dependent.

        I can’t quite see how alienating every single one of your partners is much of a long term win. It might have been fine in the rapid transition we’ve just seen, but it may mean the modest short term gains are about as good as it’ll get.

      2. Apologies that I didn’t catch my Open Handset Alliance typo.

      3. Thats 2010. It just so happened that Apple took hold and not MS. Apple didnt have an iPhone when Google bought Android. They saw the future and that they would need a entry in the field honest just like they have done with Chrome. And thank goodness because iOS is truly just an entry level system.

      4. @PhilH

        Your last thought is pretty radical. Perhaps a bridge too far?

      5. Most people still don’t believe that Apple is successful as it is. RIM was the only one who didn’t get it? What of Palm, Nokia, Microsoft? What about the whiners begging for a hard keyboard, replaceable batteries, and external storage for the first 4 years — claiming it would never succeed and always be a niche?

        Moreover, anyone buying the garbage that Google has spewed at I/O is not competent. In what universe would 100% of the market be owned by Apple? I know extremely wealthy people who still won’t buy Apple even if they check off every need, have greater ease of use, etc simply because they despise what they see as premium pricing.

        Google has been the largest source of RDF for the last five years in the tech industry. Aping their propaganda is not inciteful nor is it proof of their propaganda’s validity.

      6. You are preaching revisionist history. Google needed an “enemy” to get the Googlites riled up. A foe had to be created so they picked Apple and the, for lack of a better word, sheep followed.

        Google bought Android in 2005 and Announced late in 2007. At that point, Nokia, MS, and RIM thought the iPhone was little more than a toy. Who does not remember Balmer dissing the iPhone on multiple occasions?

        No, Android was created/bought/persued as a defense against MS’s WinMo and online Bing setvices.

    3. Just to provide a detail nearby: per Wikipedia, “Google purchased the initial developer of the software, Android Inc., in 2005.” August, IIRC, so the decision by Google to enter the mobile market probably took place in 2005, but could have been as early as 2004, the year that Google went public.

      The CW is that Apple first wanted to do a tablet device, but with the iPod market aging, decided to do the “an iPod…a mobile internet device…a phone” thing, first—possibly also less risky as it was MORE product than its predecessor, not LESS functionality, as many have seen the iPad.

      I don’t know of any authoritative evidence to Google’s motivation or decision-making, but in 2005 (or earlier), Apple could hardly have been imagined, let alone have been predicted, as the market leader.

  8. sounds like one big apology

  9. Jacqueline El-Nil Sunday, April 1, 2012

    Astute observations.

  10. Google’s shareholders are the ones that are mad – their money is being spent on something that has not had any measurable impact on increasing the share price. Google’s management is wasting resources on something with no pay back for shareholders.

    1. Shareholders would be a hell of site more angry if Google management hadn’t taken steps to make sure the likes of Apple and MS didn’t gain control of mobile to the detriment of Google. It often about the long game.

      1. You are absolutely right. But Google is NOT showing that it even understands where it is going: buying Moto when they threatened to drop patent bombs on “new participants,” which was generally taken to mean other OHA partners. Certainly it wasn’t because Moto was kickin’ it.

        And now, the only successful Android partner is getting comfy in bed with Microsoft (see the September press release that they’ll be partnering on phones; see also the fact that Sammy tablets were handed out to Win8 developers) and is going gangbusters on developing its OWN OS, Bada, to which it’ll be able to port Wiz easily.

        I don’t expect Samsung to just abandon Android, but the handwriting is on the wall: every penny they put into Android will be used to make Moto a more effective competitor against them. It’s damn hard for me to see how this works for Google.

      2. “And now, the only successful Android partner is getting comfy in bed with Microsoft (see the September press release that they’ll be partnering on phones…”

        Not sure how this proves that they are getting comfy in bed with Microsoft. Samsung has always built phones using Microsoft software. They were making Windows Mobile handsets before Android was even released.

      3. “Shareholders would be a hell of site more angry if Google management hadn’t taken steps to make sure the likes of Apple and MS didn’t gain control of mobile to the detriment of Google.”

        Doubt it.

        Google would have made a lot more money, and pissed off fewer partners if they had just optimized search & ads for ALL mobile platforms. Instead, they tried to create their own mobile platform.

        As proof, they still make 80% of their mobile revenues from iOS. Imagine how much money they could have made in mobile if they had been a good partner with Apple, MS, Nokia rather than a competitor.

        Also, Google only makes $1.70 per device per year. Apple makes $575 per device. Guess which shareholders are happier?
        http://www.asymco.com/2012/04/02/android-economics/

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