Sunday, August 22, 2010

Google isn't giving away Android for free. Steve Ballmer, was wrong

I can't recollect the article or the video in which I read/saw Steve Ballmer make a claim which meant that because Google is giving the Android operating system for free, Android can't be of as much quality as our paid Windows Mobile operating system can be. Because we charge for Windows Mobile, we can put a lot more investment into the product, compared to Google, which can put only so much investment into its free OS.

I had thought this when I had read those words of Steve Ballmer, and I thought this again when I read a few statements made recently by Eric Schmidt.

Google is not giving away Android for free!

Google has strong reasons - both tactical and strategic - to invest in Android and ensure that it achieves a high adoption on smartphones and other devices from multiple sellers. What Ballmer said appears to imply that Google has neither an incentive to fund Android's development, nor cash (because Android's free, the money has to be pulled from elsewhere inside Google, but doesn't come from the Android product itself).

Incorrect. Google has both.

  1. Cash: Android does generate net revenue for Google. So much, that it's more than enough to fund its development (as quoted recently said by Eric Schmidt. Unfortunately I don't have a link to that news story either). Ballmer's assertion that Android is a free product rests on the incorrect assumption that only the upfront taken revenue (from end-users or hardware-sellers) makes a product a paid product. His claim apparently overlooks the fact that Android-based devices generate advertising revenue for Google, and this revenue is large-enough to more than cover Android's development. Further, Google doesn't have to split advertising revenue generated on Android, unlike the split it does with Apple (for the revenue generated on the iPhone, iPod touch, etc.). Android might come free to the hardware-makers and hence to the end-users, but from Google's point-of-view, it is a paid product - it's the advertisers who pay for it! How do Google's wonderful services such as Web Search, Gmail, etc., come for free to the end-customers? Somebody must be paying Google, after all. It's services such as AdSense and AdWords which allow Google to make both Android and an array of wonderful online services free for both end-customers and hardware-makers. And who funds AdSense/AdWords? It's the advertisers! It's this indirect revenue-stream that Ballmer apparently overlooked.
  2. Incentives: This aspect can be understood better if one believes that market share and revenue are distinct goals. Generating revenue aside, the Android operating system ensures increased exposure to, and adoption of Google's products and services (by being both "defaults" and tightly-integrated). This makes both tactical and strategic sense, and appears to be a sufficient-enough incentive (net revenue incentive aside) to encourage Google to fund Android's development and adoption.
In summary, it's in Google's interest to make sure that Android gets heavy adoption - which means Android must out-innovate rival operating systems, which means the Android team works as furiously as the Windows Mobile team - a contradiction to what Ballmer implied.

A favorable side-effect of increased adoption of Android is that this helps Google to contain and hurt both heavyweight and upstart competitors, including Microsoft.

Steve Ballmer, was wrong.

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