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  • Just What is Google Selling?

    January 6th, 2010

    After months of hype, Google’s Nexus One smartphone is out the door, and they are beginning to take orders. As many of you realize, Google doesn’t build consumer electronics gear. Instead, they went to HTC, a successful smartphone maker who has experience with Android products, to do the heavy lifting.

    At the end of the day, early reviews indicate that the Nexus One isn’t a game changer, nor does it rate as a potential iPhone killer. But it has lots of good hardware capabilities, including a five megapixel camera and flash, to tempt customers who are seeking alternative products. On the other hand, the Nexus One doesn’t sport a touchscreen interface that comes close to rivaling the iPhone’s Multi-Touch capability, and storage for apps is limited to the device’s internal ROM. You can’t store them on the external memory cards, which means that you’ll be partaking of precious few of those 20,000 Google apps even if they are compatible.

    Despite its limitations, the Nexus One is still a showcase of Google’s latest technologies, but in the end it’s also a competitor to other Android phones from other companies, which puts the search giant in a position similar to Microsoft when the Zune came out. If a company is going to partner with third parties, releasing a similar product might be regarded as a smack in the face. If HTC makes the official Google phone, what about Motorola and other companies who also make Android devices?

    More to the point, just what is Google’s end game here? Do they plan on becoming a consumer electronics powerhouse to go up against Apple? Maybe it’s just smartphones today, but what about portable PCs to run the Chrome OS? When does it stop?

    Yes, Google no doubt gets a piece of the action from the Nexus One, but they are licensing Android free of charge. The same will hold true for the Chrome OS. Google’s real income source is, of course, ads.

    So free Google apps and search links present you with ads, from which income is earned when you click the link to check out a product or service. More eyeballs increase the click-through rates and Google’s profits. Indeed, Google isn’t stingy about letting other companies distribute their ads, and a number of those Google features are available on the iPhone and will continue to be updated for that platform. So whether you buy an Android phone, an iPhone or any mobile device or PC that features something from Google, income is generated from ad placements.

    The mainstream media wants you to believe that Apple and Google are destined to engage in a battle to the death, but how is that going to play out? When it comes to smartphones, I expect millions and millions of Android devices and iPhones will be sold in the years to come. At the same time, it appears Microsoft’s mobile initiative is toast. Companies are abandoning Windows Mobile to embrace the free Android OS. Developers who don’t wish to work within Apple’s App Store constraints will possibly choose Android, despite the limitations of the platform.

    Limitations? Well, when a software company makes an App Store product, they can depend on their app running reliability on a guaranteed roster of compatible products. Yes, there are some features that won’t support the first generation iPhone or an early iPod touch, and there will be new capabilities in upcoming iPhone revisions that won’t be backwards compatible. But all of these devices can be easily upgraded to the latest and greatest iPhone software.

    When it comes to an Android smartphone, there is no enforcement of strict hardware standards, and different devices will have different OS versions. Upgrading, where possible, may require a time-wasting visit to a wireless carrier’s retail store. Worse, not all stores have the equipment in place to perform software upgrades of this sort. Usually the factory stories have the capability, but there is no guarantee that a specific OS version will be available for any individual product.

    So a developer may have to build different versions of a product to address these incompatibilities or limit the app to more limited feature sets that might support a greater number of handsets. The chances of having three billion downloads in a year and a half are slim to none. Besides, none of that really matters to Google anyway, since they only care about the number of people who use their apps and search features and click on the paid ads.

    As to RIM and the BlackBerry, they continue to do quite well in the enterprise. But if they confront more and more of those server outages, there’s the danger that a fair number of customers will seek other options when the wireless provider contracts are up. However, I’m not about to predict the impending failure of this company. They are pioneers in the industry and surely smart enough to fix the problems and embrace newer technologies.

    In the meantime, it does appear that Nokia, stung by all the new competition, is hoping to somehow get a big payday from Apple over the current patent disputes. In the end, someone will be paid off, and Apple does have deep pockets.

    As to Google, they’ll just be laughing all the way to the bank.



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    7 Responses to “Just What is Google Selling?”

    1. DaveD says:

      I thinking the reason for a Google-branded smartphone is to push Microsoft’s WinMobile off a cliff. Sort of a day of reckoning as the two are face-to-face on a mountainside road where there is only room for one to proceed. Microsoft is standing there blocking the road as Google is moving up real fast.

      The Zune HD went nowhere and I believe that it was to become a future smartphone.

    2. Randy A says:

      1. Google has announced that they will soon be lifting the restriction on app installation to the SD card. I have 51 apps on my Droid and only use 70 of my 256 MB, but I can see why some would care.

      2. While it is true today that any iPhone or iPod Touch can run OS 3 that won’t be true forever. Apple has done little to enhance the hardware aside from storage so it has been easy to maintain compatibility with previous versions. There will be some major advances in the next version that will leave iPhone developers with the same decisions about which OS and hardware they will support and which they won’t.

      Apple will always sell millions of new iPhones each year, but there are millions more that want something else. Google and Apple will seemingly compete in more areas in the future but at the end of the day they have different goals and products aimed at different audiences.

    3. Randy A says:

      Microsoft is yesterdays news in the smartphone space but IMHO this is when they are in the best place to do something radical to rebound.

      Palm and their WebOS are an easy and cheap target for a takeover and RIM is certainly within reach as well though much less desireable. WebOS 2 might be renamed Windows Phone 8.

    4. Iain W says:

      I don’t think Microsoft is toast, but they can only survive by creating a compelling Zune phone. A hard ask from a company that can’t seem to compete without a monopoly!

    5. dfs says:

      Looks to me that Google is beginning to show the classic symptoms of Galloping Balmeritis: a kind of compulsion to get its finger into every conceivable pie rather than sticking to the relatively few things it does best with a corresponding loss of corporate focus, coupled with delusions of grandeur. In view of the amount of damage this disease has done MS, if I owned any Google stock I’d seriously think about unloading it. (The Disney Corp. provides a good case history of this disease of stupid corporate hubris: they told themselves “We’re an entertainment company, people find professional hockey entertaining, therefore we’re qualified to own and operate a NHL franchise.” So they went out and bought the Anaheim Mighty Ducks, and of course augered it straight into the ground..)

    6. Randy A says:

      @dfs

      You are not seeing the entire picture here. Microsoft’s goal is to dominate each market that they are in without regard for how these services all tie together for some elaborate and worthy end goal. Apple and Google are in far different positions.

      Apple sells hardware and they create some really wonderful software that is either free or very affordable. It furthers their goal to sell more hardware. MS sells software (and puts a premium price on it to boot) with very little regard for the hardware that it runs on. Google sells ads. Every single thing that Google does is to further their ad network.

      Apple leads in hardware profitability. Mission accomplished. MS leads in software. Mission accomplished. Google leads in ad sales. Get the picture?

      Google’s goals are clear and their focus is sharp. A 30% jump in mobile ads more than bears that out. This isn’t to say that Google cannot extend their real income opportunities past ad sales. Google Apps, Android and the GSA (as well as other Google products) could all eventually become profitable on their own merits. That just isn’t the end goal.

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