Over the years, so-called media pundits and financial analysts have suggested that Apple buy this company or that company. Usually, it’s a company that, independently, hasn’t demonstrated much in the way of financial success, but would seem to offer technology that Apple needs, or should need. One example is TiVO, which makes DVRs, but earns more revenue for licensing their technologies to the cable and satellite industry, which includes the ability to record one show while watching another.
In the real world, Apple buys up small companies that have developed technology that suits the company’s future product and marketing directions. So they bought Siri, and you all know how that purchase ended up. Apple’s chip design expertise also came from acquisitions of small companies.
Well, I was wondering, just casually you understand, whether Android in the hands of Google yields the best prospects for the future of the platform. To Google, everything they do is focused on building ad revenue. Android smartphones simply provide more eyeballs for their targeted ads. The OS is given away freely to handset makers who sign a Google contract. In turn, those companies — and the carriers who sell their gear — live in relative freedom to rejigger the OS with custom apps, junkware…whatever. This state of affairs creates platform fragmentation, and it also means that most users of Android gear do not receive critical software updates, or any software updates.
You may find that your Android smartphone doesn’t even set Google as the default search engine. The AT&T version of the Samsung Galaxy S3 I’m currently reviewing came with Yahoo! set as the default Internet browser’s home page, and Verizon Wireless sells Android handsets configured with Microsoft’s Bing, although you can change it if you like. Most customers never bother.
Now Android isn’t actually free to handset makers. Microsoft has demanded license fees of a reported $5 or more per handset to license certain patents. While the validity of those patents, and whether they apply to the Android OS, has apparently never been tested in court, the handset makers pay up.
To Google, Android is not a huge money maker. Samsung, however, is the world’s largest Android licensee, and the largest handset maker in the world. Yes, Apple currently outsells Samsung in the U.S., and, yes, Samsung is spreading the sales totals across dozens of different models, from cheap feature phones, to the most expensive Galaxy smartphones.
When it comes to profits, Apple gets most of the benefits courtesy of the iPhone, Samsung is second and the rest — not so much!
Samsung’s expertise has always been to follow a technology leader with a similar product, often at a somewhat lower price. This “follow the leader” approach has worked, building a company that delivers good to excellent products in many categories, from home appliances, to smartphones, audio gear, and TV sets. They even fabricate chips that are used in their own products, and are sourced by Apple and other hardware makers.
That Samsung licenses Android is simple. Their own efforts to build a mobile OS have fallen short. Whatever you think of Android, and how it compares to the iOS, it is undeniably successful. My personal encounters with Android convey the strong impression that I’m revisiting the Mac versus Windows universe; the traditional Windows and not that misbegotten Windows 8 with the silly tiles and complicated gestures.
So why should Samsung buy Android, and why should Google sell it to them? Well, one reason not to consider such an acquisition is that Samsung is getting the OS free, and there do not appear to be any impediments to building successful smartphones and tablets. Since Google owns Motorola Mobility, yet another handset maker, it would appear they would have no incentive to sell off Android.
But if Samsung were to acquire Android, the purchase price would amount to billions of dollars, far more than the platform will deliver to Google for a number of years. It’s also possible such a purchase would include paid licenses to certain Google technologies, meaning the company would receive payments from Samsung until some new platform or handset design scheme takes over.
Samsung’s benefit is that they get Android all to themselves, after existing licenses go elsewhere. They would honor current contracts but, as new Android versions are released, tighten the terms so nobody will apply. In one fell swoop, Samsung slays the competition, except for Apple of course. Sure, the rest of the companies, such as HTC and LG, will probably consider moving to Windows Phone or attempt to roll their own. They might even try to license the BlackBerry OS, and that might be feasible if the new BlackBerry handsets don’t take off in a big way.
All right, the real question is whether Samsung would consider such a move and, in fact, whether they have made any attempt to convince Google to accept such a transaction. I expect the answer is no, even though, assuming the Google Play Store is included, it would place Samsung in the same business as Apple, because they would be controlling the entire user experience.
But it’s also true that, aside from Apple and Samsung, mobile handset makers aren’t rolling in the profits. Samsung has a strong motive to continue to trounce their direct competition, and gain even a larger leg up in the war against Apple. Buying Android — having it all to themselves — might make sense from a strategic point of view. The whole idea, however, probably has no more credibility than most of the suggestions of what companies Apple should buy up next.