So unless you have been programming without Internet access you have heard that there is no gPhone. Instead it is an alliance, Open Handheld Alliance. I think Fake Steve says it best but I can't resist putting in my own 2 cents.
I will make a prediction that it will go the way of Netscape with the browser and Sun with Java.
First, I am sure that Android will be technologically sound. What I question is the business model. For starters you can create very complex software but at the end of the day you have to get money exchanged for your intellectual property. When I first heard about Netscape I thought they were off their rocker. They give away the client which is the hardest piece of the WWW protocol and then ask for huge fees for licensing the server which was the easier of the two parts. For a while I looked wrong but eventually the market handed Netscape its walking papers. Sun well it is just a matter of time you can't spend billions of hard currency on software and then give it away like they did with Java. Sun’s stock ultimately reflects the markets value for doing that a stock that hovers around US$5 a share down from US$63 a share at its peak. Or put another way it went from being worth almost a 1/4 of a trillion dollars to being worth a few billion. While it is true Google is hoping to make the money back via mobile web services I do not think it will work and I will get to that.
Now you might be thinking OK but Open Source is free and makes money. True but take the case of SugarCRM it is open source barely. You have to really understand it before you can take the open source version and run only with it. Far cheaper to give SugarCRM the money to get the more sophisticated version. And here in lies the rub - ultimately the handset maker is just shifting from paying a licensing fee to Symbian or Microsoft to paying for developers to build their phone OS. I had a long chat with Charlie Kindel a Product Manager at Microsoft over this very issue several years ago. The cost of using Linux for set top box devices like routers and NAS vs CE. My position was the hardware vendor would be better off deploying Linux since it is free. And ultimately Microsoft would lose market share. Charlie pointed out that what ends up happening is that you shift the cost from licensing fees to labor. The labor being Linux development team and actually that team might have to be much more talented than someone using say Microsoft Platform Builder to select the feature and hardware drivers. And today we can see that is actually true as CE has grown market share.
Then you have mobile operators especially here in the US trying desperately to not be just dumb fat pipes and thus a commodity. And overseas network operators trying to change their image from dumb fat pipes to value added networks. The operators saw what happened to their land-line business (commoditization of bandwidth) and are working hard to prevent or reverse the same thing from happening to their wireless business. This group has a major stake in maintaining control over what goes on their network. An open platform actually would commoditize their businesses and lower their average revenue per user a key metric for measuring how successful a mobile operator is.
While Apple has seen success in “opening” the marketplace it is mostly people’s wishful thinking. What Apple really did was show operators around the world a mechanism to gain market share. Remember unlike Nokia Apple only allows a single carrier in a country to operator its phone. So AT&T in exchange for giving a commission to Apple got a multi-year exclusive and a lot of new subscribers. While the US is not the center of the universe I think a lot of operators would like to differentiate themselves from their competitors which is what the iPhone does. If I am no different than my competition while it makes it great for consumers it is horrible for the operator who is in a capital intensive industry with commodity pricing.
Which brings us back to Google. As an investor I am trying to understand what I get for investing in Google. So a natural question is how does Google make money. A lot of analysts would say by selling advertisement but nowhere in the licensing does it say I have to use Google’s Adwords for my advertising engine. In fact, if I was the operator I would be saying give me a commission on letting you display ads over my network – oh wait that is already happening which is why we now talk about network neutrality.
Hence why I think Android will not survive in the long run. Of course Fake Steve say this much bet terr than I.
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