Tag: Android

When I heard about Android being positioned against the iPhone, I thought about how that decision must have been justified internally at Google. I wondered how Andy Rubin added up the benefits of his product vs. the risks of losing whatever value Google derived from the iPhone.

On the benefits side, Android’s original business plan called for zero direct revenues with indirect revenues from search. The actual value would be somewhat dubious during the half decade it will take to get a significant installed base. Of course, with the Google-as-retailer model, Android can also be justified as earning some margin from devices, but as we’ve seen, these numbers don’t add up to much.

On the risk side there is the potential loss of the screen real estate on the iPhone (see photo above). Being the default search engine in mobile Safari might be worth hundreds of millions to Google.

Silicon Alley Insider reports a rumor that Apple’s current deal with Google to provide default search functionality for the iPhone is currently worth over $100 million per year to Apple in revenue sharing.

So the iPhone may be a bigger money maker for Google than Android will, at least for a long time.

Which begs the question of whether by picking a fight with Apple, Android is biting the hand that feeds it.

If there is any logic to this Android adventure it might be that Google really feels it needs to have an option on the future mobile computing platform and that Android is worth the risk of losing placement on the iPhone.

I, for one, don’t think this is a risk worth taking.

Google sold about 80,000 Nexus One smart phones in their first month on the market, according research firm Flurry,Dow Jones Newswires reports.

By contrast, Apple sold about 600,000 iPhones when it launched the device in 2007, the story notes; the Motorola Droid sold 525,000 in the first month, according to Flurry.

Flurry estimates sales by measuring mobile applications usage and then extrapolating overall ownership.

Andy Rubin, head of Android said they hoped to sell 150k units, so this would be a very good start for the brand.

I would also like to estimate the revenue that Google probably earned from this phone so far. Assuming HTC receives a gross margin of 35% and the bill of materials is $174, then Google would have a gross income from the device of about $270/unit (based on $529 price).

Google could still have to pay for shipping, returns, warranties, etc. so their income might be closer to $220.

The income before operating expenses would therefore be $17.5 million in the first month.

I should point out that this would be the first income Android has ever received as the software is available free of charge.

The Nexus One is an HTC branded and developed phone. The only thing that Google is doing (beside the software) is acting as retailer.

Still don’t see what the point is as a Web page does not make a very good retail experience for a phone. It reminds me of when the iPhone was launched, Apple’s head of retail said that their stores were basically “built for this type of product”.

http://www.engadget.com/2010/01/05/googles-nexus-one-is-official/

Om Malik Interviews Google’s Mobile Chief Andy Rubin

Regarding Android partners like Verizon and Motorola being upset about the Nexus One:

“People shouldn’t focus too much on the device (Nexus One),” said Rubin. “What’s more important is the strategy behind the devices.”

John Gruber:

Yes, what better way to get the press not to focus on a device than to hold a big press conference to announce a device, talk about how great it is, and give one away to everyone who attends?

The common thread among the Android fans is that Google is the agent of disruption of a hated operator business model. Since disruption is well understood (though not by many) it is fairly easy to evaluate this hypothesis.

The problem with disrupting network operators is that disruption can only happen when the underlying service/product they provide becomes “good enough” i.e. more than what customers can absorb. A new basis of competition emerges and we all know what happens.

Here’s the problem: since mobile broadband is by all accounts not good enough, it cannot be disrupted. Operators are very critical in building out this new mobile computing future and they are investing and will reap rewards. Bitpipe models will only emerge after 4G when there will be ubiquitous high speed networks and competition will shift away from coverage and more to price and convenience of plans.

What is happening instead of operator disruption is that mobile voice which is more than good enough is being disrupted. Businesses built around mobile voice (e.g. handset vendors who have not developed a viable business model around data) will simply evaporate and their profits will condense around entrants who have mobile computing platforms.

Google is moving on this opportunity but they are not executing in a way that ensures they control the future platform due to the their being on the wrong side of the modular/integrated dichotomy.

Android will disrupt but I expect it will take 10 to 15 years. The life cycle of a new global network generation rollout is about 10 years. We’re in the middle stage of the 3G cycle that traces its beginnings to early this decade. 4G will take another 10 years.