Analysis of Google’s Strategy on Android MS&E 270 Company Paper

Member:

Cheng-Chieh Chao, Zeng Fan, Jianfeng Lin, Arunabha Saha

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Background

Google Inc.

Google was first incorporated as a privately held company on Sep. 4, 1998, and went through initial public offering

on Aug. 19, 2004. Through continuous growth and expansion, by the end of year 2008, Google has the most powerful

brand in the world.1 This incredible fast growth is attributed to a series of aggressive moves, including new product

developments, acquisitions, and partnerships. With the company's mission of organizing the world's information and

making it universally accessible and useful, Google positions itself as a top-tier search company and acts as the

gatekeeper of the world information. Google earns its revenue from targeted advertising related to its internet search,

Gmail, online shopping and other services.2 As a heavily Tech-based company, Google lays great emphasis on

innovation, technology and employee quality. Creative products and services are launched by Google frequently, and

some have become very popular. Gmail, Google Desktop, Picasa, iGoogle, Google Video are some examples. The efforts

have largely paid off and Google holds a strong position in the industry in terms of finance, as shown in Exhibit 1.

Google and Smartphones

Google’s dominance of the search engine market has made it a “verb” synonymous with “search” on most computers

in existence. On the horizon is a vast new market, Smartphone. As cellphones morph into smartphones with capabilities

similar to PCs they are the new frontier for search technologies. With a smartphone in your pocket, Google can not only

provide search results for your desired phrases but also mine data about you and provide very precise, personalized and

context-aware information based on multiple dimensions. Cellphones are growing at the rate of 1 billion a year and

smartphones are expected to reach more than 400 million units by 2013(Exhibit 2). This is a huge revenue opportunity

for Google consonant with its core competencies.

To achieve this goal Google needs to be not only on your browser but also in your pocket. The best way for Google

to be the master of the Smartphone is to be the Smartphone OS. Android, an open-source operating system designed for

mobile devices, is Google’s push in this area.

What is Android?

Android delivers a complete set of software for mobile devices: an operating system, a middleware and key mobile

applications. Android was built from the ground-up to enable developers to create compelling mobile applications that

take full advantage of all a handset has to offer. It was built to be truly open. Android is built on the open Linux Kernel.

It utilizes a custom virtual machine that was designed to optimize memory and hardware resources in a mobile

environment. Android is open source. It can be liberally extended to incorporate new cutting edge technologies as they

emerge. The platform will continue to evolve as the developer community works together to build innovative mobile

applications.

Android does not differentiate between the phone's core applications and third-party applications. They can all be

built to have equal access to a phone's capabilities providing users with a broad spectrum of applications and services.

With devices built on the Android Platform, users are able to fully tailor the phone to their interests. Android breaks

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down the barriers to building new and innovative applications. For example, a developer can combine information from

the web with data on an individual’s mobile phone -- such as the user's contacts, calendar, or geographic location -- to

provide a more relevant user experience. With Android, a developer can build an application that enables users to view

the location of their friends and be alerted when they are in the vicinity, giving them a chance to connect.

Analysis of Google-Android using Frameworks

Resource-based View:

Competing in this information generation, companies should possess unique resources to sustain and thrive. The

Resource-based View combines the internal analysis within the company itself and the external analysis of the industry

and the competitive environment,3 which gives the management team a clear explanation why certain companies can

make profits and sustain in the high competition level. Competitive resources should follow the VRIN criteria, that is

Valuable, Rare, In-imitable and Non-substitutable.

Based on the RBV analysis, Google holds an advantageous position in the Android project and in the overall

smartphone market as well.

Advertising

Google relies heavily on targeted advertising to earn profits and developed advanced distributing and analyzing

technologies that could make advertising user friendly and laser-focused.4 By launching Android into the market, Google

could trace the browser history of mobile users just as what they are doing now to internet users on YouTube and

AdSense websites. This will allow Google to better follow the tastes of consumers by combining two advertising media

-- the Internet and smart phones. Since Android is not a self-contained device but rather a family tree of many devices

from different manufacturers powered by the same OS system, the revenue from advertising programs due to the

penetration of Android into the global smartphone market would be remarkably huge. At the same time, Google’s web

search engine is the most valuable asset with a 53.6% market share,5 and Google should fully utilize this advantage to

promote Android. Putting up more ads, providing related Android links, and some other promotion methods through web

search could highly increase the exposure rate of Android and its applications. This search promoted advertising is a

unique asset to Google and extremely hard to copy by other competitors.

Integration of Killer Apps into the Android Phones and Halo Effect

Google already has a number of popular applications in the market, like Gmail, Google Calender, iGoogle, etc.

Laptop/netbook users are accustomed to these functions and would like to use them as well on the phone. Thus, Google

owns a non-substitutable resource of integrating these killer applications into the Android phones. Killer apps would

increase purchase intentions among the consumers which would encourage more software developers to write interesting

and cheap software. By establishing a sizeable consumer/developer base, Android will have the enhanced bargaining

power towards carriers, handset makers and consumers. A virtuous circle is created and is beneficial for Google

Android's long term dominance. The healthy, robust eco-system will strengthen the halo effect and make the

Android-based devices the next generation of the smart phone market. Notice that, Android is the core of this eco-system

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since Android being free and open is key; while at the same time, utilizing Google's killer apps is the start point to create

this halo effect.

Public Relation: Acquisitions/Partnerships

Having an astute instinct to detect new business opportunities and being open up to new ideas, Google is especially

good at acquiring small promising start-ups and integrating them into its own system. Successful acquisitions include the

purchases of Earth Viewer (later was renamed as Google Earth) in 2004 and YouTube in late 2006. Being a good

opportunity catcher, Google quickly responded to the smartphone market by acquiring Android, a start-up company for

mobile software, when the market presented itself with a huge potential. Meanwhile, Google entered into partnerships

with other companies and government agencies to improve production and services since 2005. For example, Google has

partnerships with Sun Microsystems on technologies, with AOL of Time Warner on video search services, with Fox

Interactive Media of News Corp. on search and advertising on the popular social networking sites, like Myspace, and

with Microsoft, Nokia and Ericsson on the new .mobi top-level domain for mobile services. With a strong tradition of

partnering with other companies, Google feels comfortable to initiate and handle a big project like Android through

collaboration. This acquisition/partnership experience is a valuable resource that other smaller companies could rarely

have.

Company Culture

Google is placed #1 on Fortune Magazine’s list of the hundred best places to work in 2007 and 2008.6 Positive

employee relations have been important in the high-efficient operations within Google and boost lots of creative ideas

through non-serious working hours as well. Google is a fun company and tried hard not to be too "corporate". From

Google's website “Our Philosophy”, such casual principles as "you can make money without doing evil," "you can be

serious without a suit," and "work should be challenging and the challenge should be fun."7 are listed as “Ten things

Google has found to be true”. One good example is Innovation Time Off, which is well-known for Googlers. All Google

engineers are encouraged to spend 20% of their work time (one day per week) on projects that interest them. This

philosophy pays off. Half of the new product launches originated from the 20% time, among which some are very

popular ones, like Gmail, Google News, Orkut, and AdSense. Google encourages innovation and gives employee enough

freedom to explore their novel ideas. This attribute is especially attractive among young engineers and provides valuable

human resources to Google ceaselessly. Therefore, Google's company culture is a unique, non-substitutable and valuable

resource that spurs the long term success of the company.

Among all the main resources that Google now possesses, precisely targeted advertising and healthy eco-system

makes Android promising and enable it to earn a remarkable market share in the smart phone market in the long run.

Good public relations are valuable and rare resources which put Google into an effectively offensive position while

facing the coming competitors. Creative and encouraging company culture gives Google a long-term edge in recruiting

and maintaining the intellect pool and is beneficial for bringing up original ideas as well. Overall, Google’s resources are

valuable and hard to imitate, which can guarantee Android’s success to some extent. However, Google has to keep in

mind that all these resources are subjected to erosion by time and competition. In order to make Android succeed in the

long run, modifications and new moves have to be made from time to time.

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Structural Analysis of Smartphone OS Industry - Five Forces Approach:

Threat of Entry: Low

There are high barriers for newcomers to enter the industry of operating system for smartphones, including:

High requirements for capital and technology

The size of operating systems on smartphones are not as big as those for desktop computers, but the specific

requirements of high stability, low power consumption, high flexibility for customization of different manufacturers and

carriers, and tight integration with hardware make it complicated to develop an operating system for a cellphone. Only

large companies with sufficient capital and related technologies can join the competition. Take the current major players

for example, Windows Mobile was developed based on the matured Windows platform, and Microsoft has a stable

revenue stream from Windows and Office products; iPhone OS uses the same architecture as Mac OS X that is used in

Apple PC, and Apple has a deep pocket benefiting from the success of iPod; Symbian OS derived from another operating

system used in PDA, and is backed up by successful cellphone companies including Nokia and Ericsson.

High switching cost for manufacturers and carriers

If a cellphone hardware manufacturer want to change the OS of the phones they make, they have to cooperate with

the company that makes the OS, from the beginning of the design process of the phone. They need to develop drivers for

the specific hardware they are going to use in that phone, and make sure that the OS runs properly on their phone,

meeting the requirements of battery life, signal strength, etc. The same happens to the carriers, especially in the US where

carriers have relatively stricter requirements on the user interface design of the phone. The investment on implementing

these requirements makes it costly to change to other OS. The case of iPhone is different in that the cellphone hardware

is proprietary and designed by Apple itself. iPhone OS can only run on iPhone hardware, and iPhone hardware can only

run iPhone OS. It creates an impassable barrier for Apple to guarantee the profit from hardware sales, ensure a uniform

user experience and eliminate developer concerns of compatibility issues between different hardware.

Considerable learning curve for hardware manufacturers and software developers

All the major competitors have well-designed architecture that boasts the easiness of developing. But from our

interview with application developers, we still see the dissatisfaction of having not enough documentation and a SDK

that is not easy to develop. A senior engineer in Qualcomm, a chipset maker for cellphones, told us that mobile phones

need a lot of tuning in the OS to save the power consumption. The learning curve for the OS maker to design an OS

architecture that is easy to use, and the learning curve for the partners to use the OS, are still a high barrier for this

market.

Patent contention

Apple successfully filed a patent to protect the multi-touch user interface of iPhone, by which users can do operations

like zooming photos using two fingers. This intuitive interface is a major attracting point for people to buy iPhone. The

patent put iPhone in a unique position where there will be no substitute for people who want to use multi-touch. A war of

patent creates barriers for competitors from copying each other.

Threat of Substitute: Moderate

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A netbook equipped with a 3G chip can make phone calls, and is more powerful than smarphone in running

applications. It is larger than cellphones, but it may be worthy for some people that need to carry a laptop and a cellphone

all the time. The decreasing cost and increasing integration level of ultra-mobile CPU makes it possible to manufacture a

netbook that has a small size and sells cheaper than some smartphones. The convergence of PC and cellphone attracts

attentions from many large PC manufacturers. HP, Toshiba and Lenovo have been selling netbook with integrated 3G

chip in New Zealand, and Dell is said to be developing a similar product that is targeting at low-price market. This new

category of product puts a moderate threat onto the current smartphone OS market.

Supplier: Not Exist

All the major players develop their products either from other products they already have (iPhone from OS X), or

from free open-sourced product (Android from Linux). They may license some patent from some other companies, but

normally they do not purchase other products, and do not use out-sourced development. Therefore, there is no clear

supplier in this industry.

Bargaining Power of Buyers: High

The buyers of smartphone OS consist of hardware manufacturers buying the OS, carriers writing contract with

hardware manufacturers of the OS, software developers selling their software on the online store of the OS, and

smartphone users buying phones with the OS.

For hardware manufacturers and carriers, although there is a switching cost between different OS, having killer

applications is more important than the OS, therefore they are inclined to choose a platform that has better applications,

and are willing to switch to a better one if the situation changes. Also, due to the intense competition of cellphone market

and its expansion in developing countries, nowadays manufacturers and carriers can only make a small profit from end

users. Therefore they can only afford a little cost on the OS. This pushed Google to make Android a loyalty-free product.

For software developers, the popularity of the online application store usually decides their potential profit of creating

and selling software for that OS, thus the bargaining power of the price of online store is diverse: Apple has the largest

store that can keep their listing price at $99 for each developer, while Google has to set the price at a lower $25, so as to

attract more developers.

For cellphone users, they have the information about which platform has more interesting applications, and

applications are more important than the platform underneath, so they have strong bargaining power towards the

platform.

Rivalry: Intensive

As mentioned before, the market of smartphone OS is growing rapidly, with two dominant players taking up the

largest share and several aggressive competitors that have strong capital support. Major competitors are all using the

strategy of online application store to provide a better user experience of purchasing software, while they are

differentiated in the revenue model and targeting market. Google is trying to lower down the cost of OS and leverage the

advertizing of online search. RIM is targeting mainly at business customers. Competitors also change their strategy

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quickly to adapt to the trend of the market. For example, Apple released a feature to receive pushed mail from corporate

mail servers, in order to attract business users. This is a hyper competitive market with intensive rivalry.

To conclude, the Five Forces analysis shows that Google has found a good position of being low cost to enter this

market.

Game Theory View:

Value Net

Android

Complementors • App Developers• Handset Makers• Carriers

Substitutors

Customers

Suppliers • Chip makers • Software Cos

Shown above is the value-net of Android. The horizontal axis consists of a weak substitutor group and

complementors with relatively high power. Google’s Android can be viewed as a platform on a three-legged stool

supported by complementors. Each class of complementor below forms a leg of the stool:

· Application Developers for Android (Individuals and Companies)

· Carriers (ATT, Verizon, Vodafone, T-Mobile...)

· Handset Makers (HTC, Samsung, Motorola...)

Google’s strategy is to leverage its added value and attract a unique and capable set of complementors initially. The

partnership with these complementors produces an attractive product that entices consumers and in turn forms a positive

feedback loop.

Android’s added value into this ecosystem comes from Google’s core capabilities and competencies. The

added-value can be enumerated broadly as the following:

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· Open Source;

· Low Cost (Zero Licensing Fees);

· Tight Integration with existing Google apps, e.g. Gmail mobile client;

· Ability to integrate seamlessly with Google’s search products, e.g. voice activated search;

· Google’s reputation.

The added-value to the complementors are

· Developers have the possibility of a ad-based revenue model and a free and powerful platform and SDK. They also

have the opportunity to belong to the Android community by making contributions although there are some

restrictions in this regard like no adjustments to the OS.8

· Carriers potentially mine user data and leverage Google’s infrastructure to provide a push-based service.

· Handset makers get a free open-source platform that can drive down the cost of their product.

Google formed a charter group termed the “Open Handset Alliance” with 47 members at last count to work with the

charter of delivering a richer mobile experience to consumers. It is a statement by Google that they will leverage the

areas they are best at i.e. software and collaborate with others in the areas which are not their strength.

Application Developers

Appication developers are The key complementors who can be leveraged to exponentially augment the added value

of its platform and Google has spent a significant part of its resources in attracting application developers to the

Android.

“The chances of the next killer-app coming from outside Google is probably much greater than the chance of it coming

from within Google”

– Erick Tseng (Android Product Manager)

Google made a number of strategic moves with the specific aim of attracting developers.

· Open Source Android - An open source platform is typically an effective way to generate interest and attract R&D

talent to a software product.

· $10 Million Challenge - Crowdsourcing as a tool for generating and refining data has become extremely

popular. The $10M challenge is another example of Google leveraging this technique to kickstart a whirlwind of

development activity on Android at a relatively low-cost.

· Build Relationships - Google has also worked with other third-party developers like Adobe(flash player),

Amazon(MP3) to port their flagship desktops applications.

· Low Entry Barrier: Google makes it very easy for a developer to move to Android by giving the SDK away for free

and using Java as the main programming language

Android is an attractive platform to do some intial development due the use of "Java" programming language and

limited restrictions. It uses an "activities" based model that has the potential for enhanced inter-application collaboration.9

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Android has scored some successes in this area.10 However, it faces a formidable challenge from incumbents like the

Iphone, which has attracted the largest number of app-developers.

Platform choice is not exclusive though and app Developers can choose to cross-develop across platforms because

mobile applications are usually not very large and take less time to develop.11 This is both a positive and negative for

Android.

Android is going through growing pains in some areas like comment moderation on applications, developer

documentation, paid-apps on developer phones8 but we expect them to resolve these issues.

Handset makers

Handset makers form the second leg of the stool. From Google’s perspective they serve as the vehicle for delivering

Android and Google wants Android to be the mobile platform that is delivered on most handsets. Google’s strategy here

is to position the added value of (Android + Google apps + Application developers + "mindshare") as a value proposition

to handset makers.9

Handset Makers can either choose to develop their own platform (Nokia) or distribute their handsets across multiple

mobile platforms for their handsets(HTC, Motorola). It is a choice between, retaining the flexibility to get seamless

hardware/software integration with added R&D expenses OR outsourcing the R&D expense associated with maintaining

a mobile platform and concentrating on differentiation in other aspects. Google has also teamed up with a supplier like

Qualcomm to develop chipsets that are specifically tuned for Android.11

Among handset makers, strongly placed complementors like Nokia/Apple/RIM view Android initially as a

competitor. The complementors more likely to invest in Android as their vehicle are handset makers who are striving for

cost-leadership, those that do not have a strong mobile platform and ones who are seeking to enter the Smartphone

market. Motorola, Samsung, HTC fit the bill for Android.

It’s not just about creating an OS, but luring developers to build applications for it. It is difficult to do. We see a

stronger system developing around Android, for example. We will work very hard with Android guys, will work very

closely to offer differentiated products.

- Sanjay Jha Motorola co-CEO on Q3’08 Conference Call

Google had the opportunity to influence a handset design by using a handset maker that had the right capabilities, was

looking to enter the market but did not have significant bargaining power. Google chose HTC, a Taiwan-based handset

maker, and made significant contributions to the design. Since the handset was branded by default as the Gphone the

strong brand awareness of Google made up for the weak brand awareness of HTC.

Carriers

Carriers form the final leg of stool and they carry significant power especially in the United States due to two primary

reasons.

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· They approve and subsidize handsets used on their networks which are walled gardens.

· Consumers are locked on to a carrier for 2 years with a contract hence there is typically a 2-year cycle for phone

upgrades.

With carriers Google had developed a perception of being a 'substitutor' due to its efforts to buy spectrum and open it

for public use.

. "We've looked at wireless very carefully the most important thing is for there to be an open network so that people can

go to a store and plug that device into a wireless network and use the full capability of the Internet. The longterm goal

is that those users will become very significant Google advertising users."

- Google's CEO Eric Schmidt Q2 2007 conference call

In the US market, our channel checks showed little interest in an Android phone at ATT which has Iphone

exclusively to itself for 5 years while Verizon is recovering from an initial reluctance to embrace Android. Sprint and

T-Mobile both became OHA members and the first Android release was on T-Mobile although a Sprint handset is

expected to follow soon. Google provides a better revenue-sharing model for Android applications with a 30% share to

carriers for every app sold.

With T-Mobile Google obtains enhanced leverage with pricing and plans but loses out on the ability to reach a large

subscriber base(Exhibit 3 and 4). T-Mobile’s 3G network coverage also ranks worst among the 4 US carriers.13 Hence,

the first edition of Android is saddled with some carrier weaknesses. T-Mobile will certainly not be the only carrier

vehicle for Android. There are plans for a Sprint Android phone and success will ensure phones on every carrier but

initial success spawns the future wins and T-Mobile remains a weak complementor in this regard.

In the international market Google has done better by teaming up with Vodafone which is the dominant carrier in Europe

and China Mobile which is the dominant carrier in China(Exhibit 3).

Changing the Scope

We saw how Google brings added-value to the table and in the first edition of Android stands on the shoulders of

three individual complementors. Future dominance would require Android to stand on the shoulders of an infinite

number of complementors. An individual complementor cannot be a big weakness or a big strength for Android. It

should do that by:

· Augmenting the power, scope and perception of its added-value;

· Convincing large number of handset makers toi adopt Android as their mobile platform. Google has to balance out

conflicting goals of Android handset fragmentation and Android handset ubiquity hence this is a delicate game to

play;

· Ensuring that a majority of carriers in the world market an Android phone.

By weakening the hand of its complementors Google’s Android can become the most important player in the game by

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means of its added-value. The absolute requirement though is to kick-off the virtuous cycle with Android phones

gaining a significant mobile subscriber base and attracting developers.

The game is ultimately to capture consumer interest and monetize it with ad-based revenue. Among the incumbents

are Iphone and RIM’s Blackberry who are the dominant market players. Android can follow one of these strategies:

1. Avoid competing directly with dominant players. Position handset makers as customers who have the option of

choosing Android as a mobile platform and ensure that Android is a winner regardless of which handset wins. This

has been hard to achieve because dominant players have their own mobile platforms.

2. Partner with a smaller subset of handset manufacturers and build flagship products that target each

segment. Leverage the added base of consumers and developers to bring in other complementors.

Android’s endgame is to move to with strategy 1 but it has limited options right now and has to kick start efforts with

strategy 2.

Evolution Theory:

I. Simple Rules

a. Develop a family tree of Android.

Google broke its silence in early November 2008, and there was nothing about a gPhone. Thirty-four companies were

joining Google to build a wireless interface based on Android. What Android is trying to do is not introducing a new

gadget to rival the iPhone. Google had something radically different in mind. Apple's iPhone was a device itself — a

self-contained masterpiece in a sleek-designed shell. Android was a seed intended to grow an entire new wireless family

tree powered by the same OS.14 Google was not in the hardware business. There would be no gPhone - instead, there

would be hundreds of gPhones. Android was a fully customizable system(Exhibit 5). Any application could be removed

or swapped out for another. HTC, Motorola, and LG announced plans to market new Android phones in a multitude of

shape and sizes, each with different software options.

b. Build a killer app.

Google put a free Android software developer's kit on its website and announced the Developer Challenge, with $10

million in prize money to be parceled out to the creators of the best applications for the new system. The Challenge was

an open call; anyone was invited to take a shot.15 Few programs were creating from scratch — an email app, a contacts

manager — could be replaced with third-party software that did the same thing.

By the April 14 deadline for the first round of the Developer Challenge, Google had received nearly 1,800

submissions. Entrants ranged from huge corporations to single-person shops and came from all over the world. Only a

third was from the US. Google's model is to build a killer app, then monetize it later.

c. Be Free and Open.

Google didn't care how any individual model was created as long as the hidden Android DNA was there underneath,

keeping everything tied to the Internet and running smoothly. Google has announced that the source code underpinning

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its Android platform for mobile devices is available for free to anyone who wants to modify it. The code is being

provided through the Android Open Source Project, which will give the public the opportunity to make contributions to

the platform's all-important core -- a first for a mobile operating system with true mass-market appeal. Theoretically, the

move should position Android to benefit from a fairly democratic, speedy evolution, and it'll also give anyone the chance

to build a smartphone of their own without shelling out licensing fees.

II. Blue Ocean of Open-Source Programming

Abrupt changes are much more difficult in red ocean environments, as everyone tries to outsmart the others, and

those that are capable of surviving for longer are increasingly favor by this competitive model. But “order of magnitude”

changes are possible in the blue ocean strategy, because the space for exploring new things is much larger. Google is

propelling itself into entirely new waters with the launch of its mobile telephone — Android. Those waters, however, are

already quite red and bloody — given a plethora of competition. Google has a plan for this, and it again involves some

Blue Ocean Strategy-like thinking.

Android's true target isn't the 19 percent of phones running operating systems like BlackBerry, Windows Mobile, and

Mac OS. It's the other 81 percent of phones, which aren't smartphones and run operating systems you've never heard of

like Nucleus and P2K. This large part of the market we call feature phones has become more and more powerful,

hardware-wise, over the past few years. But these brawny handsets are still using software stacks designed for the 20th

century. Android can be the game changer which provides a platform which is easy for handset makers and application

developers to adopt.

III. Probing Smartphone Application Market

Google recently announced how they intend to promote apps for the Android operating system. The "store" will be

referred to as the "Android Market" which will be more of a collection of applications available for the platform. They

did not spell out how commerce will be accomplished--just that free apps will expect support for now. This news is

welcomed by developers who are frustrated with the semi-closed nature of the AppStore, but does pose some critical

issues in its deployment.

The Android Market has a lot of positives:16 (Exhibit 6)

1) Developers do not need to pay $99 to be listed on the store, plus Google does not restrict or limit developers from

participating.

2) Since the developer self-uploads, the applications can be released and updated in real-time with no long approval

queues.

3) There will be an icon on the Android-based phones so that users can access the “market” directly from the phone,

and download apps directly to the phone.

4) The “marketplace” will be a central location for finding all available applications of those who wish to be listed.

Users do not need to search around on different websites.

5) Customer reviews will be included.

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6) Demo versions will be allowed -- the shareware model can be used.

7) If there is an online desktop store, it will most likely be accessible from a regular browser, so can be used from

ANY computer.

a. Centralized or Partially-Connected?

No mention was made of how this will be accomplished in a central location. Developers may be able to sell directly

via their own websites, but for some smaller or novice developers, with no established ecommerce solution in place, this

omission will make selling more difficult. Users will also have to visit each developer's ecommerce site separately and

make individual purchases. The impulse buy will be limited; the variety of purchasing experiences will most likely

reduce customer satisfaction. Therefore, overall application sales could be lower, making the platform being less

attractive to developers.

The current Palm/Windows Mobile ESD's (Electronic Software Distributors) could offer novice developers an

ecommerce solution, which on the surface may not be bad, but if this grows too much, the ESD sites may grow to be The

place to buy Android software, and their current commission structures, price fixing requirements, and other tactics are

not palatable to many developers. The commissions commanded (50-70% of the software price) severely limit the

amount of profit an individual developer can earn. These commissions are bad enough with higher-priced software, but if

Android apps are priced like the AppStore, these commissions for ecommerce could also inhibit the attractiveness of the

platform to developers.

b. Application Maintenance

The management of obsolete applications as the archive increases in volume is critical for application suppliers.

Currently, the AppStore solution of a $99 'membership fee' will allow Apple to eliminate apps where the developer is no

longer interested in listing. This fact will effectively keep the store a bit tidier in the long run. Palm and Windows Mobile

applications have had a history of free download sites or software archives. Not only are many of these sites loaded with

outdated, unsupported titles, making it difficult to find software, but some of these sites themselves have been abandoned,

as far as management of them goes. Even the ESD's have had trouble trimming down the outdated and abandoned apps.

Right now the AppStore uses iTunes to take care of this rather seamlessly. Palm used the Palm Desktop to keep

things backed up. However, the transfer of apps from the download to the Palm Desktop to the device leaves much to be

desired. The AppStore solved a lot of problems for the customer experience, which has plagued developers' customer

help desks for years. Will the Android Market be an improvement to the current smartphone app experience or just more

of the same? Making things easy for customers is the key to a successful marketplace for everyone.

c. Registration Key Delivery

If the Android Marketplace allows for only demo downloads then each developer will need to set up their own copy

protection scheme and registration key delivery. Developers may prefer the control this allows, but the customer

experience will again be varied, especially on the registration key delivery, or fulfillment process. The AppStore does not

really allow for the shareware demo model, which is frustrating for both developers and customers, but if there is no

streamlined way on the Android Market to deliver a registration key code for an application, this factor may also limit

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actual sales. Current commission-hungry ESD's of the Palm/Windows Mobile smartphone applications have finally

gotten decent delivery processes in place for the developers, which are welcomed by both users and developers. The past

email-delivery had been increasingly frustrating with the ever increasing spam. Emails were filtered, ignored, or not even

delivered. High customer service volume was due mainly to this delivery/fulfillment issue alone.

To summarize, it will be interesting to watch how the Android Market evolves. To succeed with the more open

format, they will need to offer a common ecommerce solution, with an easy fulfillment method, at a minimum. A good

model to follow for the ecommerce is Amazon, where customers can buy all the products from many suppliers in one

shopping cart and one checkout. HTTP POST auto-fulfillment is the preferred method for developers because the

developer hosts the registration keys. Developers will heartily welcome the centralized on-device Market and the ability

to control what and when they upload to the site. Customers will welcome the ability to get demos and the central

location for browsing.

The Android Market must also be careful to not become overcrowded with obsolete applications and plan for great

navigation of the site, such as sub-categories, search, and viewing alternatives (by date, by rating, etc.). The Market must

implement measures to prevent abuse that has been present in past mobile software archives (bogus updates for better

placement, multiple listings of the same apps, for example) and find ways to highlight fresh content. Otherwise, it could

become just another dated, unnavigable, software listing site that is populated by blocks of Adwords.

Recommendations

Overall, Google Android holds an advantageous position in the smart phone market right now. However, we still

believe that the following recommendations would be helpful for Android to maintain its momentum and further succeed

in the long run.

Advertising through Google Web Search Engine

Billions of users use Google search engine every second to get desired information. Android, as Google's own

product, should fully utilize this unique advantage. As we already discussed in the RBV analysis session about the

Advertising part, Google should increase Android’s exposure to the market by heavily promoting it through search

engines. Many promotion methods will help, like putting up more ads about Android on the Google homepage, returning

to Android products when an error occurs, and adding an Android icon in the Google products toolbar, etc. Google holds

an in-imitable position to make Android widely known and it definitely should do so.

Provide Subsidy to Lower Down Cellphone Price

Apple has been lowering down the price of iPhone to obtain a larger market share, and their exponentially-growing

market share gives them a strong negotiation power in the hardware price in return. To kick off the circle of increasing

market share and decreasing price, it’s better for Google to provide some subsidy for carriers to lower down the price of

Android cellphones, especially in this economic crisis where customers are more price-sensitive. It can also help them

create a clear low-price position when compared to iPhone. The cost of subsidy can be offset by the increasing revenue

from mobile search.

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Devote more effort in producing killer app in Google

Up to date, most of the application available on Android is produced by Google. Some examples:

'CompareEverywhere' Barcode scanner using the built-in camera to scan the barcode of interested item, and compare

the price in nearby stores. 'Maverick' empowers users to instantly exchange text, location and multimedia content in the

form of audio clips, photos and scribbles with other Maverick clients and with desktop applications such as Google Talk

or iChat. These applications were developed by Google engineers. Currently, Innovation Time Off encouraged Google

engineers spend 20% of their work time on projects that interest them. A large portion chose to work on Android

applications. Since it's Google engineers are most familiar with Google's star software (i.e. Gmail, Google Map, etc.), it

turns out it's very effective for them to develop application in related topics. Application is one of the key factor to make

popular OS platform, and Google has the capability to fill the empty places before independent application developer

takes over. In order to kick start the positive feedback loop, Google should put in more effort developing new

applications for Android.

Partner with Carriers

Google has to change its perception from a substitutor to a complementor when it comes to carriers. The only Google

handset is on T-Mobile which has a poor 3G network. While Sprint seems to be onboard Google has to mend fences with

Verizon and get out a Android phone on Verizon. Verizon is the carrier with the largest market share in the US after its

purchase of Alltel and having a handset on T-Mobile, Sprint and Verizon will greatly improve the subscriber base Google

can reach.

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Interview Subjects

1. Erick Tseng – Lead Product Mgr, Android

2. Rudi Cilibrasi – Independent Android Developer

3. B R – Google Employee and part-time Android Developer

4. C P --- Android platform lead, Large Software firm

5. Wayne Lee – Senior Staff Engineer, Qualcomm

References

[1] Millward Brown, http://www.millwardbrown.com/Sites/optimor/Media/Pdfs/en/BrandZ/BrandZ-2008-Report.pdf

[2] http://en.wikipedia.org/wiki/Google

[3] David J, et al. Competing on Resources, Harvard Business Review, July-August 1995

[4] Google Annual Report, Feb. 15, 2008

[5] “August 2007 Search Share for Top 10 Search Engines from Nielsen/NetRatings”, 26 October 2007. Retrieved on 26

October 2007.

[6] Fortune Magazine (link published by CNN). 22 January 2007. Retrieved on January 8, 2007.

http://money.cnn.com/magazines/fortune/bestcompanies/2007/full_list/

[7] Google’s Philosophy, http://www.google.com/corporate/tenthings.html

[8] Interview with Rudi Cilibrasi (Independent Android Developer)

[9] Interview with C P (Android team lead for large Software Firm)

[10] Android Developer Statistics

(http://android-developers.blogspot.com/2008/04/android-developers-have-risen-to.html)

[11] Interview with B R (Google Employee and Part-Time Android developer)

[12] Interview with Qualcomm (Wayne Lee)

[13] Gizmodo 3G data test (http://gizmodo.com/5111989/the-definitive-coast+to+coast-3g-data-test)

[14] Android Official Introduction (http://www.android.com/)

[15] Google's Open Source Android OS Will Free the Wireless Web - Daniel Roth

(http://www.wired.com/techbiz/media/magazine/16-07/ff_android?currentPage=all)

[16] Android Market - Google's Answer to AppStore? - Justine Pratt

(http://www.creativealgorithms.com/blog/?q=content/android-market-googles-answer-appstore)

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Exhibits

Exhibit 1: Google’s Financial Data (source: http://www.google.com/finance?q=NASDAQ%3AGOOG)

Exhibit 2: Growth Rate of Smartphone Market (Source: iSuppli, compiled by Digitimes, March 2009)

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Exhibit 3: Worldwide Carrier Statistics

Exhibit 4: The Quality of Different Carriers

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Exhibit 5: The Architecture of Android

Exhibit 6: Comparison of Online Application Stores

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