Gerardo Dada, at msdn blogs, makes the classic mistake here. His contention is that without an economic model, there can be no investment into building the Android platform. Without investment, there is no world class talent to build it and hence such efforts are firmly set to be born still.
Now am sure Gerardo has his logic, being a marketing person he is very consistent in stating his reservations on the subject. All successful businesses have a consistent economic model – captial costs are factored, future demand is projected, competitive constraints accounted for and the price of service computed. All very nice and dandy.
But Google does not think like a business. Their moves are akin to a world champion chess player, who probably thinks many 10s(??) of steps ahead of the opponent. Many factors have contributed to their position in the industry, not the least of all is to take the moral high ground in coining the maxim ‘Do no evil’. But note that all high grounds are only in relation to a low ground (Microsoft, proprietary software, large evil corporations with suited agents etc), or at least a perceived low ground. The subtlety of their strategm remains, though initially in it for the love of building something unique perhaps.
So how does Google monetize Android
- Get more people/devices plug into Google. Its an open secret that the PC market is not moving as fast. Of course there is massive potential in the BRIC economies but these would take time to open up in sufficiently large numbers. An Google that is overtly dependent on PCs only limits its possibilities. Hence the 411, small device focussed apps(say the Blackberry friendly GTalk etc) etc. So its obvious they had to move to a point where they could be with the consumer, always. Right when they would be needed, ubiquitous presence. This directly drives ad revenue.
- May be it was a coincidence, but the iPhone must have forced their hand. I state this based on how raw the Android vision has been, which in itself is highly unusual for Google. Given the muscle flexing of these tiny devices, the usual contraints for rich user experiences that Google relies on become practical, without having to rely on a hundred variety of coffee beans. Here Google throws a little money towards platform development, effectively subsidising all involved parties, which means losing some money but what is gained is traction in the marketplace. Microsoft understands this, in how it supports the developer community, and its similar here. Make the platform effectively free and open to the handset manufacturers and they would bend over backwards. The commitment is the payback here.
- Android is just one facet of Google’s quest to control and mediate how we consume information. It would be a mistake to consider it a single strategy that is consistent in itself, with a profitable economic model. This is where Gerardo loses it I guess. As a commentor on the original post obliquely pointed out, the money is not in the OS. Google might even lose money on Android. And this is exactly Microsoft’s position on the XBox! Lose money on the hardware but make money on the software and service (Games, XBox Live etc)
- From being consumers to the telecom and mobile device providers, Google’s appetite has grown enough to dream of having their own network. They have the reputation, clout and the gumption to envision an entire ecosystem. Or in other words ‘Of the mobile/telecom providers, by the open source community, for Google’. Here the payback is in owning the environment and all that it makes possible. ROI as traditionally calculated might not be relevant here.
This is just my initial thoughts on this. All comments/feedback/flames welcome!