Google’s GOOGL model is different so its modus operandi needs to be different, and it’s because of this method Google is the greatest enabler of competition.
Since competition authorities across the world are taking stabs at Google’s strong position as a mobile OS provider, I thought this might be a good time to brush up what we know about Android and try to estimate what it means to consumers and investors.
Android was acquired by Google in Jul 2005 with three of its four developers (Rubin, Miner and White) joining the company. Subsequently, Google released the Android Open Source Project (AOSP), which is a free open-source system (meaning that anyone can develop and use it). But that isn’t what most people understand Android to be, which is the reason Google is the subject matter of a number of lawsuits.
Is Android Really Open-Source?
Open-source essentially means that the source code is open to anyone interested, to develop the software and use it as they please for free. Now let’s compare that with Android.
Anyone using AOSP can develop the software and use it to run any kind of device without paying Google a cent. So it’s definitely free. Second, Google encourages joint development of the platform although device makers typically don’t share such information in the hopes that they might be able to differentiate their own product and at some point, reduce or eliminate their dependence on Android. So both in terms of development and free usage, Android is very much open-source.
Partners Want More Control
Device makers aren’t satisfied with the bare Android; they also want to use Google’s proprietary mobile services (GMS) apps like Search, Maps, Gmail, Calendar, Google Play, etc. and they see this as part of their right to the open-source code.
But if they want to use GMS apps, Google makes them join the Open Handset Alliance or OHA (an agreement that requires their commitment to make Android devices approved by The Android Certification Program only). The OHA program (total 84 members; founding members included Google, eBay EBAY, Sprint S Nextel, T-Mobile, Intel INTC, Qualcomm QCOM, Texas Instruments TXN HTC, LG, Sony, Samsung, Motorola, etc.) enables Google to prevent fragmentation of the platform by reducing support for forks.
Any open source effort can quickly dissipate if there is too much fragmentation, with customers being the biggest losers. Since it’s also extremely difficult for app developers to work on a fragmented platform, it’s virtually impossible to build an ecosystem around it.
But it gets more complicated. OHA members making end devices (for direct use by consumers) have to pre-load the entire bunch of GMS apps and not any of them singularly or in combination. This means that when device makers pre-install their own competing services as well (like Samsung does), they are confusing for users and viewed as bloatware. Second, alternative service providers (like Yandex search in Russia) have a hard time when not pre-loaded because of the high quality of Google’s proprietary software. Third, non OHA members are unable to use Google Play and it’s this huge collection of apps that makes the platform successful.
The Main Objections
Google Can't Control Android Development: There are two aspects to this, the first being the development of the Android platform and the second being the development of the app ecosystem. As far as Android is concerned, AOSP isn’t controlled by Google.
The second case is more interesting because Google doesn’t force app developers to build on the OHA version. But the OHA version gets Google support in the form of data (maps, location, weather, calendar, etc that can be used by developers), Google’s cloud-supported tools and in many cases, support for iOS. This means that if developers build for the OHA version, they get tons of support and can automatically target the largest user base (both Android and iOS). So that’s what they naturally prefer.
Google Can't Favor Own Services: This implies that Google shouldn’t be allowed to use Android code (which it owns and develops) to pre-install a bunch of free apps. Google doesn’t prevent users from downloading any number of apps they want, so users aren’t affected by this. App makers and device makers are affected because they either have to join the OHA or do a lot more development than they want to. So basically, they want to decide whether Google is allowed to bundle or unbundle its services, or in other words, to determine the price of using Google apps and Google support.
Android Isn’t Free: This at least is partly true because Microsoft gets a cut, no matter how much it whines about Google dominance. Google on the other hand, doesn’t make anything from Android. It uses the platform to pre-install its free services and makes money only when they are used.
Users/Partners Forced to Use Android: Some have argued that Google has a stranglehold on Android through the OHA. This is partly true because monetizing a free OS isn’t easy and Google has perfected that aspect through superior technology, strategy, marketing and financial muscle. There is nothing preventing anyone else from doing the same thing except that if they want to develop/commercialize an Android fork, they can’t enlist the help of OHA members who have committed to Google’s Android.
If OHA members want to develop an Android fork, they have to quit OHA and forego Google apps and support. They are free to develop competing operating systems themselves or support competing operating systems at any time even as OHA members.
The Benefits of Competition
Competition is considered beneficial because it supports innovation, reduces prices and benefits consumers. So if Google’s Android is anticompetitive, it won’t spur innovation and will have the effect of increasing prices.
Android has gotten better and better over the past few years as have Google’s own supporting apps. As far as the rest of the world is concerned, Apple’s iOS continues to get better and Microsoft’s plans of entering the mobile market have crystallized. Microsoft along with many others is also funding CyanogenMod (an Android fork), which has the goal of creating a truly open OS that can take down Google’s Android (we’ll see how that story develops when its time for monetization).
Amazon’s AMZN Fire fork is being built up slowly and Amazon clearly intends to use its Prime platform to feed sales. Xiaomi is an Android fork that is already a roaring success in China with growing popularity in some other Asian markets.
Samsung and Intel’s joint effort to develop the Bada OS was abandoned, but there could have been non-Google factors at play given that Intel is a close collaborator with Samsung competitor Micron in the memory chip business. Samsung preferred to go it alone instead, developing its Tizen OS that currently runs some of its wearable devices. Samsung is en route to cutting ties with Android through Tizen if it can promote gradual adoption of its proprietary OS. It has already created Samsung clones for most of the GMS services.
One of the reasons Amazon’s Fire branded devices haven’t done so well thus far is the company’s decision to use a Google fork rather than join the OHA along with competitor eBay. But Amazon’s focus is on selling its products/services and devices built with that objective in mind would have limitations for people wanting to use their devices to do other things or buy from others.
Samsung services are also built with the objective of promoting Samsung’s own devices and there’s no incentive for Samsung to develop Android for its competitors.
Some years back, Skyhook offered location data to Motorola but that deal had to be cancelled because Google said it would mess with its own location data and could have affected Google Maps. Also, when Acer wanted to use the Alibaba-developed Android fork (albeit disputed) called Aliyun, Google pointed to the OHA that Acer had signed. Acer chose to stick with Google’s Android.
The fine line here is innovation in services that compete with GMS such as search by Yandex. The Russian search innovator seems to think that just because Android is free it’s not owned by Google. There shouldn’t be any dispute about this, Apple decides the default search on iOS devices and Microsoft on Windows devices. Therefore, putting limitations on Google, which owns Android for this reason isn’t logical.
Android as it exists today is mainly because of Google’s efforts to develop it and protect its integrity. How useful a free OS would be if it didn’t have the means to challenge the market leader (which was earlier iOS) is debatable.
While Microsoft MSFT presents its devices as premium, it has taken Google’s path in allowing free Windows downloads for some. And Apple too started offering its iOS free after Android was born.
Because Android is free, it can be used to run much cheaper devices. It’s the OS that runs devices in the broadest price range. And it’s not limited to smartphones and tablets either, so many more companies can use it to run many more categories of devices, which in the world of IoT is a very big positive.
Users Want More Google Control
At the end of the day, the consumer is king, so let’s also see how all this affects users.
Since the OHA members are allowed to mess around with the user interface to customize their devices, it takes them a good amount of time to push out a new version of Android (if at all they are interested in doing it). And that’s not all; these different-skinned versions are then checked by carriers for compatibility, which further delays the upgrade process. Users would prefer greater control by Google for this reason alone.
That’s what gave birth to Android One that Google is trying out in emerging markets. The main job is to figure out how the upgrades can be pushed out quicker while also providing for customization.
It’s plain to see that the survival of Google’s services and to that extent Google itself depends on the proliferation of its Android OS across as many makers and across as many regions as possible. In contrast, Apple’s survival depends on the sales of its iOS devices to as many people as possible. In Microsoft’s case it’s Windows. But of course none of these companies has an altruistic motive, that’s not what investors pay them for.
Google’s model is different, so its methods of operation need to be different. And because of these methods, Google is the greatest enabler of competition (although there might be incidental damages too along the way).
Google has a Zacks Rank #2 (Buy).
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