There has been a bunch of commentary about Google’s mobile platform Android. Most commentators seem to be banging on about how it is going after the Apple iPhone (R/WW seems to be fixated on this aspect). This analysis misses the point. Of course Android will try to emulate the best in class product, there’s no point going out with something 2nd rate. But Android is much much more important to Google than just an iPhone competitor, Android is Google’s punt on protecting its advertising business (98% of Google’s revenue).
How? Well we are moving into a mobile device dominated world. This trend has been happening for awhile and is a function of scale and Moore’s law. (basically laptops have gotten cheaper, performance is better etc). The PDA I have on my desk right now, clearly sits right between my desk phone and my notebook in terms of functions and performance. When you factor in cloud computing benefits and Web apps (SaaS in some cases), PDAs aren’t that far away from replicating at least 80% traditional computing hardware functionality (and by association replacing those hardware units).
Xero believes this trend is happening and has come out with an iPhone supported version of its SaaS Accounting app to get into that space early.
The implications of this are enormous. There is no dominant OS provider (why do you think MS has listed Mobile as one of its core strategies?). The other major player seeing this trend and having panic moments is Google. Think about it, if I use my mobile to browse the web more and more, then I logically would use it for search. That means Google becomes less relevant in advertising because (you try this) there are NO Adwords displayed in a Google mobile search.
Connect those dots, growing mobile internet use, no Adwords….
So, if you are Google what do you do? Well you try to create a mobile platform that is hugely popular and ensure that in that OS is a browser (or some other special feature) that provides you with an avenue to protect your advertising revenue (or provides you with a new one). This platform must be hugely popular for two major reasons.
1) for your advertising revenues to stay the same you need ubiquity (similar to their 67% of US search type ubiquity)
2) without that kind of demand, no carrier will support Android mobiles.
GigaOm outlines a couple of reasons for that here, but more importantly Google hasn’t exactly made a whole bunch of friends in the carrier world with its stance around net neutrality and the San Francisco WiFi project.
I’ve blogged before that Google appear to be having their challenges, the shine is definitely coming off their share price. There are other indications of a new commercial reality coming out of Google too. Check this out by Garett Rogers on the Google App Engine pricing…
This surprises me because Google is the king at making things ridiculously cheap — not comparable.
My read on this move, Google is under the cosh for profit growth to justify its PE ratio.