The story of Android's dominance and Google's golden handcuffs
How far will Google go to protect its moat?
Hi,
Sorry I have been absent for a few weeks. I was working on a few articles, and they just didn't work out. Now they are lost in my pending drafts, hopefully one day they will see the light of day.
Today’s story is about Android.
How did Android become so dominant? And to what length would Google go to destroy any competition.
Android turns 15 years old this September.
Thanks to affordable mobile phones, Android commands a global market share of ~72%.
In simple words, Android is the software that powers most phones (unless you use an iPhone). It is an operating system (OS), connecting the hardware with the applications on your phone such as WhatsApp, Twitter, Maps, Candy Crush etc.
To achieve its dominance, Google has adopted the position of giving Android away for free to smartphone manufacturers. If the manufacturers follow some conditions, they get access to the entire Google Suite of services and apps. This is how Google, YouTube, Gmail, Maps and most importantly the Play Store come pre-installed on every device.
It is sustainable for Google to give Android away for free as it earns revenue from running ads on its apps and services, subsidizing the development costs for Android.
Hence, Android functions as a moat surrounding the money minting advertising machine that is Google Search, YouTube, Gmail, Play Store etc.
How did Android dominate the market?
Google’s motivation behind developing Android was to stop Microsoft from taking over the mobile computing space the way it had done with desktops. For that it had to make sure the operating system was easy and affordable to adopt.
By founding the Open Handset Alliance in November 2007, Google committed to making Android an open-source operating system. Meaning developers can see and edit Android’s source code. The open-source nature of the operating system allows the code to be freely distributed and available to anyone for commercial purposes.
This made it highly popular with phone makers. Just a few years after the launch of Android 1.0, smartphones powered by Android were everywhere.
As smartphones became more prevalent, Android’s market share grew, while Windows was confined to PC’s. Microsoft tried to compete for mobile computing with Windows Phone, it made a slew of smartphones, and even outright bought Nokia's smartphone business to buy its way into the smartphone market. But none of that worked.
It was late to the party. Android had the first mover advantage.
Google’s golden handcuffs
However, Google has made sure that Android does come with a set of golden handcuffs around it.
1. To be certified for use with Google’s Services such as the Play Store, devices must have Google’s apps pre-installed.
2. Manufacturers can only offer a single Google certified version of Android for their device.
3. The manufacturers have to pre-install Google Search on their devices, which Google would compensate them for.
During the early days, most smartphone manufacturers went along with this as they were happy to have Google develop the OS and serve as the gatekeeper for apps on the platform while still having access to the base OS for free.
Their tune began to change though as the number of devices grew and manufacturers began to see the massive amounts of money Google was making through the Play Store (by charging a cut of in app purchases and subscriptions) and Search ads on mobile.
Google will protect its moat at any cost
Samsung, one of the world’s largest device makers, tried to build its own operating system twice.
The first one was called Bada which failed, and it later improved on it and released a new one named Tizen.
The long-term strategy was to slowly switch over their devices to Tizen OS and possibly even sell it to other device makers.
Sensing the threat, Google bought Motorola for ~US$13 billion. All cash.
The message to Samsung was clear. If it went ahead with making Tizen, Google would raze the earth by releasing Motorola phones with its version of Android at a discount and thereby destroying Samsung’s market share.
Samsung caved and signed an agreement with Google indicating its continued commitment to Android.
Two days after Google signed the agreement with Samsung, it sold Motorola to Lenovo.
The threat had worked, and Google didn’t need Motorola anymore.
Now there is a new threat to Google’s dominance in India.
During October last year, the Competition Commission of India (CCI) fined Google for abusing its dominant position with respect to its Play Store policies and for it’s anti-competitive practices in relation to Android mobile devices.
The CCI ruling struck at the heart of Google’s moat, especially these four agreements.
1. It ruled that Google couldn’t tell smartphone manufacturers to pre-install its apps as a condition for giving access to the Play Store.
2. It also said that Google couldn’t offer these apps as one single bundle, and that manufacturers could pick and choose what they wanted.
3. It ruled that Google couldn’t pay manufacturers to make Google Search exclusive on their phones.
4. It also said that Google couldn’t stop them from making phones based on other versions of Android.
These were a part of a wider 10 point directive from the CCI that curbed Google’s influence in other ways.
If Google changes its policy, it means the phone manufacturers can have better negotiating terms and the stranglehold of Android over the Indian market could weaken.
Like it has done in the past in the EU and Turkey though, Google will probably take the route of offering an India specific agreement for licensing Android. This means that the phones that have utilized Android with the Indian licensing agreement can only be sold in India.
This does throw up interesting questions for the future though; Will the phone manufacturers invest in their own operating system? Will people adopt a new product when the last one (Android) was working fine for them?
Only time will tell.
P.S. The title for today’s newsletter was written using ChatGPT. Let me know if you found it engaging in the comments.
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