Why Android Will Win the Smartphone Race

It’s easy to misunderstand Google’s strategy. A lot of people look at Google and think “They already dominate Search so now they will diversify”. This seems reasonable. This is what most companies do after dominating an area. However, Google is not like most companies.

Google spends most of its $3.8 Billion Research & Development budget on Search. That tells you Google is still focusing on its core, not on diversification. Nicholas Carr in The Shallows clearly outlines Google’s strategy: Google’s money is in search and its strategy is to make all complementary products cheap. If you are selling mustard, you benefit from cheap hot dogs. If you are selling tires, then you benefit from cheap cars. Google wants everything complementary to Google Search to be cheap. What is complementary to Google Search? The Internet. The cheaper the Internet the better for Google. That means cheap content, cheap operating systems, cheap devices and cheap access. Google doesn’t care if its side businesses lose money as long as they increase the amount of content and access. It doesn’t matter if YouTube loses money, it just needs to generate content and demand for that content.

Enter Android. Google doesn’t need Android to make money. It just needs Android to increase access to the Internet. Purchasing (or renting) an operating system and a device are still a prerequisite  for accessing the Internet. Providing a cheap OS will decrease the cost of entry. A cheap operating system will mean more devices (like phones) and more people Googling the Internet.

While Google doesn’t need Android to turn a profit, Apple does need to make money from the iPhone. Apple is up against the scariest competitor that any  business can have: one that doesn’t need to make money from the product you are competing against.

Apple successfully introduced the Mac, the first microcomputer with a rich graphical interface, only to lose the market to an inexpensively priced copy cat: the Windows and Intel PC. History is about to repeat itself when Apple’s iPhone, the first smartphone with a truly rich interface, loses the market to the Google Android.

Post Script

Will this create an anti-trust problem for Google? Underpricing Android for the sake of Google Search may be considered an anti-competitive  practice. However the U.S. Department of Justice is unlikely to intervene in a situation that benefits the consumer.