The top news of the week was the launch of Nexus One, or the Google phone as some people are calling it. Many reviews were published on the magic features of the phone, and how it supposedly would compete with the iPhone making the Apple device lose market share. The Nexus One is a good phone, maybe as good as an iPhone, with some new features, but is not much more than an HTC with Android.
Most part of the market analysts are focusing in the wrong aspect of the Nexus One launch: the big news is not the phone itself. In my opinion, observing some past movements from companies in the technology arena, the launch of the Nexus One, and the new channel to sell the phone are signs on how Google is building a platform and a central position in the mobile ecosystem with the Android OS. Why:
- Google Store bypasses telco operators. The launch of the Google store to sell the phone that soon will have phones from other manufacturers show a bypass in the telco operators (even though for them it seems that Google is being friendly by not subsidizing the phone): the online store takes the priority from the operators in the phone offering. There, users can first choose the phone and then compare data plans and offerings, taking even more the purchasing power that telcos still have with device manufacturers and the lock-in structure they put consumers on. (see graph 1 below)
- So why not to subsidize? As it was observed already in other cases of platform building (Microsoft with Windows operating system, Adobe with pdf, Intel with the processors) in a first moment it is necessary to aggregate the biggest amount of important players to use the platform, increasing its value (relation with the Metcalf’s Law on the network value, the same logic that makes social networks worth as much as they do can be used to explain Google strategy here).
- By subsidizing the Nexus One, Google would take device manufacturers from embracing the Android as the operating system and integrating the device into the store, and therefore the Google Store would not have enough negotiating power with operators. At the same time, it would take the benefit telcos still have on subsidizing the phones, and also see the initiative as a threat (what it is, by the way).
- Why operators are entering here then? Some of the possible explanations are that, as a short-term strategy, to offer the Nexus One and be in the Google store gives competitiveness from other operators, and creates one more channel to sell data plans and services. From the moment all the operators enter the Google Store, the competitive advantage disappears, generating a minimum level of entry, and a “me too” strategy. From that, 2 options: it increases the dumb pipe future for the operators or it will benefit operators with other services and products over the data plans, once it will be easier to consumers to compare operators’ offerings.
- Where is the advertising in all that? A very important part of it. Nowadays, Google revenues come 98% from online advertising, and as per Admob acquisition last year, mobile advertising is an important bet from Google. Another news from this week in this area, Apple acquisition of mobile ad network Quattro Wireless can give a clue on the mobile advertising war. Google + Admob are responsible for 80% monetization of the FREE apps in the iPhone appstore. Apple now has a mobile advertising, and might fight more closely to the revenues coming from its own app store.
- More phones with Android, more phones with access to Android appstore, more USERS with access to the applications, and more people downloading, what makes more developers to offer apps in Android, increasing the value of the appstore for the user, what makes more consumers to have interest in an Android phone, in a cycle. It increases the value of Android appstore. The biggest chunk in this market will probably come from Google +Admob, although as an open environment Google until now created, it will not be closed from other ad networks.
- Advertising is an important consideration in the actions been taken by Google, however, consider the company moves only from that perspective is to lose the whole change it is creating around the mobile ecosystem, and the control power it might have over other players from its central position as the holder of the platform. It is important to highlight that many players are also fighting for it, and it will be difficult to have this central position all around one player, specially when Apple is considered, with its efforts to enter the advertising market and position itself as the center of its own appstore ecosystem, with the iPhone, tablet, iPod, etc. If you had to bet on the central player, which would be your choice?
(Ok, I know the image looks bad, I had no designing tool in this computer, no photoshop, no Corel, if you have an online one to recommend, I would be thankful forever!)
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