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This article was published on August 8, 2011

Beating the iPhone at any cost may prove too expensive for Google

Beating the iPhone at any cost may prove too expensive for Google
Matthew Panzarino
Story by

Matthew Panzarino

Matthew Panzarino was Managing Editor at TNW. He's no longer with the company, but you can follow him on Twitter. Matthew Panzarino was Managing Editor at TNW. He's no longer with the company, but you can follow him on Twitter.

When the iPhone was introduced in January of 2007, it caught the mobile phone industry flat-footed. The hardware on the market was archaic compared to the iPhone and the operating systems running on them were years behind Apples iPhone OS.

Even prior to the release of the iPhone , Google saw an opportunity to massively increase the amount of eyeballs seeing its mobile ads in a project called Android.  Android, a linux-based mobile OS that had been purchased by Google in 2005, was quickly polished up, priced irresistibly and offered as a lifeline to manufacturers floundering for an option.

Thus, Apple’s biggest current mobile competitor was born. But, even though Android was far beyond where most mobile operating systems were in 2007, it was still well behind Apple’s iPhone OS. This put the pressure on for Google to increase the speed of its development and to improve its capabilities to offer a viable alternative.

But the way in which Google managed to take Android from an unreleased experiment to a shipping product so quickly may now be coming back to bite them on the proverbial butt and, in the end, may cost more than the billions it has spent or lost making Android the ubiquitous mobile platform it is today.

Hunter to hunted

Google has come a long way since it began its life as a company producing a search tool and that has never been more evident than it has after the events of this week. The company whose public motto was once ‘don’t be evil’ has demonstrated that its internal policy may have been more along the lines of ‘whatever it takes’.

This week, Google’s SVP David Drummond posted a treatise on the company’s official blog effectively accusing Apple, Microsoft and Oracle of trying to strangle the innovation of Android with patents. In doing so, Drummond set off a flurry of discussion about the validity of software patents and how the whole system is broken. That very well may be true, but unfortunately, it’s the system that we have, and Google has grown to be one of the biggest companies in tech while leveraging that very same system.

That’s why it’s unsurprising that Microsoft immediately shot back with a rebuttal to Drummond over his claims that Microsoft and Apple had conspired to deprive Google of the trove of Novell patents won by the companies, along with a group of other buyers. Microsoft’s head of legal counsel Frank Shaw apparently took umbrage with this accusation and produced a letter showing that Google was in fact invited to participate as a member of Microsoft’s group, but rejected the offer. Shaw’s explanation of why Google didn’t participate? “Because they [Google] wanted to buy something that they could assert against someone else.”

Google is in effect playing the victim here by decrying the acquisitions of patents from Nortel and Novell by big meanie consortiums made up of Microsoft, Apple and other players in the telecommunication industries. This is incredibly ironic considering that Google is itself the owner of thousands of technology patents, some of them for products created in-house to be sure, but many of them purchased in previous auctions.

In the case of the Novell auctions, Google had a very simple reason for not participating in a joint bid. They were not interested in an even playing field, only one where they had an advantage. If Google was not able to purchase the patents on its own to use as leverage against other companies, then it figured it was not worth it.

You would think that Google couldn’t get any more blatant about its desire for dominance and its disregard for what actually constitutes competition and parity, but this week, Drummond’s complaints about ‘hostile’ patent attacks were made even more ironic by two internal Google communications that reveal just how willing it was to disregard other companies patents while establishing Android’s market dominance.

Letters of note

The two communications that have surfaced this week came about 5 years apart, one in October of 2005, before Android was publicly released, and one from the summer of 2010.

In the first, an email from Android’s head Andy Rubin, Rubin is commenting on the fact that it may not be able to obtain licensing to use code from Sun’s Java platform.

If Sun doesn’t want to work with us, we have two options: 1) Abandon our work and adopt MSFT CLR VM and C# language – or – 2) Do Java anyway and defend our decision, perhaps making enemies along the way

In the end, Rubin and co decided to proceed with Java because it would have taken a prohibitively long time for them to re-write the Java segments of Android using C and .NET technologies. When Oracle subsequently acquired Sun, it also got the Java language and that is where the suit that Oracle is now pursuing against Google came from.

Oracle is pursuing Google for its unlicensed use of Java in both the Android mobile OS and its desktop replacement Chrome OS. Something that never would have happened if Google hadn’t been pursuing such an aggressive timeline with Android.

The second email was written by Tim Lindholm, a Google engineer and former Sun employee, in August 2010.

What we’ve actually been asked to do (by Larry [Page] and Sergey [Brin]) is to investigate what technical alternatives exist to Java for Android and Chrome. We’ve been over a bunch of these, and think they all suck. We conclude that we need to negotiate a license for Java under the terms we need.

Subsequent to its initial inability to gain a license for Java, Google decided to follow Rubin’s second plan of action and just go ahead with it anyway and deal with the consequences later. In the end, Java became such a big part of the Android OS that it was impossible to keep up with the release schedule and demands for new versions of the OS as well as go back and rewrite all of the segments of Android that required Java.

Google had several more chances over the years to reach an agreement with Sun for Java, but each time Google felt that the offer was too costly, or Sun feared the impact of licensing Java to Google on the other deals that it already had in place.

If you’re interested in a great dissection of how these two emails might affect the Oracle vs. Google case, definitely check out Florian Mueller’s post at FOSS Patents.

In the end, Google’s desire to hasten the production of Android and to spur its enormous growth to even greater heights caused them to look for ways to take shortcuts. Once the project was established and they found that they couldn’t get the licensing they needed, it looks as if they just willfully infringed on Sun’s (now Oracle’s) patents on Java.

This, folks, is what we call irony.

The sincerest form of flattery

Google’s CEO Eric Schmidt joined Apple’s board of directors in November of 2006. At the time, Android was still very much a twinkle in Google’s eye and the iPhone was being prepared for its January 2007 debut. Behind the scenes, Apple and Google were working together to integrate Google’s search, maps and YouTube products into the fabric of the iPhone. Then, in November of 2007, Google announced its Android project publicly as a platform that other phones would run on.

As you can see in the video above, early Android devices looked nothing like the iPhone and instead were reflections of where the world’s other manufacturers of smartphones were in terms of design thought at the time. That hideous mutant-BlackBerry-looking Android device never actually made it into production. Google announced the first Android device, the distinctly different touch-screen T-Mobile G1 manufactured by HTC, in September of 2008.

Just over a year later, in August of 2009, Eric Schmidt and Apple parted ways. The reasons for Schmidt leaving were explained by an Apple statement that Google and Apple were just too much in competition in the mobile space as well as the desktop space now that Google had entered the market with Chrome OS.

In his book In The Plex, author Steven Levy attributes the split to the animosity felt by Steve Jobs after he witnessed very distinctly iPhone features like ‘pinch-to-zoom’ being demonstrated on Android devices at Google’s headquarters. Although Schmidt stayed on for a year after Android first arrived on a phone, he was left more and more consistently out of the loop and was not privy to Apple’s plans for the iPad at all, reportedly at Jobs’ insistence.

Pinch-to-zoom was actually not present in the T-Mobile G1, although Android was indubitably capable of multitouch as it appeared on the Motorola Droid the very next year.

The damage was done, although we may have yet to see the end of it. Apple began making small moves, like mapping company Placebase, ditching Skyhook and Google for location data and preparing a traffic service of its own, that are preparing it to divest itself of much of Google’s presence on the iPhone via its Maps product.

The real cost for Google

Google stands to lose money in the billions if the patent suit brought against them by Oracle goes in the wrong direction. This alone would be bad enough, but Google has cash, they can pay out and move on if they need to. The impact of a ruling against them in the Oracle suit has a longer shadow than just a settlement.

In addition to Oracle, Android is also under attach either directly or indirectly by suits brought against manufacturers like HTC and Samsung by Apple. Although Apple is ostensibly going after those makers for copying the design of the iPhone, there are components of the suits that implicate the Android OS just as much as the hardware itself. This could in effect have the ability to block Android hardware from being sold in the US, and, if Apple was so inclined, force Google to pay its primary rival a licensing fee for every copy of Android shipped, as it currently does with Microsoft.

Google makes money from ads, not Android. But every pair of eyeballs that are landing on an Android device is potential revenue that comes in. The question is whether or not the revenue from those devices, estimated to hover around $150m/yr, will be enough to offset the fact that Google makes nothing on licensing Android, which it gives away, and next to nothing on Android apps like Gmail, which it forces Android licensers to install on their devices.

If things don’t go Google’s way in the patent courts over the next 18 months or so, they could be looking at a situation where they’re paying out hundreds of millions of dollars a year just to be able to give Android away for free. No matter how much money Google makes elsewhere, that can’t seem like a good business plan.

In the end though, it’s Google’s partnerships like the one it has with Apple that may end up being the most painful cost of all when it comes to the price of its success. Google makes an incredible amount of money serving ads to desktop users, but the mobile market is growing by leaps and bounds and will at some point surpass even laptops as the platform of choice for computing on the go. Android has enjoyed incredible success so far, but its survival is by no means assured, especially if Google’s early indiscretions in its development come back to haunt it.

Google stands to lose billions of dollars in direct costs, but the long-term costs of Google becoming persona non-grata to Microsoft, Apple, Oracle and any other potential partner in the mobile space may end up being the harshest loss of all. Google had better hope that its gambles with Android’s future pay off, because that may soon be the only platform that you see with a Google product on it.

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