LAS VEGAS — The pretty blonde woman in the blue polo shirt smiled and waited for the group of men surrounding her to focus their attention before launching into her rehearsed remarks, beginning a speech she would perform hundreds of times before the week was over.
Once the group had gathered off to one side of Samsung Electronics Co. Ltd.’s sprawling booth at the Consumer Electronics Show in Las Vegas last month, the men craned their necks and watched as she began her demonstration of one of the many Android-powered gizmos on display.
Tapping and swiping the device’s screen with her immaculately French-manicured nails, she walked her small audience through the features of the product: It would let the user read emails, you can use it to send Twitter messages, run applications and listen to Internet radio via Pandora.
Of course, it also makes ice, dispenses water and keeps food cold. After all, it was a refrigerator.
While Google Inc.’s Android software is most commonly associated with smartphones and tablets, around every corner on the CES showroom floor companies were busy showing off something new — a television, a washing machine or a kitchen appliance, each running the search engine giant’s malleable software.
In a little more than three years since the launch of the first Android smartphone, Google’s mobile platform has skyrocketed in popularity, and now accounts for roughly half of all the smartphones sold around the world.
Having conquered one world, Google’s Android platform now faces another more daunting set of challenges, as the company’s primary objective shifts from one of finding relevance to one of managing and capitalizing on dominance — strategic changes that are reflective of the larger evolution taking place within the company.
Since taking the helm as chief executive officer last April, Google co-founder Larry Page has been busy charting a new, more aggressive course for the Silicon Valley titan, designed to place Google in a position from which to better combat the new realities of the social Web and the rising threats of Apple Inc. and Facebook Inc. The Mountain View, Calif.-based must now confront the fragmentation of the Android ecosystem, the optics of its acquisition of Motorola and the rising spectre of Microsoft’s Windows Phone software.
“It really has gone from a startup mode to having a big responsibility,” Hiroshi Lockheimer, vice-president of engineering for Android, said in an interview in Las Vegas. “We are impacting many different people. The end users, the people who are buying these phones, we’re in their pockets and that’s a very big responsibility … Then of course there’s our responsibility to the industry; there are companies that have made huge bets on the platform and we want to make sure that we shepherd the platform along in such a way that ensures its success and ensures the success of those partners and the application developers.”
Some of those changes have rankled rivals and caused others to question the company’s “Don’t be evil” mantra, including an overhaul of Google’s privacy policies, the acquisition of Motorola Mobility Holdings Inc. and a decision to prioritize Google+ posts over those emanating from Facebook and Twitter in search results.
Google’s immidiate challenge is to cash in on Android’s undeniable success. Every day, Google activates more than 700,000 new Android devices for customers — up from about 200,000 per day in the summer of 2010. That includes phones, tablet computers and kitchen appliances sold by more than a dozen partner manufacturers ranging from Samsung and LG to Motorola Mobility Holdings Inc. and HTC Corp.
However, unlike rivals Apple Inc. and Research In Motion Ltd., which generate revenue from the sale of devices, or Microsoft Corp., which charges smartphone makers a licensing fee to use its Windows Phone 7 software, Google receives no revenue from the sale of Android devices. Instead, it gives manufacturers access to the open source Android — enabling manufacturers to tweak and customize the software as they see fit — for free.
Google’s strategy is simple, as the number of Android users increased, the company is, in effect, creating more mobile real estate for its own products and services, including Gmail, its Google+ social network and of course, its search engine.
As more people use Android powered devices — as well as devices created by other manufacturers — to search the Web for everything from the telephone number of a restaurant to the address of a flower shop, Google makes more money from advertising.
So far, it seems the strategy is working. Google said mobile advertising accounted for about US$2.5-billion in 2011, a number some Wall Street analysts believe could climb as high as US$6-billion in 2012.
Because Google allows manufacturers to customize Android as they see fit — adding custom interfaces and additional services — there’s no guarantee those device makers will continue to incorporate Google services into their Android products.
For example, Amazon.com Inc.’s Kindle Fire, one of the most popular Android devices in the United States, uses its own application marketplace instead of Google’s Android Marketplace, and does not come pre-loaded with Gmail, Google Maps and YouTube applications.
Indeed, now that Android is available on dozens of handsets, tablets and other devices such as kitchen appliances and cars developers sometimes must create several different versions of the same application to ensure it works across a variety of Android devices, a problem which has vexed other platforms, including RIM.
“One of the problems that we don’t talk about as an industry is all this fragmentation of Android,” said Josh Martin, director of apps research for the Massachusetts-based research firm Strategy Analytics.
“If you’re a developer, it’s not like you can just build an Android app and press a button and it shows up everywhere. It might, but it won’t work as you expect it to.”
According to Mr. Lockheimer, Google’s Android strategy involves a number of facets or layers of customization. While things like user interface are left up to the manufactures, there are certain standards a manufacturer must meet in order to incorporate the Android Marketplace, which features about 400,000 applications, onto their device.
“We have a pretty well thought-out program in place to ensure that if a manufacturer wants to build a phone that is compatible, and by compatible I mean they want to participate in the Android application ecosystem and have the Android Market on the phone, they need to run the tests to be certified that they have not modified the OS,” Mr. Lockheimer said.
While Google has spent a considerable amount of time and effort curating relationships with some of the largest smartphone makers on the planet, the company’s relationship with those partners is about to change now that the company’s bid to purchase Motorola for US$12.5-billion has been approved by U.S. and European regulators.
Google’s leadership has maintained that the company plans to let Motorola continue to operate as an independent, arms-length entity, but the fact remains Google will now own one of the major Android producers, a situation bound to cause some concern among its other partners.
While not commenting directly on the Motorola acquisition, Mr. Lockheimrer said the Android ecosystem “isn’t about one specific company, it’s about the ecosystem and a collection of companies. That’s not going to change because that really is our livelihood.”
Indeed, much of Android’s success seems to be taking place at the expense of Canada’s embattled BlackBerry maker Research In Motion. Although Apple has traditionally been seen as RIM’s chief rival in the U.S. smartphone space, it is becoming clear that the greatest threat to the future of the BlackBerry may not be the iPhone, but rather the litany of devices running Android.
In February of 2010, RIM’s BlackBerrys were the most popular smartphones in the U.S., commanding 42.1% of the market, according to data from comScore Inc. At the same time, Google’s Android, a relative newcomer to the market, acounted for just 9% of the market, while the iPhone’s share of the market stood at 25.4%.
Since then, Apple’s share of the market has jumped to about 29.6% at the end of December, while RIM and Google have effectively traded places. Meanwhile, thanks to product delays, lacklustre marketing and a perceived inability to keep pace with its rivals, RIM’s share of the U.S. smartphone market has plummeted, slidingto just 16% in December.
By contrast, Android has grown steadily, now accounting for 47.3% of the U.S. market.
“If you’re looking at the competitive landscape from RIM’s perspective and its growth prospects, which are very much global, there’s no question Android is RIM’s No. 1 threat today,” said Kevin Restivo, senior mobile phone research analyst for IDC.
Unlike the PC industry, where in order for a company like Apple to increase its market share it must steal customers from Microsoft, the rapid expansion of the smartphone industry means it is not a zero-sum game.
In developing markets, such as Latin America, Asia-Pacific and South America, both RIM and Android are gaining new customers as users trade up from feature phones to smartphones. However, in more mature markets like the United States, it is clear that many RIM customers are trading in their BlackBerrys for iPhones and Android devices.
“Where Android poses perhaps the biggest threat to RIM in its current state is in some of these emerging markets where RIM is so dependent on growth right now given its current weakness in the United States,” Mr. Restivo said.
“Android really doesn’t have the messaging part of the smartphone down as much as RIM does with BlackBerry Messenger, but as the Android makers mature and offer more devices with increased messaging features or functions, they could pose a greater threat to RIM.”
Although RIM could prove to be a more formidable challenger to Android once the Waterloo, Ont.-based company transitions to its long-awaited BlackBerry 10 operating system later this year, many analysts believe Google’s greatest competitor in the smartphone world could prove to be Microsoft.
Unlike RIM and Apple, Microsoft’s strategy to return to relevance in the mobile world mirrors Google’s, relying on third-party manufacturers to create phones running the Redmond, Wash.-based company’s software.
But while Google is still wrestling with the problems of fragmentation and standardization, Microsoft has taken a different approach, laying out specific guidelines for manufacturers looking to adopt the Windows Phone platform. The result is that the Windows Phone experience on a Samsung device is virtually identical to the experience on a Nokia device.
Just as the size and scale of Samsung has helped to propel Android’s market share, Microsoft is hoping its billion-dollar partnership with struggling Finnish mobile giant Nokia will help the software giant achieve international scale for Windows Phone quickly.
In fact, a number of market research firms — including IDC, iSuppli and Gartner Inc. — have all forecast Windows Phone’s international market share to outpace both RIM and Apple, landing Microsoft in the No. 2 position behind Android by 2015.
For now, Google remains unfazed by the growing shadow of Microsoft.
“There’s some fundamental difference between the platforms,” Mr. Lockheimer said.
“We’re open source, which is a pretty big difference, and what that enables is a level of customization that these [manufacturers] want and these operators want and I don’t think is necessarily possible on other platforms. So I think that fundamental difference was at the core of our philosophy when we started Android, and it still rings very true.”