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Microsoft takes the Android profit, the Wonkas take the pain

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Google’s troubles with Android aren’t just financial. They’re actually much, much worse than that, which all seriously throws the company’s golden reputation for perspicacity into doubt. Why buy into Google’s vision of the future when its own estimation of the present is so deeply flawed?

The fact that Microsoft is reaping all the profit from Android – and Google none – is something even a policy wonk can understand.

With Android, Google charged into a mature industry and refused to play by basic business rules. It then cried foul, rather ungallantly refused to protect its business partners and then, like a spoiled brat, stamped its feet and cried that the system was broken.

This behaviour is simply bizarre – and it has deep consequences. It is perplexing that Google made such poor risk assessments at so many stages of the journey, thinking it didn’t need intellectual property assets, and reckoning it could bluster its way out of trouble, if trouble came along. And it did.

Recall that Google is spending $12bn, and risking upsetting its partners, to buy belated patent protection for its Android licensees by acquiring Motorola Mobility. But Mobility’s IP portfolio wasn’t enough to deter Apple from suing it, and Samsung didn’t show much confidence in it either this week. Rather than wait around, Samsung signed a royalty agreement with Microsoft. Acer, ViewSonic, HTC, and five others also pay Android royalties to Microsoft.

Google could have gone done several established duties to avoid this situation. The licensees liked Android and wanted to use it – free as in beer was not a significant consideration – and it was a powerful rival open platform to Apple.

Google could have performed due diligence, as Nokia did opening up Symbian, to ensure there weren’t any nasty surprises for licensees. It could also have indemnified its licensees, saying "Trust us, we’re your partners; if you’re in trouble, we’ll help you". It could also have charged for Android, aping the complex and opaque system of advances and subsidies well known in the telecoms and PC industries and disguised as “marketing subsidies” by Microsoft and Intel. It shunned all these options.

Kevin the Teenager. Again.

But open-sourcing Symbian was a painstaking task; it took time, 18 months, and required huge commitment from leading vendors including Nokia, who had to clear its own IP. Google didn’t fancy that. Indemnifying its partners meant taking responsibility, something the Children of the Chocolate Factory have never been very good at. And freeconomics was, well, freeconomics. Man.

(As I pointed out recently, it could also have rolled its own funky frameworks: “doing a C#” rather than copying Java and passing it off as its own. The patent system is there to protect originality, particularly when backed by deep pockets).

Instead, it took a shortcut to market, and whistled at the risks.

It’s quite amazing to review this today. Did Google really think that instead of following established business conduct, its network of DC lobbyists, sympathetic media placemen and compliant academics, and ersatz “citizens groups“ could rewrite US law at a moment’s notice? What were they smoking?

It’s unfair to say there’s absolutely nothing in the Android credit column. Android phones are still flying off the shelves. The zero cost approach has seen off Microsoft and Symbian, the two smartphone giants of five years ago; there’s a long-term business advantage to reducing choice. And Android remains a potential space for services Google can, perhaps, monetise in the future. But these are all most definitely intangibles.

Yet Android costs Google billions, without drawing revenue. Microsoft is making half a billion a year from Android. The settlement with Oracle, when it eventually comes, will add even more costs to working with Android – for anyone who dabbled with it.

Google executives must be wondering – in the words of David Byrne – “how did I get here?”

The company is going to have to spend very big to settle a clutch of outstanding IP issues, and almost certainly have to restructure Android governance to restore confidence in its stewardship of the systems. But even after all the smoke has cleared, things at Mountain View will have irrevocably changed. No amount of public relations or lobbying, or invite-only conferences, are going to return Google to the golden status it enjoyed only a few years ago.

Imagine you're a public policy person, or a business strategist. Why would you think Google can give you a glimpse of the future, when it can't even understand the present? ®

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