Daniel Eran Dilger in San Francisco
Random header image... Refresh for more!

Google’s acquisition of Motorola set to doom Android, Chrome OS

Daniel Eran Dilger

What do Google and Motorola get from being under the same management? Google gets access to Motorola’s home networking gear, GPS devices, cable boxes, and cord/cordless phones, all of which work directly against what Google has been trying to deliver in its Android push. In return, Motorola will destroy third party interest in Android and Chrome OS, while doing nothing to provide Google with the retail stores, PC platform, and local software experience it lacks.
.
.
Google paid Motorola $12.5 billion for patent protection from Motorola

Google’s breathtakingly expensive acquisition of the seventh largest mobile maker and (apparently) the fifth largest Android licensee was supposedly a desperate effort by Google to expand its patent portfolio so it could “protect” its Android licenses. According to Google, a conspiracy led by Apple, Microsoft and Oracle were attempting to take Android down to avoid having to compete with a free, infringing distribution of their own technologies.

Google has to “protect” Android much the same way it protects WebM and its other efforts to rid the world of licensed technologies (except for Adobe Flash). This protection, the story goes, involves gaining some patent muscle of its own to wield defensively. But consider what this actually means, and how much Motorola will be able to help Google in this effort.

If Google’s protection story were true, one wouldn’t expect to see Motorola already in the process of being sued by both Apple and Microsoft. How will Motorola’s patents protect the rest of the Android world if they can’t deflect, prevent, or settle its own infringements?

Additionally, Motorola hasn’t just been using its patents defensively; it’s been threatening to use them offensively against other Android licensees. This appears to have occured in order to push Google to pay a premium for the company. Effectively, Google is protecting Android from Motorola, not Apple and Microsoft.

F/RANDly Patents

Motorola has fired some countersuits of its own, but Motorola’s patents are largely “encumbered” by F/RAND commitments, just like Nokia’s were. That means that Motorola’s patents cover aspects of open technology standards (like WiFi and 3G) that others are compelled to pay royalties for, but only under “fair, reasonable and non-discriminatory” terms.

These aren’t the kind of patents you would threaten to block somebody’s imports with or win an injunction on.

Nokia’s patents couldn’t block imports of iPhones; the company could only win a negotiated royalty payment for its 3G and related research patents. Nokia claimed Apple had refused to pay for these patents, but the truth was that Apple just refused to write Nokia a blank check and give away all of its own intellectual property claims in exchange for the limited value of Nokia’s F/RAND encumbered patents.

Motorola is in the same boat as Nokia. It has a lot of patents, but they’re not the kind that win huge settlements, because they are mostly encumbered by F/RAND commitments. Motorola can only set up patent licensing to demand payments from anyone who uses its technologies.

Reality Check: Nokia’s iPad patent infringement headlines

Motorola, MPEG & Google’s hypocrisy

You know, like the MPEG LA and its H.264, the technology Google tried to vilify when it rolled out its own WebM video codec. The very “patent encumbered” video technology problem Google identified MPEG standards as having is now something Google will own after it acquires Motorola.

Will Google invent new standards that are “patent free” so that everyone, including Apple, can use mobile radios without paying Motorola reasonable licensing fees? Or was Google just hypocritically lying back then, and will now change its tune once circumstances change and it gains some intellectual property of its own?

If Google is going to defensively negotiate royalties for Motorola’s patented radio and network technologies to protect Android licensees from infringement claims, why did it self-righteously howl about MPEG seeking similar patent royalties for video technologies last year? The difference of course, is pure hypocrisy: Google didn’t contribute much to the MPEG patent pool, but it will now own Motorola’s patents.

In other words, Google didn’t want to pay MPEG license owners for their video technology, doesn’t want to pay for Oracle for Android’s Java infringements, but does want to pay Motorola billions for its mobile radio technology because it thinks it can then force everyone else to pay or at least drop their claims against Android.

This is not as consistent as, say, Apple, which pays everyone from MPEG and Motorola without public complaint, but works not to pay anyone more than is necessary. Apple carries on business, Google carries on a lot of public nonsense.

The larger question is why Google refused to throw down a few millions to license MPEG patents for its users, but thinks $12.5 billion is a fair price for radio and network patents that aren’t currently earning Motorola anything, and aren’t even doing a very good job of protecting Motorola from patent infringement claims.

People talk about the “thousands of patents” Motorola has or has filed, but the company could only identify a few rather weak ones to use in suing Apple and Microsoft. So if Motorola’s patents aren’t that valuable, what else did Google buy with that astronomical outlay of cash?

AppleInsider | Google reaffirms intent to derail HTML5 H.264 video with WebM browser plugins

Motorola’s $12.5 billion basket of crap

Take a look at the cornucopia of real products Google just paid its astronomical amount to purchase in the Motorola Mobility family of devices.

Networking: What’s Google going to do with a bunch of consumer wireless and router devices? Will it convert them to being Android-based boxes at significant expense with no upside whatsoever? Apple doesn’t even have its own AirPort appliances running iOS. But Apple does have a PC and mobile business and retail store network that sells its base station devices to a captive audience. Google doesn’t have that, and Motorola can’t offer any help there either.

So Motorola offers a set of worthless embedded devices Google can’t sell, and Google offers OS technology that Microsoft could have already availed itself of if it had made any sense to Androidify theses routers and base stations. Even if the duo could brainstorm a bunch of routers that could run Android apps, the things would sell about as well as Google TV, in a market that’s more crowded that the TV set top box arena.

GPS devices: Google has killed off any significant commercial development of GPS apps for Android by releasing Google Maps Navigation, an effort to tie free GPS features to its other web services like Places and Latitude, in the hope for some associated ad revenue. Google has zero interest in inheriting a bunch of non-Android, old school GPS devices. There’s also no point to Androidify these devices, because doing so would mean starting from scratch. If that made any sense, Android licensees, including Motorola, would already have started doing this.

Cable boxes: Media wonks jumped to the conclusion Motorola’s connection to cable providers as a manufacturer of set top boxes would help put Google TV back on track after a year of incredible failure. How’s that going to happen? Google TV was an effort to use Android to induce third parties to build devices that would cut cable companies and broadcasters out of the loop and deliver content to consumers via the web, attached to Google’s ads.

There’s nothing Motorola’s cable contacts could do to help get any golden eggs out of Google’s cooked goose, nor any hope of getting it out of the frying pan and into a flyer.

Consumers found Google TV largely confusing and unattractive. The product managed to make the once successful Logitech lose money and further blighted Sony. The only way Motorola could resurrect it is if Google simply plowed billions of dollars into developing and forcing an entirely new product onto shelves as Microsoft did with the Xbox. But there’s not enough potential revenue to support such an effort or Google would have done that itself rather than trying to goad licensees into building and selling the hardware for it in the first place.

Such a move would also destroy what remains of Motorola’s existing set top business, much as Microsoft did when it bought WebTV and tried to convert the Sun-based device to use Windows CE, murdering it in the process. With Google paying an astounding $12.5 billion for Motorola, one would think it might want to do more than just landfill its aging product portfolio, shrug, and then move on to its next acquisition. But there’s not much potential for Google to do anything other than that, or continue the old businesses that helped Motorola lose over a $100 million this year.

Cord/Cordless phones: ostensibly the silliest part of its new acquisition, Motorola Mobility’s olde fashioned telephone business might actually have some potential for Android integration. After all, the telephony work is largely already done, and Google might be able to roll out some interesting products with Google Talk or Google Voice integration, were anyone still buying landline phones. Throw in Motorola’s walkie talkies and baby monitors, and you could have a bunch of interesting Android products that people don’t really buy too much of any more.

Note that Apple didn’t buy up a phone maker and a tablet maker and convert them to iOS. Instead, it converted its desktop OS to work as a mobile OS, built a phone from scratch, then delivered Apple TV, then the iPod touch, and then iPad. Success doesn’t come from slapping your chocolate technology on some other company’s peanut butter device.

Google’s actions over the past two years indicate that it now sees Android pretty much like Microsoft viewed Windows: the solution to everything, despite it not being the solution to anything in reality. Microsoft’s delusion was at least based on the fact that Windows was making all of its money. Android hasn’t yet done anything for Google apart from making it look busy.

The biggest loser?

That’s about it for synergy. What’s there to lose? Well Google loses its appearance of being an impartial hub to its Android licenses. It’s now clearly aligned with Motorola. When Microsoft launched the Zune, PlaysForSure makers knew they were toast, but they were still paying Microsoft licensing fees. Android licensees don’t really pay Google anything, so they’re worth even less as Google’s concubines.

That’s hard to understate. The whole point of Google’s Android platform was that it was broadly available to everyone so that Google could get its services on everyone’s mobile phones without interference from Microsoft. Now the gig is up. Google pulled the rug from its partners and has redefined its relationship with them as being one where it will now develop a product that it will share with its concubines only after its legitimate wife Motorola is finished eating all it wants and the food has grown cold.

That’s enough to make Windows Phone 7 look attractive again to the likes of LG and HTC and Samsung. Not to mention that Samsung and HTC look like they’re about to get their Android products sued into oblivion by Apple, without much support from Google. What’s Google going to do at this point, expend serious legal efforts on their behalf to retain some Android competitors? Leverage patents owned by Motorola that aren’t able to even protect Motorola?

Further, who is going to spend a lot of money building Android 4.0 tablets when its very clear now that Google is going to be working exclusively with Motorola to build the best tablet it possibly can? Is Google really going to stop what it’s doing to assist Samsung or HTC to distract from its own tablet endeavors? Android enthusiasts about about to get a quick lesson in how charitable Google is now that it has its own 19,000 hardware employees to feed.

By gaining a hardware arm, Google has suddenly made every hardware maker on earth into a competitor. That also bodes poorly for Chrome OS. Who’s going to join Google for its second experiment in building a hardware platform when the company has taken matters into its own hands and become a hardware maker itself?

Microsoft always had two reasons not to get into hardware: first, it didn’t want to compete with its licensees, but second, it knew it was skimming off all the cream from its partners already, and could only lose money by getting into PC production itself. Google’s idealism about open software meant that it wasn’t ever getting any cream in the form of licensing revenue, but by entering the hardware business, it will also lose the whole premise behind operating a software platform, likely without being able to sell profitable hardware the way Apple does. After all, if it were really that easy Motorola would already be doing it.

A lot of accidents happen while merging

Google spent $1.65 billion buying YouTube, and $3.1 billion buying DoubleClick. YouTube hasn’t been exactly been making lots of money. After buying DoubleClick, it laid off about 40% of the former company and let the product stagnate. But both of these rather large acquisitions were software companies that worked like Google. They were all young startups in the web software business. Motorola is an old company with brittle bones. It primarily makes hardware. Nobody at Google knows anything about running such a company. There will be a huge mess.

When HP acquired Compaq both companies were old PC businesses with quite a lot in common. When Apple acquired NeXT, they were both integrated hardware companies with significant software experience, and both had a lot of shared history and philosophy. Both mergers still involved culture clashes and tough, risky management decisions.

Pundits like to crow about how Apple is becoming too big to sustain the exponential growth it has been maintaining over the last half decade. So far that isn’t happening, in part because the company has a strong, small, centralized leadership team. Apple avoids making huge acquisitions and retains a startup-like mentality, nimbly entering new markets and rapidly building out new businesses in such diverse areas as retail, online services, mobile products and software.

Google is nothing like Apple. It has no hardware expertise; its attempts at hardware partnerships have all been failures, ranging from the Nexus phones to Xoom to Google TV. It simply does not know how to develop consumer products. And after building them, it has no understanding of how to market or support them, as its laughable attempts at web-based customer service for the Nexus One demonstrated. Even working with hardware partners, where much of the work was done by people who do know hardware, Google has been unable to deliver hits.

Google also has no retail outlets. Apple learned a decade ago that if it wanted to sell its products, it had to demonstrate that it could do it itself. Even if Google had a compelling product, it could not sell it to audiences, even if it could develop a following. It has no retail stores. It has no online stores. The company can’t even run a software store properly, and web software is Google’s core competency. Owning Motorola doesn’t help because Motorola doesn’t know how to sell anything apart from pushing subsidized smartphones through mobile carriers.

Other things Motorola can’t help Google do

Despite huge media hype surrounding the Xoom, Motorola couldn’t get it finished or get it to stores, didn’t know how to market it, and couldn’t maintain any excitement for the thing. Now it faces stiff competition from Samsung and HTC. Google’s acquisition of Motorola can’t help either company create or sell tablets; it can only possibly make them hate HTC and Samsung for doing a better job. That doesn’t bode well for HTC and Samsung, who want Google to give it priority access to its Android efforts.

Another problem that buying Motorola doesn’t solve: Google had no iTunes, no particular PC experience, and no knowledge of how to build or maintain a desktop or local platform. Google is completely confined to building web services, so it can’t offer the kinds of local software platform tools that Apple and Microsoft can. Motorola can’t help at all in this regard either.

Google has also been largely unable to actually sell web software and services. Despite building GMail, Docs and Maps and a variety of quite useful online software and services, it is all primarily ad supported because Google doesn’t have any savvy in selling online services on any scale. Its $12.5 billion purchase of Motorola Mobility won’t help there either.

Additionally, owning Motorola certainly isn’t going to help Google with Chrome OS, as who’s going to want to get in on a less successful and unproven alternative to Android when Motorola is there to compete with them? At the same time, Motorola Mobility can’t help Google build its dream of modern, web-based laptops because it has zero experience in successfully designing or selling PC devices of any kind. Atrix was a flop, again despite a tailwind of media hype behind it initially.

Further, with fragmentation being a real problem for Android, what will happen to Motoblur, the layer Motorola currently puts on top of Android to differentiate its phones from those of generic licenses? Google would likely want to kill the extra software or make parts of it ubiquitous in the Android distro. But what about Samsung and HTC and everyone else with their own layer of Android cruft? And will their phones get Android updates 3-6 six months later than Motorola’s because of it?

Ars’ Jon Stokes hails Chrome OS as the second coming of the PC

Looking for a silver lining

Larry Dignan, writing linkbait for CNET, tried to come up with a top ten list of reasons why Google’s acquisition makes sense, but could only invent six. The first one was that Google want to be Apple and is ready to ditch Android’s original premise as a way to sell ads. Second is that $12.5 billion is “not a big chunk of change” for patents. Third is that Motorola will promote Google TV. Fourth is that Android licensees will be happy that Motorola is less likely to sue them. Fifth is that it may force Microsoft to buy RIM or Nokia. Sixth is that Motorola has enterprise credibility, and that somehow this will help Google in ways that it can’t currently benefit, as if the thing holding back Android in the enterprise is the hardware maker.

The problem with Android in the Enterprise is that Google has no enterprise credibility because it doesn’t support basic security and protocols. So apparently not even CNET’s monkeys on typewriters can accidentally invent something plausible to support this deal.

In all fairness, I’m trying to think of areas where Google and Motorola make sense together. The two could probably design and sell popular smartphones, but they’re already doing that. Google has billions of dollars it needs to invest in something, and there are certainly hardware products that might make sense for the company to work on. But Motorola Mobility hasn’t shown any interesting concepts (outside of subsidized phones) that people might actually want to buy, so it’s hard to see how Google owning Motorola is going to change anything.

The only upside I can imagine is that Google employees now have a play area where they can mingle with hardware people and perhaps think up some new ideas together. But spending $12.5 billion to acquire such a playground is simply absurd. Google could have done the same thing in a close partnership in a way that wouldn’t have destroyed Android and Chrome OS.

Google simply bought the biggest loser in the smartphone industry out of desperation at a high price that it will continue to pay for many years. Sound familiar? Oh right, HP did the same thing when it bought Palm out of desperation to gain independence from Microsoft and avoid dependence upon Android. Perhaps the Google acquisition of Motorola will help HP.

What will HP do with Palm’s webOS? Most likely: fail

31 comments

1 stormj { 08.16.11 at 3:58 pm }
2 TheMacAdvocate { 08.16.11 at 4:07 pm }

Count me among those very happy that the uptick in your blogging volume coincides with the biggest tech news of the summer. Your historical perspective on Google’s colossal blunder has made for great reading these last few days.

At the risk of being struck dead by mentioning his name, Henry Blodget wrote that the only salvageable thing to be done with MMI would be to turn around and sell the hardware business as soon as the deal closes. I think the modern-day Dvorak (one lucid thought in 10) nailed it, but Sergey and Larry are far too stubbornly idealistic – not to mention arrogant – for this to happen.

For all the reasons you mention, this has the makings of an epic train wreck.

3 stormj { 08.16.11 at 4:07 pm }

Just wait until Google buys Chrysler so it can make the smart car.

4 stationwagon278 { 08.16.11 at 4:28 pm }

I am a lurker around here and usually just absorb some fantastic writing. Along with the others, welcome back.

I can only see one advantage to this purchase. It dawned on me when you mentioned the Atrix. That advantage is Chromebook. With a manufacturer that can make cheap laptops that are cloud based, it goes along with the theory that LP wants to be SJ.

5 couchguy { 08.16.11 at 4:43 pm }

I think that’s spelled “DOOOOOOM!!!”, Dan.

6 scottkrk { 08.16.11 at 5:17 pm }

In my opinion Google has just “jumped the shark”, it will be interesting to watch how long it takes shareholders and partners to figure this out.

Fast forward 12 months and Google will be blaming the massive destruction of value on Apple, Microsoft and Oracle.

It would appear adult supervision is still needed…..

7 lmasanti { 08.16.11 at 5:46 pm }

quote:
“Google simply bought the biggest loser in the smartphone industry out of desperation at a high price that it will continue to pay for many years. Sound familiar?”

Seeing that way, it is silly. But from the other point of view, it is great!
Motorola Mobile’s shareholders should build a statue to current CEO: it is a losing-money company sold at 63% overprice!
Why bother how Google will use it? Remember, this is capitalism, not samaritanism.

8 lmasanti { 08.16.11 at 5:55 pm }

Also, this probes the smartess of Google.
First, they bid .9 Billions for Nortel… to rise the bar, just lo throw the towel at 4 Billions…
So, it rises the price of Motorola Mobile even more!
As a side effect, the marke reduced like 15% the price for the other company with pattents to be sold so Apple et al. can save a lot of money getting it!

Bravo, Larry!

9 David Dennis { 08.16.11 at 7:51 pm }

When I walked into a Verizon store last weekend, I was curious to see the latest Android phones. The guy told me the cheapest one was $200. I thought Android had phones in all price ranges, and that’s why they were eating into Apple’s market share.

The guy, who was a really nice fellow who believed as passionately in Android as I do in Apple, told me the cheaper phones were lousy, always returned, and so they dropped them.

Is this so? I’d like to buy a cheap Android phone so I can play with the platform, and obviously $200 plus a really expensive contract isn’t going to do. I could check out Metro, which I think does use the cheap phones, but I’d like to have an Android phone that will give me a decent shot at not immediately hating it.

Any thoughts? Are Android’s cheap phones really awful?

D

10 JohnWatkins { 08.16.11 at 9:43 pm }

Nice article. Spot on.

11 John E { 08.16.11 at 11:05 pm }

but it’s open!

seriously, this is a mind boggling blunder of massive proportions. MMI was dying! all it has are dead end product lines, as listed in Dan’s piece, plus some new Android action thanks to the collapse of WinMobile and RIM in the post-iPhone market. so total revenue has gone up, but even then it’s been losing money steadily for almost 2 years now. hardly evidence of a great management team. MMI would have gone under in just 2 or 3 more years … and sold at a firesale price like Palm was.

that’s bad enough, but the cavalier destruction of the “Android Army” by field marshall Google itself is even more bizarre. the message from HQ has gone out: “Every man for himself!”

i’m trying to figure out what the hell Larry Paige thinks he is doing. but there must be some level of arrogance going on that is simply beyond my ability to understand.

12 allanram { 08.17.11 at 4:04 am }

The only other rationale is that Google is worried about what the iPhone 5′s launch this October (and it’s eventual takeover of the smartphone market) will do to its stock value. With $147 bn market value at $586.8/share, compared to Apple’s whopping $321 bn at a lower $348.5/share, Google stands to be hurt massively by the negative public perception that Android’s substantial loss in the smartphone market share will inflict. Hence, the partnership with Motorola in the hope of producing a superior Android product in time to hopefully neutralize the iPhone onslaught.

13 jmfree { 08.17.11 at 11:30 am }

DER, your other name is Merciless. Please keep it up.

One would think: “This purchase MUST have been a rational business decision.”

It seems there are only two possible ways that could be true:

1) a shiny patent trove (which you have debunked)

2) a shot at vertically integrating some kind of Goog brand iPad competitor, as astutely suggested by stationwagon278 above

If the Goog has ideas of such a device — bearing some kind of magical combination of transparently easy online services, DirecTV subscriptions delivered via IP, and a fold-out ironing board — then it is remotely possible that it was a rational decision.

Yes, I was at Woodstock and took a lot of drugs.

14 jmfree { 08.17.11 at 11:39 am }

Apologies, DED, for addressing you as “DER”. It’s the drugs.

15 Mike { 08.17.11 at 4:44 pm }

daniel, that was brutal. but you’re absolutely, absolutely right that Google buying Motorola is a huge mistake. Maybe the prime reason is that, like you’ve outlined, that Motorola was ready to start suing other Android manufacturers? Not to mention that, no doubt, someone at Google thought paying $12 billion (puts the Skype acquisition in perspective, doesn’t it?) was just dandy, since they had $24 billion to blow. So Google is clearly not thinking about the long term, whereas Apple would prefer to spend its money a little more wisely. They’re just trying to react and I figure they think something will stick. It’s just that Motorola is not the way to go. Maybe they should’ve bought HTC.

16 jmmx { 08.17.11 at 8:14 pm }

“nimbly entering new markets …”

Nimble – now there is a word. No one gives Apple credit for its surprising “nimblity” :)

A couple of amazing things Apple did re iPhone early on:
1- the “sell cheap, but collect ongoing royalties” model was not working well. So they scrapped it. This was a major move for a big corporation, but they were willing to see its problems and move on without looking back.

2- I believe that from the get-go Apple was always looking to have outside apps developers. They just wanted to get the platform more stable before doing so. But the world clamored for apps – so they put it together and did it much sooner than they had planned. And the rest (as they say) us history!

What other huge corporation is willing to make major changes in direction like that?

17 GamePlayInc { 08.18.11 at 4:42 am }

Hehe, very funny to see you struggle in this article to make any sense of this aquisition by Google. (And failing to find it) Thanks for the new articles. Big fan here!

18 tundraboy { 08.18.11 at 6:14 am }

@jmmx
Actually Apple started out trying sell high and they weren’t moving enough product so they had to adopt the standard subsidized phone model pretty fast. Wasn’t there a hullaballoo over people who were upset that they bought early and Uncle Steve had to give them store credit to soothe their hurt feelings?

And I don’t know if Apple had plans from the get go to eventually allow apps. What SJ was touting at the iPhone introductory keynote were web apps and that was roundly panned by the blogosphere. Funny though (and someone correct me if I’m wrong), didn’t WebOS come out touting what were essentially web apps and people were writing about how great an idea that was?

I would totally credit Apple for its ability to turn on a dime in response to market demand. But no, they’re not as omniscient as some people make them out to be. My impression was Apple had to be led kicking and screaming into the app model at first then embraced it when they realized it was the killer feature for the iPhone. In fact without apps, some people might still by iPhones but the iPod Touch would be a total flop.

19 jmmx { 08.18.11 at 7:21 am }

@ 17tundraboy

To my recollection, Apple NEVER had trouble moving iPhones. They began with a model that included carriers giving a monthly fee as part of the subsidy. This was a major part of their business model that they were willing to change when they saw it was not working well. This is what I meant by nimble.

As for the change to apps – Neither of us will likely ever know the truth here in this case. Yes they WERE pulled into releasing their SDK by the demand.

However, you use of “kicking and screaming” is as much a presumption on your part as is mine that they had planned it all along, the demand just made them do it earlier than they had planned.

Yes they touted Web apps at first. To them this was to fill the gap until they were ready for an open SDK. The reason I think as I do is that my observations of Apple behavior and my experience in the software industry.

Let us take a look at a couple of the things that people clamored about in original iPhone, specifically: ATT only (in USA) and no cut-paste. The second is exemplary of other “missing features.”

The question here is why? and the answer plays to my point about the SDK.

The both have to do with one thing: assuring a quality user experience. This is Apple’s main m.o. It drives all their development. They knew that they were putting out something totally new, and it was complex. No one else had a full computer OS hooked up to a mobile phone with a large, touch display and all the new controls. They KNEW that there would be problems. They wanted to minimize them.

If you work in SQA (Software Quality Assurance) then you understand that the likelihood of errors is related to the complexity of the system. By starting with ATT only, they had an opportunity to narrow issues down much more quickly than if they had had many carriers. I am sure that they also had agreements with ATT as to how they would handle issues that came up with the headset.

The cut-paste issue – along with all the other “missing features” that bloggers used to love to enumerate – is a classic case of the fact that the number of errors is related to the complexity of the code. By keeping these complex features out of the original iPhone, Apple was able to insure the quality of what they did ship, and have time to work out issues that would inevitably come up in a more simplified system. Later they would add the complexity as they grew confident that the underlying system was robust.

To my mind, this was the same with the SDK. Sure, they wanted to let others use it, but at first they did not want to deal with the complexity of other people’s apps.

This is my opinion gleaned from what I observe of Apple’s behavior. They are a very smart company and do things in a very intelligent, strategic manner.

Regards,

jmmx

20 geoffrobinson { 08.18.11 at 9:09 am }

I’m not an institutional investor, but I know the number one thing I worry about in an established company. A company that used to be a growth stock that starts trying to get into everything and anything to keep growing.

How much shareholder money has Microsoft wasted trying to grow? Too much.

21 David Dennis { 08.18.11 at 4:27 pm }

Surprisingly enough, I think I can tell you that they intended from the get-go to release a SDK.

Why?

Because they said, in the initial introductory presentation, that it ran MacOS X. There would be no need to say that if they did not eventually plan a SDK. Since every second of those presentations was carefully choreographed and designed, we can say that they revealed that information to tip off developers that something really interesting was coming.

That’s what I took out of the introduction, and history has proved me correct.

D

22 jmmx { 08.18.11 at 4:55 pm }

@ David Dennis

I agree with you completely. This is part of the reason I believe as I do that the opening up to developers was part of the plan – it just got moved up.

Another reason to believe this is the very fact that they could release the SDK so quickly. I am sure there are lots of security issues with third-party apps that needed to be resolved to release a developers SDK. If these issues had not been designed in advance, I really do not see how they could have released it as quickly as they did.

However, all this rationale is basis for conclusions that are still, in the end, conjecture on our part. Therefore, while I have little doubt that our conclusions are indeed true, I will not say that I “know for sure” until I have other validation.

23 tundraboy { 08.18.11 at 9:22 pm }

@jmmx
“To my recollection, Apple NEVER had trouble moving iPhones. They began with a model that included carriers giving a monthly fee as part of the subsidy. This was a major part of their business model that they were willing to change when they saw it was not working well. ”

So why did they cut the price after about two months if they weren’t unhappy with iPhone sales? And what was it that was not working well with the pricing model other than below-target sales?

I remember a lot of chatter about $600 for a phone being a little steep. Hey even Steve Ballmer got into the act.

And, yeah you are likely right about apps.

24 danieleran { 08.19.11 at 9:55 am }

@tundraboy: The actual cost of the iPhone is around $650. I think Apple was attempting to get around carrier control by offering a phone at a price its customers would buy, and also establishing that the “regular price” of the iPhone was high.

Apple didn’t discount the iPhone because sales were low. It discounted it to shift from boutique sales to mass market sales as it became clear that large numbers of buyers would actually buy the device. It wasn’t a fire sale, it was a move from conservatively selling a device at full price to a confident readjustment of the volume of sales iPhone could sustain.

Think of it like putting an app in the App Store at $10 and then reducing it to $4 after realizing that it can sustain enough volume to offer a lower price. That’s better than selling a mobile app for $60 in the hopes that the few people who do buy it will result in substantial profits.

25 N8nNC { 08.20.11 at 1:32 pm }

I’ll play devil’s advocate. Imagine the computing landscape 5 years from now. Apple is clearly dominant. But, frankly, who is in second place? It won’t be a phone maker. It doesn’t seem likely to be a PC maker. Microsoft+Nokia will try, but won’t execute. Amazon? They’ve got less know-how than google. Google could be taking the significant risk (almost betting the company) to try. Otherwise it’s iPod+iTunes all over again.

26 mooper { 08.21.11 at 10:40 pm }

This article sounds wonderful to someone who is not familiar with the facts, but the many assumptions involved are largely unsubstantiated and designed to support the thesis. Here’s one example: Quite a few of the Motorola patents are extremely valuable and will go a long way towards ensuring the Android continues to steal market share from Apple – http://www.bloomberg.com/news/2011-08-22/motorola-s-value-for-google-found-in-18-patents-used-against-apple-tech.html?cmpid=yhoo Also, the author doesn’t mention that Motorola comes with billions in cash, effectively reducing the actual price paid for the patents. Google need not jump into any business opportunities that will damage it, just because it has the easy ability to. They’ll be selective and leverage only the areas that will be add to earnings.

[Well thanks for the condescending tone, but you should look into your own facts a little better. Of those 18 (!) supposedly valuable patents, 7 are F/RAND encumbered, and therefore have very little value defensively or offensively in patent wars. Motorola has been selling off patents for some time, so it should come as no surprise why its leftovers have such little value. Also, the only "value" in the 18 is that they have something to do at all with smartphones. Motorola clearly does not have much valuable IP related to making commercially relevant phones or it would be on top of the market rather than losing money. - Dan]

27 geoffrobinson { 08.22.11 at 12:52 pm }

There’s a difference between a firesale and maximizing profit by lowering prices to create volume.

28 mjs916 { 08.23.11 at 7:44 pm }

Well written article. I agree with most of the points you make and I’m glad that you were so thorough. I have been wondering myself exactly what it is Google plans on doing with Motorola Mobility. I personally think they make some of the buggiest Android handsets around, so I’m not sure what the appeal is beyond patents… but 12.5 Billion? Ouch.

I’m a little confused about one part involving Microsoft however.

“So Motorola offers a set of worthless embedded devices Google can’t sell, and Google offers OS technology that Microsoft could have already availed itself of if it had made any sense to Androidify theses routers and base stations.”

Does Microsoft have something to do with Motorola’s set-top/router/base station business currently? How could using Android be to their own advantage if they do?

29 Neil Anderson { 08.24.11 at 8:57 pm }

But I thought patents were bogus. :)

30 Maniac { 08.25.11 at 12:09 am }

Knock knock.
Who’s there?
Android.

Android who?
Yeah, I get that a lot.

31 Maniac { 08.25.11 at 12:16 am }

@ David Dennis

Agree. The only reason why there was no App Store until the iOS 2 / iPhone 3G time frame is because Apple needed time to get it right. They did. The rest is history.

If Apple really only wanted web apps on iPhone, they would have provided their own web app SDK in Xcode. They didn’t. And that’s a good thing. Apple can evolve iOS and Xcode as fast as they want to. On the other end of the evolutionary speed spectrum, just look at how long HTML 5 has been a W3C “draft.”

You must log in to post a comment.