It’s officially been five years since Google (GOOG) disappointed many tech journalists when it failed to release a “GPhone” that would compete head-to-head with Apple’s (AAPL) newly-released iPhone. Instead, Google announced a new open-source operating system called “Android” that was based on a Linux kernel and would be free to use for both device manufacturers and app developers. Even though I was just a cub tech reporter at the time, I immediately thought that Android was much more vital to the future of the mobile industry than any Google-produced smartphone would have been, even though I was disappointed that Google had just cost me thousands of pageviews when I had to cancel my planned “iPhone versus GPhone” slideshow.
There are several reasons why releasing Android has been a much smarter long-term investment for Google than releasing its own smartphone would have been, but the biggest one is that any attempt by Google to compete against Apple on its home turf would have been a failure. Apple’s bread-and-butter has always been building sleek, beautifully designed hardware to fit around its intuitive, easy-to-use software. Google, in contrast, had no experience designing its own hardware back in 2007 and its first attempts to do so would have undoubtedly looked clumsy compared to Apple and would have hurt Google’s reputation as a top tech innovator.
So instead of trying to beat Apple at its own game, Google changed the rules by simply providing a free software platform and telling device manufacturers and app developers to run wild with it. This way, OEMs could compete with one another by releasing devices that each had their own unique stamp on the Android platform, while app developers had a platform that would let them sell their apps without paying any licensing fees. In many ways, this is standard Economics 101 as Google seemingly took its cues from Adam Smith’s famous pin factory and allowed hardware and software companies to efficiently divide up labor and concentrate most on what they do best with comparatively few barriers to entry.
Needless to say, Google’s strategy has been a smashing success so far. According to the latest numbers from comScore, Android has a U.S. smartphone market share of 52.5%, nearly 20 percentage points higher than iOS and vastly larger than competing platforms BlackBerry and Windows Phone. And even though Apple has long ruled the tablet market, Android tablets are making major gains on the iPad and accounted for 41% of all tablets shipped last quarter, according to Strategy Analytics.
That’s not to say that all is rosy in Android Land, however. The most disturbing trend over the past year or so is how many OEMs other than Samsung (005930) have had trouble actually making money selling Android-based devices. HTC (2498) and Motorola have taken major beatings to their bottom lines in the past few quarters while Amazon (AMZN) is barely making any money on each Kindle Fire tablet it sells. Even Google doesn’t seem to particularly care whether it makes money selling Android hardware since it mostly wants to use Android to make its mobile services more widely available.
All the same, while Android may not be a major profit center for most manufacturers, it has been a major boon for many consumers who now have an enormous variety of devices to choose from, whether they’re top-notch smartphones such as the LG Optimus G, oversized “phablets” such as the Galaxy Note II or tablets such as the Nexus 7. As long as Google’s legal troubles with patent suits don’t significantly raise the costs for manufacturers to produce devices, Android should remain a force within the mobile industry for years to come.
