The Cuckoo is a very clever bird. He lays his eggs in the nest of other birds, and let them take care of their eggs even after eggs are hatched. Operating System Google strategy have many similarities and is not duplicable.
Recently, Google’s Executive Chairman Eric Schmidt posted a 879 words article guide about Converting to Android from iPhone. See story here. Reading between the lines, posted by the executive chairman of a 350 billion dollars market-cap company, it is clear to me that his post underlines the major strategic role of the OS in the smartphone war. Two hundred and fifty million handsets were sold in Q3 of 2013. A large percentage, 55%, were smartphones, with Android-based phones taking 82% market share (source Gartner November 2013).
Mobile is a small slice of the OS cake
Even worldwide, the mobile segment of the OS market is just a small slice of the OS pie. The key market-shaping force is convergence beyond smartphones. For example, Apple’s iPad and iPhone devices share iOS, the vendor’s mobile operating system. Ultimately, Apple will likely have one platform for all its phones and computers, including desktops. Apple, however, is playing catch-up to Google, which has one OS for tablets, smartphones and TVs. The convergence phenomenon will grow, incorporating ‘wearable’ and other devices, watches, clothes, and machines notably cars.
Google’s Three-Steps of the cuckoo stragegy
Learning from the past, and the extremely successful Microsoft history, big industry players understand clearly the value of the OS in the ecosystem. Until about ten years ago, organizations bought OSes to answer their enterprise needs – and paid a premium for doing so. Google, with its Android OS, has changed the entire OS ecosystem.
Step One: Give the egg for free
Google invested more than one $ billion US to develop Android, and an estimated another one billion to make it evolved and extend (industry expert estimate). Google offers the Android OS free to mobile manufacturers, sometimes paying them through a revenue share. So what’s in it for Google?
The ‘free’ concept is anathema to many vendors, notably Microsoft, which has thrived on making businesses and consumers pay for all new products and upgrades. However, Microsoft’s glory days may be over. For first quarter of 2013, Microsoft announced a 7% revenue decrease in its Device and Consumer Division (which includes Windows). Revenue dropped to $4.3 billion. Most importantly, revenue for Windows Pro, the company’s cash cow, plummeted 22%. Is this the beginning of the end of Microsoft’s tired, old business model?
Step Two: The Super Cuckoo: Offer several birds for one egg
Google bundles the Android 0S with a full set of applications. In order to use Android and Google Play, mobile manufacturers have to integrate as many as 17 applications on the home screen of their devices. Every Android phone offers, by default, a set of selected Google Applications such as Youtube, Google Search, G+, and Google Maps.
As we all know, Google’s core business is harvesting and federating data about users and usage and monetizing it. The Android OS provides Google complete visibility into customer behavior from the smallest client side denominator (the OS) to the server side, Google Play.
Step Three : Let others take care of the eggs
Google capitalizes on what OEMs do to grow their businesses. Case in point: Samsung’s massive marketing campaign in the United States this year. Android was deployed on about 200,000 units in Q3, with Samsung devices representing close to 100,000.
Android took full advantage of the half a billion dollars ($500,000,000) Samsung spent on marketing its products in the U.S. in 2013. The big picture: Samsung pays dearly to acquire its customers and can lose them post-sale. Google spends virtually nothing and can build long-term relationships with those same customers, monetize those relationships, and build upon them.
The beauty of the cuckoo eco system
Manufacturers tried to build their own OS. The launch in the last five years of two operating systems by Samsung (Bada and Tyzen), supported by R&D and massive marketing budget is a demonstration of this unconfortable situation for the OEM.
But their challenge is beyond the development of an operating system. They have to operate a full ecosystem that includes also: federate and manage 250,000 applications publishers, one million applications, offer premium and advertising monetization system, be sponsored by carriers, and all of those layers have to be global.
OEM are in a schizophrenic situation by being the best ally of Android while at the same time dreaming to be best Android competitors. This ludicrous situation is reinforced every day with the growth of Android ecosystem and the explosion of mobile and connected devices all sold by the same manufacturers (OEMs).
However as it does not prevent the biggest OEMs from success – they continue to take full advantage of the cuckoo ecosystem, and that is the beauty of it.