Bill Gurley of Benchmark Capital offers a very interesting look at what Android means to the smartphone market. The following excerpts give the flavor of Bill’s view — you need to read the whole piece to put his argument together.
(…) If Apple’s business model is aggressive relative to the carriers, in contrast Google’s seems unrealistically accommodating. You want to control the user interface? No problem. Want access to the code? We’ll make it open source. What kind of economics do we want? Nothing at all. What the hell, we will pay you! That’s right. Google will give the carrier ad splits that result from implementing the Google search box on any Android phone. FBR Capital Markets suggests that Google is taking this idea one step further in its November 24, 2009 report titled Implications of a Potential Share Shift to Android-Based Wireless Devices. “Recent support for Android-based devices appears to be correlated with significant up-front financial incventives paid by Google to both carriuer and handset vendors.” FBR goes on to suggest that these incentives may be as high as $25-50 per device. This is simply an offer that no carrier can refuse, particularly when U.S. carriers are currently in the habit of paying $50-150 per handset sold in subsidies.
While Apple may have opened the proverbial Walled Garden, it is Google, with its aggressive Android offering, that aims to obliterate it. Make no mistake about it; Apple was the pioneer with the amazing revolutionary product. Also, with no iPhone, there is no Android. This is not to say that Android copied iPhone, but rather the impetus to adopt and trust Google’s Android offering was driven by a market dynamic that resulted directly from the iPhone’s success. Without the iPhone, it is possible that most carriers might have opted not to use Google’s OS solely for the reason that letting a powerful company like Google in the front door can be a risky strategic bet.
(…) This is why the two products do not compete head to head. With its super aggressive model, Android will be the choice of the masses, and with its sleek design and non-compromising price point, Apple will rule the high end.
(…) Also, Android doesn’t appear to be an OS that stops at the smartphone market. Expect much experimentation with a variety of hardware manufactures and almost any and every embedded device market from navigation devices to e-readers to tablets and beyond.
(…) With its disruptive and leveraged strategy, it is Google that is attempting to be the Microsoft of the smartphone market. Perhaps ironically, Apple is well positioned to be the “Apple” of the smartphone market.
What I don’t follow is Bill’s confidence that Apple can retain the high end position. If the Android OS gives Google superior ad revenue, then Google’s incentive to expand their market share is very powerful. E.g., if Google earns 2 orders of magnitude more for every $1 of Android R&D than Apple can earn for their R&D, then what do you think that means in a few ticks of the Internet clock?
I have had both and went back to a blackberry. I like simple.