Taking Back the Market

Not Even the Numbers Look Good for Android

Tim Nash - 2011.08.19

Until now, many could and did argue that Android was winning the smartphone platform war. And that the number of activations in the latest Andy Rubin tweet showed that Android was unstoppable (Rubin oversees Android development). And that the market percentage of Android was ever outgrowing iOS, so more and more Android phones were selling every quarter. And that the number of Android apps, although behind those available in the iOS App Store, meant that developers were solidly behind the Android opportunity.

Licensing Issues

That Android was built ignoring other companies patents and intellectual property (IP) was deliberately overlooked. After all, Sun had never forced Google to buy a license for Java. YouTube was covered by safe harbour provisions in the DMCA, so other people's content only had to be taken down after they found it and sent in a notice.

Sure the phone business involved plenty of patents, but the manufacturers were already licensees and would be responsible anyway. Because Google thought that it could build a business and then sort out the messy patent details, when everybody would be falling over themselves to get an agreement with the new 'do no evil' Microsoft, Android is now paying the price.

Now that Oracle owns Sun, the first pound of flesh is due. The judge has already made it clear by quoting a Google email, "We conclude that we need to negotiate a license for Java under the terms we need." It is likely that Google will lose any jury trial - and that triple damages for willful infringement is a strong possibility. Expected damages, in the judges opinion, should start at around a $100 million before willful infringement, but that might be an attempt to persuade Oracle to negotiate and settle before trial. Only if Google agrees that any damages don't cover the cellphone manufacturers, so Oracle can charge suitable per phone fees, is that likely to happen.

HTC has agreed to pay royalties to Microsoft on the Android phones it produces, and Microsoft is now after the rest of the Android manufacturers. Android will certainly not be completely free in the future, and it may end up being more expensive than Windows Phone. When the strong possibility of Apple obtaining injunctions stopping imports and damages is added in, using another OS like Windows Phone, webOS, or MeeGo, backed by companies with strong patent holdings, looks more and more attractive.

Motorola Mobility

Now that Google has agreed to pay $12.5 billion, roughly equal to its profits for the last two years, for Motorola Mobility (MMI), the cracks in its strategy can only widen. MMI had its glory days with the Razr but now is a second tier cellphone maker. It has only been reasonably profitable recently because Verizon chose its model for the quarterly Droid promotion. The pervious two quarters, MMI lost money.

Sure, MMI has a large patent portfolio in wireless and mobile, and with $4.5 billion paid for the Nortel patents, Motorola's patents may be valuable - according to GigaOM, Microsoft wanted to buy them. The problem is that many of the useful patents are encumbered. That is, Motorola agreed to license them on Fair, Reasonable, and Non-Discriminatory (FRAND) terms as part of the standard setting process. This means MMI can ask for reasonable royalties but will have problems obtaining an injunction against the import of a cellphone into the USA in the way that Apple is trying to stop HTC and Samsung. That Motorola is trying to defend itself using these patents in actions brought by Microsoft and Apple, where they are looking for injunctions to block MMI cellphone imports, suggests that MMI may not have strong smartphone patents.

It is quality, not quantity, that Android really needs to survive as an inexpensive and good phone OS.

Some Android Makers Are More Equal than Others

Google has already shown favouritism in recent distributions of Android: Certain manufacturers received working versions before source code went to the rest. This kind of behaviour makes companies nervous, even if they are part of the inner circle being favoured. You never know when the favours will be withdrawn or when the demands will increase. What wonderful Google beta will you be asked to bundle next?

This naturally leads to investigation by regulators, eager to step on a brash company using its strengths to extend its tentacles into other markets. This kind of bundling lead Microsoft into the regulators' grasp, from which they couldn't react quickly enough to the threats of the upstarts, Apple and Google.

The other problem with Google's favouritism is that it seems to break the Linux source code licence (GPLv2) under which Android is distributed, as it relies on Linux. For the manufacturers, this is serious, as it terminates their right to distribute. All it will take is one or more of the Linux contributors to successfully sue, using a law firm on a contingency fee basis, and each manufacturer will have to pay up or stop shipping their Android devices. This could, however, solve the chronic funding issues of the free software movement.

500,000 Android Users Can't Be Wrong

The numbers of activations must show something. More than 500,000 choose Android every day, so it must be wildly popular. There are all those articles and comments about it.

Smartphone Unit Sales by Vendor
Android and Apple grow while Nokia and RIM shrink.
Reproduced by permission of asymco.com.

If you run Google and have all these statistics and mined data at your fingertips, it's so easy to believe, but as Horace Dediu of asymco.com pointed out in a post about Nokia, few of its customers knew or cared about its OS, Symbian, and it was shipped on more than twice as many cellphones every quarter and had been out for years.

What really counts with Android activations is where they are. Rubin's tweets are too short to split out the geography, but there could be a million activations a day in China, where Android is a standard, and it wouldn't make a difference to Google, because Baidu is the main search engine there. Those activations wouldn't help 99% of software developers in the West either, because their programs are of little interest there, and those programs that are will be customised for China by local developers, who will gain any revenue.

Look for developers to move to other platforms as soon as it is clear that Android is losing traction in the markets that matter.

iPhone Now Verizon's Top Smartphone

A careful read of Verizon's last quarter financial presentation suggests it sold 5.3 million smartphones, just less than AT&T sales of 5.6 million (3.6 million iPhones). Of that Verizon total, 2.3 million were iPhone 4s, so Apple picked up over 40% of the Verizon market with a year-old design that, unlike the AT&T iPhone 4, can't be used on many carriers outside the US. Verizon expects the iPhone 5 to sell even better.

Hardly a strong vote of confidence in the US market for Android.

If, as looks likely, the iPhone 5 takes over 50% of the Verizon and AT&T smartphone markets during the holiday quarter, Google's takeover of Motorola will look doomed. If Apple is successful in its ITC action and gets an injunction banning Motorola from importing Android phones, that should be the final straw. It will make more sense for Google to pay out the $2.5 billion fee for not going ahead and pass on Android development to an external group. Google needs to understand that if this is a high stakes poker game, the other players are better funded, and each has a strategy that will weaken Android and claw chunks of Google's revenue out of the pot. LEM

Florian Müller's Foss Patents blog has good coverage of the Oracle/Motorola/Apple/Android patent and Android/Linux licensing issues.

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Tim Nash is a Director of WattWenn which has a new approach to scheduling the production of TV and movies to make the most of budgets. The views in this article are his own and are prejudiced from spending more years working for computer companies than he cares to remember.

Tim lives with his wife, her website on the area ariege.com, two daughters, a cat, and a dog in the French Pyrenees. He lapsed for a while after the Apple II, but became a Mac fan when his wife introduced him to the Macintosh IIsi. If you find his articles helpful, please consider making a donation to his tip jar.

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