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Google Android

Google Android

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CASE: SM-176 DATE: 07/28/09

GOOGLE’S ANDROID: WILL IT SHAKE UP THE WIRELESS INDUSTRY IN 2009 AND BEYOND?
We want people out there to use the Internet on their phones a lot. It actually doesn’t matter if it is Android, the iPhone or something else. 1 —Sergey Brin, Cofounder, Google

INTRODUCTION On September 24, 2008, Open Handset Alliance (OHA) partners Google and T-Mobile reached a milestone. They unveiled the T-Mobile G1, the first mobile phone to use Google’s Android open source operating system. The phone was due to ship in a month’s time.2 Since the Alliance came together in November 2007, consumers and industry participants speculated about the impact Android would have on the wireless market, and whether Google’s participation would disrupt the industry landscape. An analyst explained, “I am not sure people are going to be lining up at stores for this device. The iPhone was a game changer from a consumer perspective. The Google phone may be more of a game changer from an industry perspective.”3 Some industry participants even felt that the iPhone was the important trigger event, as it provided an extremely user-friendly interface and easy Internet access, while Android was simply riding in its wake. Rich Miner, manager of Google’s mobile platform group, also contemplated the question of what would come of Android. He wondered whether Google and its OHA partners would achieve the success they each had planned by their participation in Android. Had they put together an

Miguel Helft and Saul Hansell, “Google Introduces an iPhone Rival Open to Whims,” The New York Times, September 24, 2008. 2 Ibid. 3 Ibid. Amanda Silverman and Christof Wittig, with the assistance of David Hoyt, prepared this case under the supervision of Professor Robert A. Burgelman as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2009 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.

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ecosystem that would result in a rich source of mobile applications, an unparalleled mobile Internet experience, and the breakaway success of Android-enabled smartphones? GOOGLE’S ENTRY INTO MOBILE TELECOMMUNICATIONS At the end of 2007, Google was the largest search engine on the Internet. The company’s core search engine product maintained an index of data gathered from web sites, news sites, images, books, and other global sources, and organized this information, making it freely available to its users. Larry Page and Sergey Brin originally founded the company while studying together at Stanford University in September 1998. In 2001, Eric Schmidt was brought on as the new CEO, and in 2004, the company went public. In 2008, Google reported revenues of $21.8 billion, compared to $16.6 billion in 2007. The vast majority of revenue (99 percent in 2007 and 97 percent in 2008) came from the company’s core advertising products, which appeared on Google’s search pages. (See Exhibits 1-3 for Google financial data, forecasted revenue, and biographies of Schmidt, Page, and Brin.) Google’s principal product was Adwords, a service in which companies, or advertisers, could purchase ads space on Google sites and its advertising networks. Companies who advertised using this service paid only when web users clicked on their ads.4 Adsense was a related service, in which partners, or companies with their own websites, joined the Adsense network. Through the program, these partners relied on Google to provide them ad content, which they would place on their own websites. The partners split the proceeds of banner advertisements placed with Google. Fees included payments on a per click and per impression basis.5 In addition to these core products, Google was expanding its product portfolio, in part through an aggressive acquisition strategy that began in 2001 and included notable acquisitions like YouTube (video content) and Google Maps (interactive maps).6 Google’s New Growth Opportunity in Mobile Telecommunications Google’s interest in mobile telecommunications was driven by the explosive growth in mobile subscribers, and the development of mobile technology to enable a wide range of new mobile applications. By 2007, there were 3.5 billion mobile phone subscribers worldwide and the base was expected to grow to 5.4 billion by 2011.7,8 (See Exhibit 4 for mobile phone subscribers by geography.) In

“Adwords,” Google website, http://adwords.google.com/select/Login (September 28, 2008). Per click fees were paid when a user clicked on an advertisement. Per impression fees were paid when an advertisement appeared on a web page viewed by a user. 6 In addition to Adsense and Adwords, Google’s product portfolio included: Google Talk (instant messaging product); Froogle (comparison shopping services); Google Images (online image library); Google Video and YouTube (video content); Google News (news feeds); Google Finance (financial news and information); Google Maps (interactive maps); Google Groups (Internet discussion groups); Gmail (free e-mail service), Orkut (social networking), Blogger (a web-based publishing tool for blogs), and Google Apps (free, hosted word processing and spreadsheet applications). 7 “Phoning, the World Over,” Forbes.com, October 25, 2007, http://www.forbes.com/2007/10/25/mobile-marketsubscription-technology-personaltech-cz_1025mobilemap.html, (January 26, 2009).
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2007, 1 billion handsets had shipped and volumes were expected to grow to 1.9 billion handsets by the end of 2012, representing a compound annual growth rate of 13.5 percent over the period.9 By 2007, while the subscriber base in the Americas, including the U.S., represented around 20 percent of subscribers worldwide, this market accounted for 40 percent of the total worldwide market by value as measured by revenues from handset sales.10,11 (See Exhibit 4 for subscribers by geography and Exhibit 5 for global market segmentation by value.) Demand for particular phone models varied by geography and wealth class. In emerging markets, most consumers acquired low-end mobile phones to simply access basic voice telephony services, and sometimes also cherished their mobile device as an affordable luxury and a symbol of status. Demand for a new type of high-end mobile phone, the so-called “smartphone” (further discussed later in this case), emerged from a new segment of wealthier and better educated customers who began to perceive the mobile phone as a pocketable computer, which could potentially replace all other portable electronic devices. The smartphone segment accounted for around 13 percent of all mobile phones sold in 2008.12 Worldwide sales for smartphones were expected to grow to 619 million in 2012.13 (See Exhibit 6 for yearly forecasts of worldwide smartphone unit sales.) Google saw an extraordinary growth opportunity in facilitating new types of advertising on these devices. Google’s Strategic Intent in Mobile Telecommunications Google had already begun offering mobile services in 2001. At that time, several wireless markup languages, such as “wireless application protocol” (WAP), enabled Google’s services to These languages were used to be accessed through a mobile phone’s Internet browser.14 translate standard websites into websites compatible with mobile phone browsers. While available on a mobile device, it was generally understood by industry experts that these websites were unsuitable for the small screen size and slow connection speeds of these devices, or they were too limited to offer a compelling user experience. By July 2007, Google had begun testing mobile ads with its U.S. partners, websites that enrolled in its Adsense online advertising program. The company announced: As part of our efforts to develop new and improved AdSense products for our partners, we will begin a limited beta test for AdSense for mobile. AdSense for
“Worldwide Mobile Subscriber Forecast,” Shosteck Group and Mobile World, October 31, 2007, http://blog.clickz.com/071031-141648.html (January 26, 2009). 9 “Global Mobile Phones: Industry Profile,” DataMonitor, December 2008. 10 Ibid. 11 In 2007, the global mobile phone market was valued at $114.3 billion. “Global Mobile Phones: Industry Profile,” DataMonitor, December 2008. 12 “Smartphones – Smart Revenues,” Juniper Research, February 2009. 13 Roberta Cozza, “Forecast: Smartphones by Operating System, Interface and End User Segment, Worldwide, 2006-2012,” Gartner, December 11, 2008. 14 WAP browsers provide access to WAP sites or websites that are written or dynamically converted to WML, the Wireless Markup Language. WAP, or Wireless Application Protocol, is the open international standard for the application layer that enables wireless communication, mainly access to the Internet, from a mobile phone.
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nytimes. Google announced its partnership in the Open Handset Alliance (discussed in more detail later in this case). 2009). January 14. http://wireless. “Google Sees Surge in iPhone Traffic. The 700 MHz spectrum became available as part of the switch to digital television.gov/services/index. 19 Henry Blodget..com/blog/main/archives/2007/07/google_tests_mo. as contrasted to its revenues at the time which were primarily in desktop. (September 28. Publishers can take advantage of the fast-growing mobile advertising market and benefit from our targeting technology. Google’s Schmidt described the opportunity to make money in mobile computing. “Google Tests Mobile Version of AdSense for the U. July 15.5 billion for the spectrum.html (September 28. It knows all about you.jsessionid=AXMO2AQZKD H34QSNDLOSKH0CJUNN2JVN.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. requiring Verizon to adopt open access for the awarded spectrum. making frequencies once used for analog television broadcasting available for other uses.alleyinsider. 2008). traffic to Google’s mobile services surged from a new subscriber base using the Apple’s iPhone. “Spectrum Auction: Google Wins by Losing.18 though at the time iPhone users accounted for just 2 percent of smartphones worldwide compared to Symbian’s 63 percent. we will make more money from mobile advertising. Verizon announced that it would open its existing mobile network to any cell phone and allow subscribers to run thirdparty applications on their phones beginning in November. surpassing traffic levels from any other type of mobile device. a fast.” InformationWeek. you carry your phone everywhere. very targeted ad.com/2008/01/14/technology/14apple.cnet.” AlleyInsider. 18 Miguel Helft. August 13. saying: “We can make more in mobile than [in] desktop eventually. Think about it.htm?job=about&id=lower700. Google also led an effort to bind together advocacy groups and lobby the FCC to adopt open-access rules that would require the winner of the spectrum auction to allow any device or application to connect over the spectrum. 4 mobile allows publishers to monetize their mobile websites through the placement of targeted text ads. March 20.15 On November 5. http://www. Later. The reason is because the mobile computer is more targeted.informationweek.S. While Google lost the bid to Verizon. http://www. unexpectedly placing a bid of $4. 2008.” The New York Times. 16 “About Lower 700 MHz.16 Meanwhile.com/8301-10784_3-9900190-7. http://www. 2008). 2008). (May 14. in August 2008.com. the FCC ultimately gave in to Google’s lobby. Following the auction.com/2008/8/google-dreaming-of-50-billion-mobile-ad-market. In January 2008.”19 Stephen Wellman. 15 . http://news. Industry experts suggested that Google gained what the company may have wanted from their participation in the auction.” FCC. 2008. 2007.” CNET News. We can do a very. Google participated in the Federal Communications Commission’s (FCC) 700 MHz spectrum auction.17 During December 2007. (November 30. (September 28.fcc. including Android-based devices.html. 2008). Over time. open network for all its applications and services.com. 2008. 2007.html. “Google Still Dreaming of $50 Billion Mobile Ad Market. 17 Elinor Mills.

a venture capital group associated with Orange. Miner recalled: We jelled very quickly on a unified vision―that having an open. 5 ANDROID AND GOOGLE Android began as a start-up company developing an open source operating system for digital cameras. powerful. At Orange.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.”20 At the time. and noted that “Microsoft was dictating what apps you could and couldn’t have on the handset and the extent that the handset could be customized. What began as one version of free Linux became 20 different versions licensed by different companies. Rich Miner was working at Orange Ventures. and in securing financing. Miner met with Rubin.” The current open source Linux operating system was not sufficient to remedy the problem. who had started to wonder if his idea of an open operating system was more suitable for the mobile phone than the digital camera. Miner commented. where one company’s Linux handset was completely different from another’s. They began to retarget the Android effort toward the mobile phone. and the later formation of the Open Handset Alliance. Meanwhile. . the mission evolved to delivering an open source operating system for smartphone devices. It also needed to be truly open. more powerful handset platform that could be deeply branded. a part of France Telecom. he observed the need for carriers to have a new. Soon. but had difficulty demonstrating the market need. with the primary tool being the corporate website. However with its purchase by Google. And it was at a time when there was pull from carriers. and very complex integration tasks were required in order to compete with mainstream platforms like Windows and Symbian. the industry was not well positioned to deliver on this opportunity. And the handset OEMs themselves felt they were not in a position where they could deliver on the carriers’ expectations for the handsets they wanted. E-branding is branding on the Internet.21 20 21 Quotations from interviews with the authors. unless otherwise specified. Early Days Android began as a stand-alone company founded by Andy Rubin and Chris White. The result was a fragmented environment. advanced mobile phone platform that we could get adopted by a lot of the handset OEMs by being very open―was important. We had no ability to get source code to fix bugs or influence the platform in any significant way. he had worked on the Microsoft Windows Mobile launch with some of his portfolio companies. There. “The carriers felt they were losing their ability to influence some of the larger handset OEMs or platform providers. The handset OEMs also needed it because they were being pushed by the carriers to deliver powerful handsets with carrier-based branding and e-branding. They were developing an operating system for digital cameras.

Distinct from LiMo. the team sold Android to Google and stayed on after the acquisition. 6 Google Acquisition and Open Handset Alliance In July 2005.24 The OHA had 34 partners including mobile carriers. 23 Richard Adhikari. License fees of comparable LiMo was a version of Mobile Linux. February 14. Typical developer SDKs in the industry usually required expensive certification and often high membership fees. Our vision is that the powerful platform we’re unveiling will power thousands of different phone models. http://www. 24 “Industry Leaders Announce Open Platform for Mobile Devices. Intel.linuxinsider. both major carriers. the first release of the Android software development kit (SDK) became available for free download. 2008. when Google led the unveiling of the Open Handset Alliance (OHA). the world’s largest carrier by subscribers. and Samsung. 2008. 2007. Android will accelerate the pace at which new and compelling mobile services are made available to consumers. or paying a license fee for shipping the software on the devices with the respective operating system.22 whose Foundation’s members were collaborating to build its operating system. Today’s announcement is more ambitious than any single ‘Google Phone’ that the press has been speculating about over the past few weeks. 22 . the development community could build mobile applications that could run on smartphones that had Android installed on them.html?wlc=1240252610.) Most prominent were China Mobile.23 As part of the announcement. which was established in January 2007. and was supported by the LiMo Foundation. Schmidt stated: This partnership will help unleash the potential of mobile technology for billions of users around the world. 2008). November 5. and application providers. chipset and handset manufacturers.com/story/61685. An announcement stated the group’s mission: This alliance shares a common goal of fostering innovation on mobile devices and giving consumers a far better user experience than much of what is available on today’s mobile platforms. Qualcomm. Motorola. As an open source rather than proprietary operating system. T-Mobile. and made the announcement of Android as an open source mobile operating system for smartphone devices.com/intl/en/press/pressrel/20071105_mobile_open. Much speculation ensued as Android remained a stealth project until November 2007. Nokia.” LinuxInsider. By providing developers a new level of openness that enables them to work more collaboratively. http://www. “LiMo and Android: Is This Town Big Enough for Both?. A fresh approach to fostering innovation in the mobile industry will help shape a new computing environment that will change the way people access and share information in the future. and AT&T and Vodafone.25 Android Developer Community On November 13.” Google website. (See Exhibit 7 for a listing of members. did not join the Alliance initially. 25 Ibid.html (September 28. (April 20. without any hurdles to obtaining access to the SDK and the Application Developer Interfaces (APIs). HTC.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. the dominant handset manufacturer. 2009).google. the OHA members were furnished with Android as a completed operating system.

these included the always-on Internet and location-aware services.000 copies of the SDK had been downloaded. op.29 At the unveiling. 26 . the first smartphone with the embedded Android operating system. Unveiling the First Android Phone As noted earlier. 28 “Android – an Open Handset Alliance Project. Reference platforms were akin to an implementation template for a chipset for a typical phone. The first Challenge was intended to give developers an “opportunity to explore their ideas using the early SDK. including ten $275. Google also announced a $10 million Android Developer Challenge. 29 Roberta Cozza.000 prize winners. during which a panel of industry judges would select the best applications written for Android devices.26 Compared to other platforms. including location-based services and data portability.28 By August. trained in the popular Java software programming language. which was often regarded by industry participants as an odd development environment for experts only. cit. The SDK included the entire software package needed to operate the hardware of an Androidenabled mobile handset. without requiring a full implementation. With the release of the Android SDK. plans for the Android application marketplace (“Android Market”) were announced. Android offered one that was compelling even for current college graduates who had been programming on Linux and Java and using open source tools. including GPS. share.com/android/roadmap.50 to $25. and build prototypes. http://code. Google and T-Mobile unveiled the G1. they would be able to bring up new chipsets with greater ease and better performance on a level playing field. the ability to write and test simple mobile applications in a matter of days. which were paid by manufacturers. which worked like a compass recognizing the subscribers’ geographical position. and allowed for advanced features through powerful APIs. Thus. 500. Altogether.000 and ten $100. and move data from one system to another. the SDK offered the average software developer. In addition. 27 Information based on interviews by the author (Silverman) with industry personnel. deriving their own implementations. the development community characterized Android by its ease of use. It was forecasted that Android-enabled smartphones would account for 30 percent of Linux enabled smartphone shipments worldwide in 2009 and grow to 80 percent by 2012. The first of two separate $5 million challenge events took place from January to August 2008. now Google’s senior director A location-based service (LBS) is a mobile service that makes use of the geographical position of the device. Within less than three months.” Google Website. In contrast to Symbian. chipset providers that built the components managed by the Android operating system could use the open standard to develop very powerful reference platforms. 7 operating systems retailed at $0.” while the second Challenge would give developers a chance to polish their applications once the mobile handset hardware became available. programming for the Android was analogous to that of a PC or the web. and understanding the best design approach.00 per handset shipped.html (September 28.27 Key features appealed to developers as well. Chipset designers often used these for testing. and plans for 50 finalist teams. 2008). Rubin. Data portability is the ability to control.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.google. in September 2008. with submissions due by April 2008.

That’s the reason we’re making this investment. http://www. “Google was obviously a company that was founded on the Internet. Google would make it unsustainable for startup companies such as Opera. Google was clear. however.aspx. 2008). Google claimed it simply wanted to have the opportunity to compete on a level playing field. where developers could launch their applications to the world.tmobileg1. By 2008. while Orange (part of French Telecom) worked with Windows Mobile. and making it difficult for carriers to provide a deeply brandable handset. that it would always bundle its dominant Internet search engine firmly into the fabric of this ecosystem.com/g1-announcement. such as their reluctance to provide access to source code to fix bugs.”32 for Android. September 23. [with a] connected data experience. 32 Chrome was a free. as well as by building a strong developer community with a common open standard and a single Android market. or Openwave to charge a licensing fee for their mobile browser clients. Creating a level playing field also meant removing the restrictions imposed by the proprietary platforms. drive innovation. and that. 8 of mobile platforms.google. but were also highly connected data devices.html (July 21. Google. in principle. “Introducing T-Mobile G1 with Google. Access. yields innovation.com/intl/en/press/pressrel/20080902_chrome. A New Take on the Browser. Google claimed not to have a business model of its own for Android. With these restrictions removed. undermining the ability of these firms to attract funds for further innovation. by giving away a free browser. and the ability to compete on its strengths of technical superiority. driving traffic and advertising revenue.” T-Mobile website. 30 . and first released in a beta version in September 2008. it would also challenge traditional business models of some technology start-ups. 2008.31 While removing entry barriers to the mobile industry would. today. Miner described this vision: We really want to see Android adopted by a very large percentage of mobile handsets. Google had much to do before achieving its vision of success for Android. remarked. we’re bringing some of those advances and strategies to the mobile phone. It’s the Internet that provides collaboration. 2009). openness. 2008 (http://www. Google Press Release. 31 Interview with Rich Miner.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. open source web browser developed by Google. and be very open. strong control over the development of the platform. “Google Chrome. of course. The goal is that there are a billion-plus mobile phones sold every year and Google would like to see the majority of those being a very powerful and great phone. Google believed that the future was about phones that were not only great for communication. (September 28.”30 However. called “Chrome. Android could compete on best-in-class products. especially ones that are more feature-rich handsets. Microsoft dictated which applications would and would not be on the handset and to what extent the handset could be customized.” September 2. For example. With Android. For example.

provided carriers with an initial opportunity to supplement revenues from voice minute plans. launched an “Enhanced Data rates for GSM Evolution” (EDGE) network to support data services in 2005.S. for which the company paid $4.33 Traditionally. “Wireless Telecommunications Carriers in the US: 51332. with data service accounting for 21 percent of revenues. 33 . For example.36 By 2007. http://gigaom. the consumer obtained wireless services by subscribing to a plan offered by the carriers.S. March 2008. In 2007. while the average wireless voice ARPU declined from $55 to $42. 2008.” through their own portals. 36 T-Mobile was awarded 120 Advanced Wireless Service (AWS) spectrum licenses in the 1700 MHz and 2100 MHz frequency bands.-based mobile carriers in the second quarter of 2008 were around $39 billion. 35 “Wireless Telecommunications Carriers in the US: 51332. U.18 billion. a digital mobile phone technology that allows improved data transmission rates. carriers (Sprint. the carriers sought to increase their average revenue per user (ARPU)—particularly the wireless data ARPU. chipset manufacturers. and upgrades to newer generation networks with higher and faster data transmission capacities. In order to get a good return on these major investments.18 billion. Verizon.35.” GigaOM. Market Wireless services revenues for the U. such as downloadable ring tones and Java games. August 11. In addition to this customer acquisition cost. over 70 percent of U.S. is an extension of the top standard Global Systems for Mobile communications (GSM). (September 28. carriers had spent $24 billion on wireless infrastructure to provide better territorial coverage. The expense was simply considered part of the customer acquisition cost.) Fees from early data services add-ons. February 2.” IBISWorld. From 2004 to 2007. additional spectrum. For example. 2009. software providers. Most carriers viewed offering the phone at a reduced price as strategic in retaining control of the channel to the customers. 9 THE MOBILE INDUSTRY LANDSCAPE IN 2008 The mobile communications industry comprised companies from various sectors.34. Providing Mobile Services in the U. who used so-called “feature phones. Carriers often competed for customers by providing better wireless coverage and reselling the latest mobile devices at a deep. The carriers provided this new mobile content to subscribers. with much of the cost subsidized by the operator.S. mobile subscribers obtained their handset through their carrier.S. February 2. the average wireless data ARPU among top U. 34 EDGE. and application developers. 2008). carriers had to recoup their investments for costly mobile network infrastructure.com/2008/08/11/more-proof-that-the-internet-will-save-wireless-carriers/. 37 US Wireless Data Market.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. mobile handset manufacturers. “More Proof That the Internet Will Save Wireless Carriers. Verizon spent $35 billion on its network Stacey Higginbotham. and acquired new spectrum licenses in 2006 for $4. subsidized discount. T-Mobile.37 (See Exhibit 8 for ARPU and other statistics for major U.50. and AT&T) increased from $3 to $10 per month. and is backward-compatible. since they had to contend with decreasing wireless voice ARPU. wireless carriers. including mobile telecommunications operators or carriers. 2009.S. and carriers usually believed they could make up for the loss in the recurring fees from monthly service subscriptions.” IBISWorld.

com/5124588/itunes-gets-drm-free-newprices-purchase-over-3g (May 1.) Most typically only a few large.html. In the United States. Customers readily adopted these new services. This also occurred in Europe.9 percent of the U. but content producers and development partners often criticized the “walled garden” approach.5 million songs. (See Exhibit 9 for select mergers and acquisition activities amongst U. were AT&T and Verizon Wireless. merged in 2004. as carriers pocketed a large percentage of the paid content fees before passing along the balance to partners. and could play songs purchased from the Apple iTunes music store. Sources: “iTunes Store Tops Two Billion Songs. AT&T Wireless and Cingular Wireless. AT&T.) Of secondary carriers. but did not allow access to the Internet. http://www. Jesus Diaz. Alltel Networks retained 4. January 9. Purchase Over 3G.” Gizmodo. as it was commonly termed. only those that focused on specific niches. 2007. 2009. and V Cast Music Store. the V Cast Music Store had more than 1.41 Sourcing and Manufacturing Handsets In emerging economies such as India and China. subscribers typically purchased phones directly from handset manufacturers. by April 2007. 2009). 10 between 2000 and 2006.S.” loc. cit. the largest operators in the U. (May 1. allowed users to make voice calls and to download some basic content. 41 Ibid. the Apple iTunes store carried over 4 million songs by January 2007.S.com.S.S. to establish its third-generation wireless network that provided for data services including V Cast Mobile TV.40 Ultimately. which invested a total of $13 billion during 2005 and 2006 with the intention of enhancing and upgrading its GSM network infrastructure to enable 3G services. primary carriers remained.com/pr/library/2007/01/09itunes. January 6. had by January 2007 announced its partnership with Apple to release the iPhone. (See Exhibit 10 for a list of the leading global telecom operators as of 2006. For example. which would utilize the company’s EDGE (2. owners of the newly released iPhone could not immediately download songs over the air or 3G network.com. By comparison. However. By contrast.39 Feature phones. 2009). two of the largest competitors.apple. By 2006. or that were protected by regulatory frameworks. as opposed to the later-released smartphones. the early mobile content offerings were not enough to justify the carriers’ hefty infrastructure investments. and had just begun by 2007 in the U. by 2007. Sprint bought Nextel Communications for $35 billion. By 2007. and industry consolidation ensued. carriers. For example. where consumers would separately purchase phones in retail stores and a subscriber identity “Wireless Telecommunications Carriers in the US: 51332. Sprint chose to launch its own 99 cent music download service to compete with the Apple iTunes service. 40 Ibid.38. instead of partnering with Apple. 39 38 . survived. A year later. iPhones were not yet available and later. http://gizmodo.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.5G) technology. “Tunes Gets DRM Free. New Prices.” Apple. wireless market by being the only carrier offering analog (rather than digital) services.

as blockbuster hits. to stand out from other offerings. Subscriber Identity Module (SIM) is a removable card that is placed in a mobile handset and stores the servicesubscriber key used to identify the subscriber for the mobile handset. and new entrants included Apple. like Motorola’s RAZR mobile phone first released in 2004. market. To enable this aspect of its competitive strategy Nokia.45 Traditionally. they typically dictated the specifications for the components in order to appeal to the carriers’ need or to pull demand from the subscribers themselves.S.” IBISWorld. On the software side. and performance. Competing based on fashion allowed manufacturers like Nokia. handset manufacturers competed by designing phones that had a unique aesthetic appeal. Freescale Semiconductor.000 software engineers in-house.42 Insiders estimated that about 30 percent of handsets worldwide were bought in the open retail market. Yet competitive positioning around fashion was difficult to sustain. 45 “Market Share: Mobile Devices by Region and Country. rather than through carriers. It remained to be seen if positioning around functionality and performance would be as successful―and as important to consumers―as aesthetic design and fashion appeal. 43 Information based on informal discussions by the author (Wittig) with industry personnel. The top two. functionality. had begun to be adopted by other companies.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. handset providers had to create the operating system able to run on the hardware device. competition based on technical design and utility. This was typical for the industry. for instance.44 In the U. were difficult to repeat on a consistent basis. and application developers. Broadcom. By 2006. handset vendors sourced chipsets from several competing firms. Essentially. used the SDKs and APIs provided by the handset manufacturers to program compelling applications that could run on their mobile devices.43 Carriers sourced phones from handset manufacturers. MediaTek. Qualcomm and Texas Instruments were the most prominent.” Gartner. and several Korean and Chinese manufacturers. 4Q08 and 2008. NXP Semiconductors and STMicroelectronics following. RIM. as noted earlier. by retaining 10. with 36 percent and 22 percent shares respectively. On the hardware side. the global handset market was dominated by five companies that accounted for 85 percent of the market. 2008. with Infineon Technologies. accounted for 58 percent. as designs were generally fairly easy to replicate. eager to launch mobile applications.9 percent. 44 “Communication Equipment Manufacturing in the US: 33422. had made a greater investment than Motorola in developing software expertise. 42 . Nokia had captured just 9. handset manufacturers also competed by offering compelling combinations of software and hardware. December 18. particularly in markets dominated by a few large carriers. the SIM card connects the subscriber to the carrier’s services and billing. In any event. as the carriers tried to control demand by their choice of which phone models to offer customers. who had set the world standard on this dimension. generating demand for their products even though they lacked a direct relationship with subscribers. including Apple and Google. Nokia and Motorola. By contrast. 11 module (SIM)-only plan from a carrier. As handset vendors often used hardware to differentiate their offerings.

Smartphones Prior to 2007. greatly increasing the number of calls that can be handled on a cellular network. and power consumption In addition. cit. see “Cellular Telecommunications: An Industry Driven by Intellectual Property and Technical Standards. Smartphone shipments were expected to account for 40 percent of global handset sales by 2012.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. manufacturing internal components was complicated by factors such as the size of the screen. a phone with a proprietary operating system and limited capability to add third-party applications.” ABI Research. These included Microsoft’s Windows Mobile. For years. A related important strategic issue concerned control of the intellectual property (IP) used in the mobile handset and network equipment. 48 “Mobile Handset Shipments by Value Segment. RIM’s Blackberry in 2002. almost independently from the underlying hardware platform. and entertainment. Apple’s Cellular phone handsets and networks communicate with each other using radio frequencies. new productivity tools. Qualcomm reaped enormous financial returns from royalties on its IP. differentiated products.49 By 2007. 46 . often competing by streamlining cost and by pre-programming software onto the chips to produce more powerful. In mature markets. first released in April 2000 as the Pocket PC. intellectual property issues.S. For additional information about cellular technology. several smartphone platforms were already in use in the U. consolidation among handset vendors meant that chipset manufacturers had to fight for orders from a shorter list of buyers. There are many technologies. Each call is assigned a digital code. However.48. consumers was a feature phone. with particular emphasis on Qualcomm. 12 For handset chipset vendors. and replace core applications like those that operated the phone’s camera component or accessed the address book. Smartphone subscribers could readily access and browse the Internet. input mechanisms. in the eyes of its user. which made the phone work. profiting from the sale of these components to handset and network equipment makers. capturing 77 percent of mobile device sales.46 Manufacturers of handsets and network equipment had to pay royalties to the owners of IP that they incorporated in their products. referred to as “air interface technologies” that can be used for this communication. SM-177. the typical handset offered to U. 47 Code Division Multiple Access (CDMA) is a data transmission technique in which many calls are transmitted within a single wide channel.” GSB No. which in turn increased the cost of handsets. and industry dynamics. 49 Roberta Cozza. This had been the subject of extensive battles over the air interface standards used to communicate between handsets and network equipment. provided by a variety of sources. Smartphone users could also add new applications.47 As CDMA became widely used and incorporated into industry standards.” a new type of mobile device that contained an Internet browser and an identifiable operating system. as noted earlier.S. op. smartphones were expected to surpass feature phone sales. advances in technology (particularly in telecommunications standards that provided increased network capacity) gave rise to the “smartphone. which is used to reconstruct the call after it is received. Qualcomm had been involved in conflicts over standards and royalty arrangements related to its coveted CDMA intellectual property. like Western Europe. CDMA allows many calls to be transmitted simultaneously. such as methods of improved connectivity. before the first announcement of Android. Qualcomm also manufactured the chipsets used in products made to CDMA standards. various models produced by Nokia running on the Symbian operating system.

and there was only one button and few menus. 58 Apple press releases. along with the presence of the Internet browser itself.” July 10. and an application store in July 2008 that allowed third-party developers to sell applications and retain 70 percent of the resulting revenue. The iPhone upgrade was performed by connecting the iPhone to a computer.51 (See Exhibit 11 for smartphone market penetration by Q3 2007. and models based on LiMo since February 2008. 2008. and that Apple had finally developed the phone that truly offered the full mobile Internet experience. to sponsor a $100 million iFund that invested in iPhone application development. fashionable form factor. It worked with Kleiner Perkins Caufield & Byers. the App Store had 500 available applications. 2008. “App Store Downloads Top 100 Million Worldwide.com/2008/03/06/kleiner-perkins-announces-100-million-ifund-for-iphoneapplications/. and usually embedded in the device.” TechCrunch Website. the arrival of the Apple iPhone was viewed by many observers as the event that most changed U.” September 9. 54 Erick Shonfeld. (September 28. http://www. the U.3 million units. generating FY2007 sales of over 1.58. “iPhone 3G on Sale Tomorrow. June 11.com/pr/library/. a prominent venture capital firm.html. Apple also released a firmware update52 upon the launch of the 3G iPhone.S. The company released a software development kit (SDK) to the development community in March 2008. http://www. 2008. and embedded software that could adapt during the lifecycle of the product’s use. March 6. 2008). such as a ROM chip. Until the mid-1990s. which was dominated by Symbian-enabled smartphones. 2009).Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. Compared to the worldwide market.56 These aspects of the iPhone experience. The device itself offered a simple one-touch user interface. Nicolas Hoover. (April 19.ehow. (http://www. “Nokia’s Symbian Deal Rewrites the Smartphone Rules. The homescreen resembled a PC desktop with application icons. 51 50 .informationweek. and downloading the revised program.55. 56 Apple press release.com/news/software/open_source/showArticle. upgrading firmware generally required replacing a component. Upon its launch.54 iPhone owners could purchase and download these applications through the iTunes App Store. market was far from established. 53 “Analyst: There’s a Great Future in iPhone Apps.com. 2008). 55 Apple press release.59 The customers’ frequent use of the iPhone Symbian-enabled smart phones captured 67 percent of the worldwide market by 2007.53.50.” Venture Beat. 52 Firmware is a computer program designed for a specific hardware devise.57 Consumers readily adopted the Apple iPhone. consumers’ expectations of the mobile Internet experience.techcrunch.6 million units. 2009). June 28.) As noted earlier. 2008. 2008 it grew to 3. Apple took a number of steps to encourage an active development community that would build applications for the iPhone platform.jhtml?articleID=208801196. http://www. 57 Information based on interviews by the author (Silverman) with industry personnel. 2008. and Exhibit 13 for further details on each operating system. Exhibit 12 for a forecast of worldwide sales of smartphones by OS type. although most applications were offered free of charge. Paul McDougall. were commended by carriers who felt that the iPhone created a new understanding about the mobile Internet. “Kleiner Perkins Announces $100 million iFund for iPhone Applications.S.” InformationWeek.” eHow. accessed July 10. and FY2008 sales of over 11. 13 iPhones since June 2007. along with a sexy. “How to Upgrade iPhone Software.000 available applications.apple. and by September 9.com/how_2214484_upgrade-iphonefirmware. J. (September 28.

60 By 2007. Apple press releases. and were particularly concerned about the cost of supporting a wide range of different operating systems. and Google offered a variety of web-based applications and services.com/pr/library/. and to that end they worked with independent content providers like imeem (music service) and Loopt (presence of my friends).62 CHALLENGES FACING ANDROID While Android was still in its earliest stages. 2. and search.315. February 12. challenges began to emerge that could jeopardize its success.” a term coined by Vodafone’s CEO Arun Sarin. Operators who implement 3G can offer subscribers a wider range of advanced services. Facebook was the predominant social networking website.5G and 3G network infrastructure required to offer the data services.703. 14 made carriers once again optimistic about the ability to offer fee-based data service in order to increase ARPU. 61 “Gphone spotted in Barcelona.thetimes. both in terms of minutes of use from a voice point of view.892. including e-mail. 2008. but needed to first build out the required 2. and broadband wireless data. in which they would simply provide data services at cutthroat commodity prices.S. 2009).apple.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.119. Q208: 1. Twitter (micro-blogging) and Google (Internet search. Q407: 1.za/patternrecognition/. iPhone sales by quarter in thousands were as follows: Q307: 270. as well as data functions. Sarin opined. To allow for this. but we don’t need 30 operating systems. so they could maintain a strong relationship with their subscribers. “Let the market decide whether it’s Symbian or Microsoft or LiMo. e-mail. “The amount of usage that we’re seeing on the iPhone in Europe is just outstanding.” Operators had long hoped to capture the data communications opportunity in the mobile Internet experience that would be available on more advanced mobile devices. Q308: 717. (November 30. 2008). and achieve improvements in capacity. and consequently began putting pressure on mobile handset and chipset vendors to produce hardware and platforms to enable these data services. Q408: 6. carrier that had already done so. chat. Q108: 2. AT&T was the only U.co. video calls. Forking A key strength of the open source system was the ability for a large development community to maintain and enhance the code. http://www. 62 Imeem was an online service where consumers could discover their favorite music.”61 They preferred to brand the device they resold to customers. (April 19.” The Times. Carriers also needed to upgrade their customers to the newly available smartphones. calendar.5G is the stepping stone between 2G and 3G. André Stark of T-Mobile affirmed. the OHA would release a permissive Apache Apple’s fiscal year begins in October. They wanted to provide differentiating applications and content as well. http://blogs. as well as Facebook (social network). Operators wanted to avoid becoming “dumb pipes. Loopt was an online service that helped friends find each other based on their being present at a location. They also knew they needed the most compelling content offerings to entice subscribers to upgrade to smartphones. and maps). including widearea wireless voice telephony. 59 . 60 3G is the third generation of standards and technology for mobile networking.

Moreover. and Flickr (photo sharing). some suspected that the agreement would be difficult to enforce. The openness of the model meant that the “long tail” offerings present on the fixed Internet would become available on the mobile Internet. each in relatively small quantities.”66 Yet operators knew that adopting these marketplace platforms left them with less control than they had with their own portals. and this advertising would subsidize free access to 63 The Apache license allowed royalty-free use. the development of separate. “Fragmentation is partly caused by forces outside of Google’s control. Twitter (micro-blogging). (September 28. 67 Gathered from interviews conducted by authors.g. 2008).co.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. “forking”―a term used for developing a separate.39290713. Whether operators would give up this control to work harmoniously with the developers who wanted to monetize their own content and applications remained to be seen. Some speculated that operators might be able to sustain a model where they would share revenue.htm. According to the “non-fragmentation agreement” signed by the OHA membership. e. 65 “Long tail” refers to a business strategy for capturing niche opportunities by selling a large amount of unique items. though more modest in nature.63 However. thereby significantly increasing mobile Internet usage as observed on the iPhone a year prior. “The amount of download revenue that will be created through these marketplaces will just be huge because it’s not only ring tones and wallpaper kinds of stuff. Applications.co. However. incompatible implementations of Android could not be supported by members. http://news. 2007. 66 Ring tones and wallpapers were early examples of downloadable content that for the most part altered the aesthetic and attractiveness of the phone itself.” T-Mobile’s Stark explained. incompatible yet legal copy of the code―detracted from the strength of the open source system. will bring programs and websites available on the fixed Internet to the mobile phone. An analyst emphasized. as required under the most popular open source and less permissive license.67 Meanwhile.. others in the industry believed that in the future. 15 license that would give developers the ability to modify Android.” ZDNet. revenue would be derived from advertising in different shapes and forms. to remit software changes to the licensor. These may include popular sites like Facebook (social networking). modification and distribution of software without any reciprocal duties for the licensee. they could not easily require third-party application developers to share the proceeds of their applications with them.65 Subscribers would be able to easily obtain these new applications and content through convenient marketplaces. operators seemed to acknowledge that much more significant revenue opportunities existed with these open marketplaces than with their own portals.1000000085.”64 Carrier Alignment Most carriers saw Android as the potential driver of a suitable ecosystem to deliver the mobile experience consumers wanted. commonly referred to as so-called “walled gardens.uk November 13.00. . 64 “Google ‘Guarantees’ Android Compatibility. with the application and content providers. and as competitors by their nature would lean toward fragmentation to gain a competitive edge. it’s applications. by contrast. General Public License (GPL).uk/communications/0. it’s far beyond that.zdnet. It’s software in itself. as players outside the Alliance could modify the code in non-compatible ways. as well as services like Google’s G-mail.

presumably realizing that this outcome would have hindered its revenue from voice services. industry participants could adopt any one of three models of deploying Android. the first Android-enabled handset produced by T-Mobile. with Android.html (September 28. which were not formally stated. and other similar Internet-enabled consumer applications. For example. This was a particularly attractive aspect of advertising on mobile devices. Nevertheless. application providers wanted to be able to provide demographic information. asked Google to not publish the Skype application on its Android marketplace. Specifically.) Among other rules. described as “Google experience phones” was similar to the G1. or with intermediaries such as Google. to design a Skype-lite version for the Android Marketplace. Skype. T-Mobile. and Google. 2008. For example. and instead worked with eBay. these OHA phones would need to run any Miguel Helft. In order to get this information. and required an agreement between the carrier and/or handset manufacturer and Google to use the Google brand and popular Google services such as Gmail. but understood within the industry. as ads could be targeted to people that were geographically close to the advertiser (such as a restaurant). HTC. Android seemed to be an improvement over iPhone.nytimes. It was uncertain whether this would be possible. the G1.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. the company that acquired Skype. application developers would need to work with the mobile phone operators. a carrier did not have complete control over the services that enabled e-mail. required users to create or connect to their Google accounts to activate the phone. In this regard. http://www. This left T-Mobile without subscribers using its own services. That benefited T-Mobile and gave a kickback to Skype. The first model. and. such as that obtained when a customer signed up for a mobile phone or set up a Google Gmail account. January 14. The second model was Open Handset Alliance-based phones. Google’s Internet search with its embedded advertisements. By 2008. where the subscriber was asked which of the phone’s resources s/he wanted to restrict. most importantly. 69 Mobile subscribers were usually sensitive to advertising as it relied on access to their personal information.69 As these were still the early days of Android. carriers were concerned about Google’s strategic intent. 16 applications and content. thereby prohibiting applications from accessing them. which used Android source code but included neither certain popular Google applications nor the Google brand. which prevented the carrier from collecting a database of valuable subscriber information. a provider of IP-based telephony which allows users to place free Skype calls to one another’s Internet-enabled terminals bypassing the fixed line and mobile carriers. essentially could have enabled a T-Mobile subscriber with an Android-enabled handset to use the data plan and Internet access on the device to place calls and bypass the voice application altogether. 2008).68 Advertisers paid the owners of applications that carried their ads (such as Google search) a rate that reflected the degree to which their ads could be targeted to their desired audience. 68 . carriers made attempts to limit the strategic implications of their potential loss of control. Google maps. To achieve an even higher advertising rate.” The New York Times. (See Exhibit 14 for the distinctions between the basic Android-enabled phones and G1 smartphones. T-Mobile worked with Skype to adjust the application it would release in the Android Marketplace. A wide range of strategic issues presented new challenges for the carriers. “Google Sees Surge in iPhone Traffic. synchronized the subscriber’s address book.com/2008/01/14/technology/14apple.

(November 30. the carrier could go back to that provider and the OEM that had warranted their product.71 Secondly. if any. which would be needed to deliver the mobile experience the OHA had in mind. which permitted any party to augment the software in any manner so long as that party complied with the terms of Android’s very permissive open source license. it was unclear what provider would warrant the operating system and perform second and third-level support. November 11.13 respectively. and camera unit. Keeping a Loyal Developer Community The Google brand name and the Android Developer Challenge seemed to attract the beginnings of a vibrant developer community. even worrying that Google itself would become a threat to the carriers’ business models. most permissive model. including the iPhone and Blackberry. Moreover. The whole development community was able to join in and figure out the ideas. Yet carriers seemed to feel that this would have little. touchscreen display. Google suggested that it would work with carriers to find new revenue opportunities. the OEMs seemed to provide shorter-duration warranty coverage for Android-based phones than for phones with other operating systems. Phillip Breuss of Wikitude. “Google was developing something new and the contest was maybe one of the most exciting things. The applications processor handled the programs in the handset involving its operation as a computer. if the carrier had licensed the OS from a provider and it was faulty. positive impact on their bottom lines.” knowing that they would eventually have to rein Google in while not entirely certain if that would be possible. 17 application from the Android marketplace. http://blogger.” Moreover. remarked. developers prioritized building applications for each platform. Source: “T-Mobile G1 Costs $144 to Manufacture Bill of Material (BOM). and $12. Thus. was a purely open source smartphone. but most operators were cautious about the long-term ways that benefits would be shared. Google is a strong brand worldwide. as the mobile Internet came to fruition.89.70 touch-screen display. they knew that licensing costs actually protected them from warranty issues. The broadband processor handled the radio frequency communication between the handset and the mobile base station. this was very interesting. 71 The BOM for the component expenses (not inclusive of licensing and other fees) for the T-Mobile G1 was $143. the most expensive components in the bill of materials were the baseband processor (which is different from the application processor). With respect to other benefits of the open source approach. not the SDK license. most carriers justified the risk of working with Google to “kick open a door in order for the ecosystem to develop.67.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.org. The SDK was modern. 70 .aspx. in the case of Android. such as advertising. $19. as the majority of phones owned at the time were still primarily used for making calls. easy to use. First. most carriers viewed it as little more than removing the cost of the SDK from the mobile handset’s bill of materials.nl/jurjen1/archive/2008/11/11/422941. a problem that customers might encounter when calling the carriers’ customer care operation.xs4all. Among the unknowns that carriers faced were concerns about the rate of adoption. costing $28.” Cellphonemarket.49. However. However. and camera unit being the three most expensive components. with the baseband. attracted by the ease of programming for Android and motivated by the success they had already seen with open source movements like Linux. For example. not for accessing the Internet or other new applications. One Android Developer Challenge finalist. by the potential prize money and the contest deadlines. many web developers became first-time mobile developers. 2008). The third. 2008.

they would build for other platforms so that they could protect their ideas and maximize distribution. 2008. What Will This Mean for Mobile Linux?. cit. acknowledged that.” Yet.” CNet. but thought it was worthwhile to get their applications into use by having subscribers download them for free. Nicholas Hoover.76 With Symbian migrating to 72 73 Information based on interviews by the author (Silverman) with industry personnel. Meanwhile. June 24. an open source software license.0. developers were still mindful of distribution challenges. Google’s Miner described these: “It was nearly impossible for a developer to get through the hurdles of the carrier organization. many phones. 75 Matt Asay.” believing that it would be available on many. In the case of T-Mobile.com/news/software/open_source/showArticle. a finalist.com/8301-13505_3-9975902-16. The majority of developers felt that no matter which platform they started with. developers were not motivated just by contests.. For developers who wanted to become successful mobile entrepreneurs. .” The Android marketplace also seemed to remove the traditional distribution challenges of working with carriers.com.” Moreover. 2008). Information based on interviews by the author (Silverman) with industry personnel. the carriers’ demands meant “the cards were stacked so high against you. 18 and based on widely known Java.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. carriers had to speculate about which applications would be significant enough to work with OEMs and to have them pre-installed. They were excited about the possibility of the application stores. which already had a 48 percent stake in Symbian Ltd. 74 Paul McDougall. 76 Paul McDougall. Google felt that most developers did not yet require monetization.informationweek. to finally get approvals and maybe have their application on deck. (September 28. (September 28. 2008. http://www.informationweek. they competed to be one of the five applications that would be pre-installed on their phones. and who had welcomed Linux. Breuss. of course. Nicholas Hoover. cit. op.73 Nokia Makes a Move Not long before the G1 announcement. Although subscribers could add applications to their Android-enabled phones. However. (September 28.jhtml?articleID=208801196. though it could take a year or more for all of the Symbian code base to be included. Breuss observed that developers who were part of the open source community. Nokia. on June 24. “You think you have this great idea now and someone else will release it on the iPhone. J.75 This release process would begin in March 2009. developers tried to work directly with the carriers. looks at this published list of winners. which they saw as efficient markets to sell their programs. were thrilled by the prospects of Android as having the “spirit of Linux and reach of Windows. 2008). op. http://news. acquired all of the rights to the Symbian operating system for $410 million. 2008). They see what ideas they came up with [so that] they might implement the same thing on the iPhone.72 It remained unclear how long developers would stay loyal to Android without a large installed base of users and valid options to turn their applications into real businesses. http://www. J.html.74 Nokia had plans to release it under the Eclipse Public License (EPL) 1. Everyone.cnet. “Nokia Takes Symbian Open Source.com/news/software/open_source/showArticle.jhtml?articleID=208801196.

org/about_us_intro_. Motorola. Asay.77 There was speculation about the rationale for Nokia’s acquisition of Symbian. flexibility. Analysts projected that developers would “redouble their efforts” on Symbian. they were evaluating whether Google was creating the required ecosystem for market success. In particular. and with Symbian having a larger installed base than competitive operating system offerings such as Google’s Android and other mobile Linux platforms. forecasts estimated that by 2012 nearly 60 percent of worldwide smartphones sold would run on open source operating systems. Some hypothesized that it was a competitive response to the iPhone and Android. http://www.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. Symbian held 60 percent of the mobile market.79 John Forsyth. 2008). Symbian’s VP of strategy. some posited that Linux was a compelling mobile operating system. as an open source Symbian operating system relieved manufacturers of up to $4 per handset in license fees. 19 open source by 2010. “We want to make this the most widely used software platform on the planet. op. and whether there was more that Google could do to optimize the chance for success. At the time. cit. explained. cit. Others concluded that Symbian had been formed over 10 years earlier.” 80 CONCLUSION As the G1 smartphone was announced to the market. was a more natural acquirer than either Siemens or Panasonic. and had long been the dominant mobile operating system. open and complete mobile software platform. and simply needed a new ownership structure. being the largest and most successful stakeholder.” Symbian Foundation website. while competitor Microsoft charged up to $25 per phone for Windows Mobile. Nokia. skeptics were wary of the rising costs required for internal IT departments to support variations in the Symbian operating system with the move to open source. and community would move to Symbian. However. Roberta Cozza. having already been familiar with the platform.78 Others projected price competition in the market. Miner and others at Google continued to carefully examine whether they were on the way to realizing their own strategic goals for Android. A newly formed Symbian Foundation envisioned creating “the most proven. cit. op. But with Symbian soon open. Sony Ericsson. AT&T and Vodafone. 78 77 . 80 Asay.symbianfoundation.” The Foundation sought to accelerate innovation in the mobile category. Early members included Nokia. Google and its partners in the OHA seemed to be making progress toward realizing the vision for Android. and would make the platform available to members under a royalty-free license. At the same time. as it was open source.html (December 15. the benefits of transparency. negating a preference for Linux. op. 79 “About Us. Introduction. Additionally.

239 18.461 Selected Ratios and Supplemental Information Revenue growth.228.589 849.996 -461.226. “Financial Tables.google.613 2.html (accessed July 10.054. Y/Y Advertising rev. % of rev.446 2007 16.162.044 933. .400 -589.261 25.289 10.509.225.218.840 2008 15. Interest income and other.128.594 3.798 2007 14.621. net Provision for income taxes Net income 10.412.969 (1.643 181. Google 2008 Annual Report. 20 Exhibit 1 Financial Performance of Google Income Statement (all data in $000) 2006 Revenues Advertising Licensing and other Total revenue Costs Cost of revenue Research and development Sales and marketing General and administrative Total costs and expenses Income from operations Impairment of equity invest.845.233.279.626. End of year headcount 2006 73% 73% 53% 99% 40% 34% 10.787 7.039.” http://investor.521 4.795.775.358.492.631.395.581 6.410 2.549.192 1.402.036 21. growth Advertising as % of revenue Gross margin.575 7.243.586 5.473.843 31.914 1.340 2.674 2007 56% 56% 61% 99% 40% 31% 16.805 2008 31% 29% 268% 97% 40% 30% 20.593.470.946.985 1.203.986 6.628 112.802.902. net Total assets Cash flow from operations Capital expenditures 2006 11.771 2.518 751.550 8.077.com/fin_data.857 2.244 1.921 3.085 2.720 2008 21.580.343 16. 2009.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.260 4.917 4. p.351 3.322.604.084.461.642.580 1.806 5.335.384 1.757) 316. 66.119. Y/Y Licensing and other rev.514 667.508 1.858 Selected Balance Sheet and Cash Flow Data (all data in $000) Cash and marketable securities Accounts receivable Property and equipment.649.639 15. growth.767.852.506 2.0994.250 11.738 4.027 1. % of revenues Operating income.222 Sources: Google Website.266 1.192 5.163.793.

795.942.986 56 21.183. 2001-2008 actual revenue from : Google Website “Financial Tables.html.560 92 10.800 19 31.800 5 27.000 14 48.465.934 334 3.html (all accessed July 10. 12.550 31 22.436 439.223 218 6.087.508 508 1.com/fin_data.604.600 17 36.google. June 18.903.com/fin_data2005.google. Actual and Forecast Revenue ($000) Y/Y Growth (%) 86. http://investor.” Credit Suisse. 2009.917 73 16. 2.783.google. . 21 Exhibit 2 Google’s Growth.593.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.com/fin_data2003. Inc. 2009-2014 estimates from “Google.138.html .255. p.” http://investor. 2009).100 15 42.300 15 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2013E 2014E Sources: 1.189. http://investor.

Page and Brin founded Google. when Eric Schmidt became CEO and Page moved to his current position as president of products.D. program in computer science at Stanford University. He took leave from Stanford after earning his master’s degree. Sergey Brin. Before joining Sun. the company grew to more than 200 employees and became profitable before April 2001. then entered the Ph. Co-Founder. In 1998. According to his biography on the Google website. Chairman and CEO Schmidt was recruited to become Google’s CEO by co-founders Larry Page and Sergey Brin in 2001. Director. Director. He has a BS in electrical engineering from Princeton. and President (Products) Page was Google’s founding CEO. and data mining of large text collections and scientific data. and worked at Bell Laboratories and Zilog. he was part of the research staff at Xerox Palo Alto Research Center. and an MS and Ph.D. Page is the son of a Michigan State University computer science professor. He earned a BS in engineering. He entered the Stanford University computer science Ph. with a concentration on computers. Under Page’s leadership. Schmidt has focused on building the corporate infrastructure needed to maintain the company’s rapid growth. and on maintaining product quality while at the same time minimizing product development cycle times. At Google. program. Before joining Novell. Page.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. at the University of Michigan. and President (Technology) Brin was born in Moscow. which he joined in 1983. Larry Page. 22 Exhibit 3 Google’s Founders and CEO Eric Schmidt.” Source: Google Website. and developed a love of computers at an early age. he was CEO and Chairman of Novell. he led the development of Java and was responsible for developing the company’s Internet software strategy.google. where he met Sergey Brin.D. He received his master’s degree. At Sun.” http://www. where he was responsible for strategic planning. Brin’s “research interests include search engines. Prior to joining Google. Co-Founder. then took leave to run Google. He has published more than a dozen academic papers. He received a BS in mathematics and computer science from the University of Maryland. management. 2009). and Brin share responsibility for day-to-day operation. Schmidt.html#eric (accessed July 10. . in computer science from UC Berkeley.com/intl/en/corporate/execs. information extraction from unstructured sources. Schmidt was chief technology officer at Sun Microsystems. and technology development. “Google Management.

. 2009).com. reported in “Phoning.6 1.3 298.com/2007/10/25/mobile-market-subscription-technology-personaltech-cz_1025mobilemap.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.9 Source: Compiled from research by Gartner.html. http://www.” Forbes.6 412.6 382. 23 Exhibit 4 Mobile Phone Subscribers by Geography as of July 2007 Region North America Latin America Western Europe Eastern Europe Africa Middle East Asia Pacific Subscribers (in millions) 298. the World Over. October 25.forbes. (January 26.9 170. 2007.3 471.378.

24 Exhibit 5 Global Mobile Phones Market Segmentation Percent Share. including both new uptake and renewal purchases at the retail selling price (RSP). by Market Value. . December 2008. Source: Compiled from “Global Mobile Phones: Industry Profile. 2007 Market value is defined as the total revenues generated by the global mobile phones market. measured by the number of shipments (of both analog and digital handsets) to end-users.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.” DataMonitor.

816 2010 294.2012. Interface and End User Segment.316 2008 144. . 2006 ." Gartner.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. 25 Exhibit 6 Forecast of Worldwide Smartphone Sales Volumes (in thousands of units) Units (000) 2007 122. "Forecast: Smartphones by Operating System. Worldwide.565 2009 190. December 11.240 Source: Roberta Cozza.891 2011 446.877 2012 619. 2008.

Inc. SIRF Technology Holdings. http://www. 26 Exhibit 7 Founding OHA Members Mobile Operators: China Mobile Communications Corporation KDDI Corporation NTT DoCoMo.html (September 28. NVIDIA Corporation Qualcomm Inc.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. Inc. Motorola. 2008). LivingImage LTD LiveWire Mobile Nuance Communications.” Open Handset Alliance Website.com/oha_members. Inc. Inc. Inc. Inc. Esmertec Google Inc. Samsung Electronics Ascender Corp. eBay Inc. Synaptics. Inc. Texas Instruments Incorporated HTC Corporation LG Electronics. TAT – The Astonishing Tribe AB Wind River Semiconductor Companies: Handset Manufacturers: Software Companies: Commercialization Companies: Source: “Members. PacketVideo (PV) SkyPop SONIVOX Aplix Corporation Noser Engineering Inc.openhandsetalliance. Sprint Nextel T-Mobile Telecom Italia Telefónica Audience Broadcom Intel Corporation Marvell Semiconductor. .

ARPU as of Q306. 2009.17% $49.3% 59.00 for post-paid $33. 82 81 .00 for pre-paid T-Mobile 10. 2009).3% 53.4 1.” IBISWorld.25 2.0082 Source: “Wireless Telecommunications Carriers in the US: 51332. Industry Revenue in 2007 was over $186 billion.7% 61 $37. http://www. pp. Wireless Carriers Verizon Wireless Market share of industry revenue (as of 2007)81 Subscribers (as of 2006) (in millions) 2006 Annual Revenue (in billions) Subscriber Churn (as of 2006) Aggregate ARPU. and Profits. 31-41.5 1. ARPU.1 $31.1 $38. 27 Exhibit 8 Summary Statistics for Major U.2 $17.90 2.html. (April 28.90% $52. 2007. 19. Incorporated 23.” November 8. February 2.80% $49.wirelessandmobilenews. per month (as of 2006) 24.S.7% 21.80 AT&T.10 Sprint Nextel Corp.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. Source: “T-Mobile Reports Lots of Customers.30% $59.com/2007/11/tmobile_reports_lots_of_custom.

later launched under TMobile brand in 2002. 2000: • Verizon Communications and Vodafone plc form joint venture. February 2. Sprint Nextel Corp.” IBISWorld. 2009.000 in debt.3 billion including $300. Sprint Nextel Corp. and AirTouch Cellular. Source: “Wireless Telecommunications Carriers in the US: 51332. AT&T Inc. Verizon acquires Key Communications. Sprint Nextel Corp.4 billion. Cingular Wireless merges with AT&T Wireless Services for $41billion in cash. 2001 • Deutsche Telekom acquires VoiceStream Wireless and Powertel.S.8 billion. Verizon Wireless comprises the merger of three U. acquires Dobson Communications for $2. acquires UbiquiTel Inc.6 billion for SunCom Wireless. GTE Wireless. T-Mobile USA agrees to pay $1. Verizon acquires assets of Leap Wireless. Inc. 2003 • 2004 • • 2005 • • • • • 2006 • • • • 2007 • • • Verizon acquires assets of Northcoast Communications LLC. 28 Exhibit 9 Select Mergers and Acquisitions among U. . wireless carriers. acquires Gulf Coast Wireless Limited Partnership for $221 million. Verizon acquires assets of Qwest Communications. for $3. acquires Enterprise Communications Partnership for $77 million. Bell Atlantic Mobile. Verizon Wireless. Sprint Nextel Corp. Mobile Carriers 1999 • VoiceStream Wireless spins off from Western Wireless. • Cingular forms as a joint venture between SBC Communications and BellSouth. for $1. acquires US Unwired for $968 million. acquires Alamos Holdings.S. Verizon acquires Ramcell and Rural Cellular. Sprint merges with Nextel Communications in a $35 billion cash and stock deal.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. Verizon acquires assets of NextWave Telecom. Sprint Nextel Corp.

“The Top 10 Telecoms Operators: Transformation.” Business Insights Ltd. 29 Exhibit 10 Top 10 Global Telecom Operators by Revenue. France Telecom 58. Sprint Nextel 34.20 4.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.85 7. 2006. growth and convergence in leading players.99 9. NTT Corporation 100.13 Source: Gary Eastwood. 2005 Operator Revenue (in $ billion) 1. Telefonica 44.47 5. BT Group 34.10 3. Vodafone 64.08 6. AT&T 43.99 2.68 10. Verizon Communications 75. .. Deutsche Telekom 74.86 8. China Mobile 30.

Amer.” excerpted from “Symbian Market Roundup” published by Canalys (http://mobilephonedevelopment. “Google’s Open Source Android OS Will Free the Wireless Web. 2008.” Wired.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.com. 2008). By Operating System Vendor by Region (Q3 2007) Vendor Symbian Linux Microsoft RIM Access Apple EMEA (%) 85 4 7 4 --Japan (%) 69 30 1 ---China (%) 57 38 5 ---N. accessed June 22.wired. 2009). 30 Exhibit 11 Smartphone Market Share By Operating System Vendor: United States Vendor RIM Microsoft Palm Symbian Apple Linux 2005 Share (%) 48 9 32 11 --2007 Share (%) 46 25 6 3 18 2 Source: Estimates based on chart in: Daniel Roth. (%) 3 2 25 37 7 26 ROW (%) 83 9 5 2 1 -- Source: Estimated shares based on chart in “Q3/07 Smartphone Market Share. http://www. June 23.com/techbiz/media/magazine/1607/ff_android?currentPage=all (September 30. .com/archives/507.

December 11.999 49.763 1.272 1. "Forecast: Smartphones by Operating System.067 71.698 3.705 1.999 78.264 21.489 725 2010 142.324 35.2012.009 56. Worldwide.768 14.344 2008 76. . 31 Exhibit 12 Forecast of Worldwide Sales of Smartphones by OS Type (in 1.829 235 2012 278.561 2009 98.104 11.244 23.611 20.000s of units) Symbian RIM Microsoft Windows Mobile Mac OS X Linux Palm OS Others 2007 77.565 12.120 3.835 50.082 83.152 - Source: Roberta Cozza.303 11. 2006 .780 35. This report did not include Android.684 11.098 93.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.757 1. 2008.509 86.764 32.739 60.260 15. Interface and End User Segment." Gartner.960 28.699 16.747 825 419 2011 208.

.$3 per handset) Open source and royalty free in the future Open source Royalty free SDK “Symbian signed” certification required Free development tools Free Open source Apache License Free development tools Open source Required certification unknown Free dev tools Certification available Standard MSFT dev tools ($s) Not available Server Nokia promotes connection to Ovi servers Different. etc. 32 Exhibit 13 Detailed Overview of Operating Systems for Smartphone Handsets Operating System Symbian Handset Software Derivative of old Java ME (optional) Backers.60 . Adopters Nokia Sony Ericsson LG Samsung Motorola License Proprietary until 2008 ($0.) Preferably connected to Google Services Android Linux OS Java SE (Dalvik) Limo Linux OS Java SE Windows Mobile Windows Blackberry Java ME Google Motorola LG Samsung HTC + other members of OHA Motorola Access Trolltech (acquired by Nokia) Microsoft Sony Ericsson LG Samsung Palm HTC RIM Open source Royalty free n/a Proprietary $7 . incompatible implementations by different OEMs (S40. UIC.$25 per handset Smooth synchronization with Exchange (Outlook) Proprietary Licensing to third parties unknown Unknown Unknown Palm OS iPhone Java ME Objective C Java (announced) Palm Access Apple Unknown Available since 3/08 Connected to RIM provided servers Runs behind corporate firewalls n/a Connected to Apple’s MobileMe Source: Compiled by author from company websites.Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p.

Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond? SM-176 p. 33 Exhibit 14 Distinctions Between the Google G1 Applications and Open Source Android Applications Application Dialer Browser Contacts Calendar Gmail client POP3/IMAP4 E-mail SMS & MMS Messaging Gtalk Instant Messaging Camera Picture Gallery Google Maps Music player YouTube Alarm clock Calculator Marketplace Settings Source: Compiled by author from various sources. synched with Google Services Yes Yes Yes Yes Yes Yes. Available on Google G1 Yes Yes Yes. including “Streetview” Yes Yes Yes Yes Yes Yes Available with Open Source Android Yes Yes Yes. but not synched No No Yes Yes No Yes No No Yes No Yes Yes Yes Yes . synched with Google Services Yes. synched with Google Services Yes.

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