By Jonny Evans
I love The Wire. Truly one of the classic police dramas of our time, detective Lester Freamon really sums it up when he says: "You start to follow the money, and you don't know where the *** it's going to take you." How is this relevant? Well, today it's relevant to Apple [AAPL] and fresh claims Google makes four times as much money out of iOS as it does from Android devices. So who really has the power in that unequal relationship?
Incomplete analysis?
I can't claim to be completely convinced at the mathematics behind these claims. I'm also uncertain all Google's money-making activity is necessarily linear. In the long term it must certainly have plans to 'monetize' all that personal user data, preferences and location information it has been gathering for a decade. One day the search engine will make you searchable, as your digital life is transformed into its digital data.
So, to the claim: Based on data provided by Google as part of a settlement offer with Oracle, The Guardian asserts that Android devices generated less than $550m in revenues between 2008 and the end of 2011, but, tellingly, its deal with Apple generated four times as much cash.
From the report: "The figures also suggest that Apple devices such as the iPhone, which use products such as its Maps as well as Google Search in its Safari browser, generated more than four times as much revenue for Google as its own handsets in the same period."
Map this
That's really rather interesting. And underlines just how Apple's move toward offering up its own Mapping tools within iOS threatens Google's bottom line. Another recent move, Apple's decision to add Baidu to the search engines available as options to Chinese iPhones also threatens Google's financially.
That Android isn't earning Google too much cash could be a problem for the beleaguered search giant, which is currently facing international attention from privacy and data protection commissioners for its innovative approach to user privacy. The relative lack of success of its attempts to create a media acquisition system to rival iTunes, and its lack of control of the end user experience of Android handsets is also damaging to its relationship with smartphone buyers.
Its manufacturing partners increasingly find themselves competing against each other for device sales in an industry in which component prices, and component scarcities, are pretty much set by the moves Apple makes.
Apple's big stick
Now we learn that Apple has the ability to take a fair chunk of Google's revenue away, revenue that Google sorely needs as the post-PC age begins.
Think about this: As well as noting the $10 per Android device Google makes, The Guardian also points out that the search machine makes around $30 per PC per year. Now consider that as iPads and smartphones increasingly supplant PCs, it is inevitable that Google's PC-based income will slowly shrink. The mobile age is upon us. Google may be fighting for its life.
But the mobile age is just that, mobile. Apple's Siri is another threat to Google. Siri allows users to search for the data they need without direct access to a Web browser. That's because the search requests are spoken with results served-up from access to a number of search tools, without direct contact with the browser. That's a true threat to Google's income, as search moves from the browser and into the air, into the cloud.
What else could Google have done?
If Apple's senior management had predicted these trends in the prelude to the introduction of the iPhone, then it is interesting to consider this: If Apple's senior teams, which then included then Google CEO, Eric Schmidt, had correctly identified the radical change in the way we use the Internet that would evolve following introduction of the iPhone (and the advanced smartphones which followed it), then Google executives would have seen the threat to Google's business, the lion's share of which is still generated by conventional browser-based search.
In that context, Google's decision to race into the smartphone space with devices seemingly inspired by the iPhone makes perfect sense. And while Steve Jobs may famously have felt betrayed by these moves, it could be argued that Google didn't have much choice but to do this if it wanted to remain a viable business entity.
However, returning to The Wire and its exhortation to follow the money, right now in mobile, Apple is making more cash on every device, its customers are more satisfied than those using other devices, its developers are making more dollars on the apps, and Google is making more money on iOS than on its own mobile platform. In my opinion, this puts Google in a fairly exposed position as we enter the post-PC mobile age.
Ending this, I know Google has its fans. Please think about this -- I'm not interested in "Apple is bad, you are an Apple fan, you call yourself Apple-holic," forms of argument; I'm interested in how you see Google might potentially evolve its business plan to remain compelling in the future mobile era once Apple replaces it on iOS for maps and search; I'm also interested in what weak spots you perceive in Apple's current business approach. And, for a change, might it be possible to keep things civil, people?
Thank you.
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