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Google’s Android: Will it Shake up the Wireless Industry in 2009 and Beyond?

Final Assignment

A Paper Presented in Partial Fulfillment of the Requirements of the Robert Kennedy College

MBA Course Nr. 57613 - e-Business

Ph. D. Guy Langvardt

December 5, 2010

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“He who controls others may be powerful, but he who has mastered himself is
mightier still.”
Lao Tzu, Chinese philosopher and founder of Taoism

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Declaration of originality of work
I affirm that the attached work is entirely my own, except where the words or ideas of other writers are
specifically acknowledged according to accepted citation conventions. This assignment has not been
submitted for any other course at Robert Kennedy College or any other institution. I have revised,
edited and proof-read this paper.
Signed the student, December 5, 2010

Certification of authorship
I certify that I am the author of this paper and that any assistance I received in its preparation is fully
acknowledged and fully disclosed in this assignment/paper/examination. I have also cited any sources
(footnotes or endnotes) from which I used data, ideas, theories, or words, whether quoteds directly or
paraphrased. I further acknowledge that this written work has been prepared by myself specifically for
this course.
Signed the student, December 5, 2010

Word count: 3215 without title pages, index of contents, appendix and bibliography

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Index of contents

1 Overview ............................................................................................................................................... 5
2 Characteristics of the wireless industry and changes in 2008 ............................................................. 5
3 Android and its comparison to other operating systems for smartphones ........................................... 7
4 Google‟s investment in Android: a success story ................................................................................. 7
5 Stakeholders‟ alignment with Google and the viability of the OHA ...................................................... 8
6 iPhone and Symbian: possible threats? ............................................................................................... 8
7 Google: cross-boundary disruptor? ...................................................................................................... 9
8 Appendix ............................................................................................................................................. 10
9 Bibliography ........................................................................................................................................ 11

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1 Overview

On September 24, 2008, Google and T-Mobile (partners in the Open Handset Alliance (OHA))
introduced the T-Mobile G1, the first mobile phone to use Google‟s Android open source operating
system (Silverman and Wittig, 2009). While the iPhone which was launched on January 9, 2007 (cf.
Apple Press Release, 2007) was seen as a game changer from a consumer perspective given that it
allowed the ultimate user-friendly mobile Internet experience, Google‟s Android was considered more
of a game changer from an industry perspective (Silverman and Wittig, 2009). This view was based on
the fact that Android strived to enable not only great communication but also high interconnectivity
between data devices while competing on best-in-class products, building a strong developer
community with a common open standard and a single Android market “where developers could
launch their applications to the world” (Silverman and Wittig, 2009:8). While Google claimed not to
have a business model for Android, it was clear that it would emphasize its own core products and
services (Google search engine, free browser Chrome, Google Adwords and Adsense, Gmail,
YouTube, Google Maps etc.) on Android. Considering Google‟s deep pockets and its ability to remove
entry barriers to the mobile industry world for app developers and thereby drive innovation, Google‟s
Android had implications on the business models and revenue sources of many startup companies but
also meant a loss of control for the established industry participants like carriers and operators who
were in doubt about Google‟s strategic intent and the rate of adoption of Android. However, carriers
realized to have a greater benefit from collaborating with Google given that they saw Android as the
potential driver of a suitable ecosystem delivering the mobile experience consumers wanted
(Silverman and Wittig, 2009:15) and promising new revenue opportunities while at the same time the
carriers were cautious about Google‟s power and aware of the fact that “they would eventually have to
rein Google in while not entirely certain if that would be possible” (Silverman and Wittig, 2009:17).

2 Characteristics of the wireless industry and changes in 2008

The wireless telecommunications industry has been booming since 2005 as consumers have become
increasingly dependent on cellular phones and wireless communication to meet their communication
needs. The number of 3.5 billion mobile phone subscribers worldwide by 2007 is forecasted to grow to
5.4 billion mobile phone users by 2011 whereas the number of shipped handsets is expected to grow
from 1 billion in 2007 to 1.9 billion handsets by the end of 2012 (Silverman and Wittig, 2009:2). While
the subscriber base in the Americas represented ca. 20% of the worldwide subscriber base in 2007,
this market generated 40% of worldwide revenues from handset sales (ibid.).

Demand for phone models depends on the users‟ geography and wealth (ibid.). While most
consumers in emerging markets acquired low-end mobile phones as status symbols and in order to
use their basic voice telephony features, demand for smartphones, a new type of high-end mobile
phones, emerged from a new segment of wealthier and more sophisticated customers (Silverman and
Wittig, 2009:3).

The wireless industry comprises a variety of stakeholders who are qualified by different and partly
differing interests and revenue sources:
 The mobile operators or carriers: The top 10 global telecom operators by revenue (for 2005,
cf. Exhibit 10, Silverman and Wittig, 2009:29) are NTT Corporation, Verizon Communications,
Deutsche Telkom, Vodafone, France Telecom, Telefonica, AT&T, BT Group, Sprint Nextel
and China Mobile).
o Interests: They seek to increase their subscriber base and get a good return on major
investments (customer acquisition cost, investments for costly mobile network
infrastructure) by increasing their average revenue per user (ARPU), especially the
wireless data ARPU since the wireless voice ARPU was decreasing (Silverman and
Wittig, 2009:9).
o Issues: The above mentioned hefty infrastructure costs invested by the carriers didn‟t
generate the hoped for revenues so soon given that the prevalent feature phones, “as
opposed to the later-released smartphones (in 2007), allowed users to make voice

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calls and download some basic content” (Silverman and Wittig, 2009:10) without
allowing access to the Internet.
o Development: The described situation furthered a wave of mergers and acquisitions
from 1999 to 2007. AT&T and Cingular merged in 2004 while Sprint bought Nextel
Communications in 2005 (ibid.). By 2007, the largest operators in the United States
were AT&T and Verizon (ibid.).
 The semiconductor companies (chipset providers): These feature popular companies like
Texas Instruments, Qualcomm Inc., Infineon Technologies, Freescale Semiconductor,
Broadcom, MediaTek, NXP Semiconductors and STMicorelectronics (Silverman and Wittig,
2009:10). They‟re the chipset makers, designers and manufacturers and supply the handset
manufacturers with the hardware for their handsets.
o Interests: to sell chips and hardware, save manufacturing costs, develop powerful
reference platforms.
o Issues: dictate by the handset manufacturers and vendors concerning the
specifications for the components; manufacturing of internal components is
complicated by factors such as the size of the screen, input mechanisms, and power
consumption (Silverman and Wittig, 2009:12).
o Development: Consolidation among handset manufacturers had its implications for the
semiconductor companies. They had to fight for orders from a shorter list of buyers
and competed by streamlining costs and pre-programming software onto the chips to
produce more powerful and differentiated products (ibid.).
 The handset manufacturers or Original Equipment Manufacturers (OEMs): The mobile
operators or carriers source phones from handset manufacturers. These include companies
like Nokia, Samsung, LG, Sony Ericsson, HTC, Motorola, Apple, RIM and several Korean and
Chinese manufacturers.
o Interests: compete by designing phones with a unique aesthetic and by offering
compelling combinations of software (mobile applications developed by software
engineers and applications developers) and hardware in order to generate demand.
o Issues: Pressured by carriers who try to control demand by their choice of phone
models to offer customers.
o Development: Competition based on technical design and utility, functionality, and
performance is a trend among newcomers like Apple‟s iPhone. This trend might
dictate the future development of the sector.
 The software companies or providers: These are the businesses involved in the
development, publication and maintenance of software, namely Microsoft, IBM; Oracle,
Google, Accenture, SAP AG, Sybase, EMC, Sun Microsystems, VWMare etc.
o Interests: produce, buy and sell software products and services.
o Issues: high competition between the software giants, hard survival for small scale
software developers, piracy, service innovations can be copied easily by competitors,
sustainability of open source software business model.
o Development: Increasing competition leading to mergers, functional expansion and
movements to the mid- and upper-markets (cf. Software Market Trends, 2010).
 Application developers: They use software development kits (SDKs) and Application
Developer Interfaces (APIs) provided by the handset manufacturers in order to program
compelling applications which could run on their mobile devices (Silverman and Wittig,
2009:11).
o Interests: monetize their own content and applications.
o Issues: need to work with the mobile phone operators or with intermediaries such as
Google, distribution challenges of working with carriers.
o Development: increasing competition.

In 2008 Google and T-Mobile launched Android which impacted the above depicted wireless industry
by implementing a unified, powerful and advanced open source operating system for smartphone
devices that allowed for a great consolidation among the mobile operating systems of different
companies. Android made the better alignment of the needs of carriers and handset manufacturers
possible while at the same time it provided a first competitive alternative to mainstream platforms like
Windows and Symbian. To developers, Android was a gift given that it empowered them by its ease of
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use and allowed even web developers with no mobile experience to write and test simple mobile
applications in the matter of days due to its Java programming language and thus its similarities to
programming for PC or the web. Android was a revolution also thanks to the Android application
marketplace (Android market) where application developers could finally launch their products without
the huge entry barriers to the market and hurdles of the carrier organizations. To subscribers Android
was also very good news given that it enabled them to easily obtain new applications and content for
free through convenient marketplaces.

3 Android and its comparison to other operating systems for smartphones

Android is an open source operating system for smartphone mobile devices. Compared to other
operating systems it is preferably connected to Google Services while it is based on Linux OS and
Java SE and is adopted by members of the Open Headset Alliance OHA. Its ease of use enables
application developers to program software on open source tools without expert knowledge like the
one required for Symbian. In comparison to the iPhone Android‟s software development kit (SDK)
allows developers to program much freely, much faster and with less layout and other formal
restrictions (source: conversation with Swiss software engineer programming for both iPhone and
Android). Developers also appreciate Android‟s key features like location-based services and data
portability. Chipset providers use Android‟s open standard to develop very powerful reference
platforms. In contrast to Android, Symbian, Windows Mobile and Blackberry are or were primarily
based on proprietary and therefore relatively expensive licensing (cf. Exhibit 13, Silverman and Wittig,
2009:32). For instance, Microsoft charged up to $25 per phone in license fees for Windows Mobile.
Android„s common, open standard also contrasts Windows Mobile insofar as Microsoft seems to be
dictating which applications will be featured on the handset and to what extent the latter can be
customized (cf. ibid: 8).

Concerning the user experience, the iPhone is considered the ultimate mobile phone for easy Internet
access and intuitive handling combined with a user-friendly interface, a trendy, fashionable design and
embedded software adapting during the lifecycle of the product‟s use (Silverman and Wittig, 2009:13).
Although Android might lack the iPhone‟s fashionable sexiness, it clearly offers a good usability and
less censorship concerning featured Android market applications (Theiss, 2010:37). However Apple
sacrifices a lot for the iPhone‟s simplicity. A lack of individualization with widgets, complex user options
such as the context menu and the restrictive environment (iTunes, AppStore) are some points worth
mentioning (ibid.: 40). Android‟s flexible concept allows for customization of the smartphone to
personal needs regarding hardware and user interface while maintaining an open eco system (ibid.). It
is therefore more complex for users but bigger choice often entails bigger complexity. According to
Theiss (2010:40) Android‟s complex world could use some fine tuning in the details whereby it gets
dangerously close to the iPhone.

4 Google’s investment in Android: a success story

Google‟s investment in Android is clearly motivated by Google‟s pushing toward and pursuit of the
strategy of monetizing mobile search by leveraging its unquestioned leadership in Internet search with
relevant location-based services and mobile advertising. Mobile internet is the present and future of
wireless communications and Google as “company founded on the Internet” (Silverman and Wittig,
2009:8) strives for maxing out its strengths on the Internet (collaboration, openness, innovation,
technical superiority) while at the same time generating revenues through its core products (search
engine, targeted location-based advertising, Adsense, Adwords etc.). Google‟s involvement and
interest in mobile communication is “driven by the explosive growth in mobile subscribers, and the
development of mobile technology to enable a wide range of new mobile applications” (Silverman and
Wittig, 2009:2). With 5.4 billion mobile phone users expected by 2011, Google‟s investment in Android
not only makes sense from an economic and strategic point of view but represents one of Google‟s
main expansion and growth opportunities.

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Google can already determine that Android is a success by the fact that it was met with excitement by
the wireless industry. Google is profiting from any kind of mobile Internet usage as Google‟s co-
founder Sergey Brin states in the opening of the case study at hand (Silverman and Wittig, 2009:1).
The Android mission further expands Google‟s influence on the mobile market, especially through
Google‟s partnership with the Open Headset Alliance (OHA) and through the fact that Android made
surfing in the Internet by means of a mobile phone an easy and fun user experience which further
added to the growing mobile Internet traffic to Google‟s mobile services first generated by the iPhone
(Silverman and Wittig, 2009:4).

It can already be forecasted that Android will be the number 2 mobile operating system worldwide after
Symbian in terms of market share by the end of 2010 (Perez, 2010a). Research by Gartner referred to
by Perez further notes that by 2014, Android will vie for the top spot against Nokia‟s Symbian
operating system (ibid.).

5 Stakeholders’ alignment with Google and the viability of the OHA

As already depicted in chapter 2 the wireless industry is made up of many different stakeholders
representing partly differing interests. Google‟s very clever move to win the most important of them for
his “mobile cause” was the establishment of the Open Headset Alliance on November 5, 2007, uniting
34 partners including important mobile carriers, chipset and handset manufacturers as well as
application providers and commercialization companies. “Most prominent were China Mobile, the
world‟s largest carrier by subscribers, T-Mobile, Intel, Motorola, HTC, Qualcomm and Samsung”
(Silverman and Wittig, 2009:6). This strategic alliance enabled Google to create a powerful lobby for
its Android project and its interests. The OHA‟s mission statement included fostering innovation on
mobile devices and giving customers a better user experience of the mobile world while allowing for
greater collaboration between developers and increasing the speed of availability of new and attractive
mobile services to consumers (ibid.).

By means of the OHA Google created an essential industry alignment which immensely backed its
Android project. The OHA members were furnished with Android as a completed operating system
with the goal to unleash the potential of the mobile technology for billions of users around the world,
shape a new computing and information sharing environment and power thousands of different phone
models (ibid.).

Google‟s involvement in the wireless industry might have triggered some concerns among carriers
about the loss of control and the possible threat to their business models but the majority decided to
take the risk of working with Google considering the enormous potential of finding new revenue
opportunities (Silverman and Wittig, 2009. 16).

Given that Google gave its partners the liberty to decide which of three Android models they would
deploy, it fostered a free and unconfined implementation environment for Android which clearly
differentiated it from Apple‟s iPhone restrictions (Theiss, 2010:37) and made it popular with the
developer community.

6 iPhone and Symbian: possible threats?

According to Perez (2010a), the iPhone doesn‟t and won‟t be able to seriously threaten Android‟s
market share given that forecasts disclose that Nokia‟s Symbian OS (operating system), the current
worldwide market share leader, and Android, the soon-to-be number 2 on the global OS market by
market share, will be running a neck-and-neck race for world leadership. While Android is ranking as
number three after the iPhone and Blackberry regarding the popularity as smartphone mobile OS in
the United States (Perez, 2010b), it clearly is one of the top two global players together with Nokia‟s
Symbian (Perez, 2010a).

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Silverman and Wittig (2009:4) also point out that in 2007 iPhone‟s users accounted for just 2 percent
of smartphones worldwide compared to Symbian‟s 63 percent. These were the early days of the
iPhone, of course, but nevertheless recent research forecasts highlight the fact that despite growth in
sold units, the iPhone won‟t be able to gain a considerable market share:

Gartner also predicts by 2014, open source platforms, like Android and Symbian, will dominate
around 60% of the market share for smartphones. Single-source platforms, like Apple's iOS and
Blackberry OS, will increase in terms of units sold, but their growth rate won't be enough to sustain
market share increases (Perez, 2010a and Appendix 1).

The above outlined situation lets us conclude that the iPhone‟s threshold of adoption won‟t have
any considerable influence on its global market share. The reasons behind this seemingly odd
fact are that several handset manufacturers like Samsung, Sony Ericsson, LG and Motorola will
adopt Android as the OS for their new budget devices on the one hand while carriers and
semiconductor manufacturers will revisit their platform strategies balancing the need to pursue
platforms with the highest current demand against the need to maintain differentiation with
unique devices. Or more simply put, Android's current popularity will lead to even more
popularity (Perez, 2010a).

Regarding Nokia‟s migration of Symbian to an open environment which made the it open source
and royalty free from 2008 on, Nokia can only be congratulated for this decisive move on the
way to creating the most proven, open and complete mobile software platform (Silverman and
Wittig, 2009:19). This migration doesn‟t pose a threat to Google given that Google isn‟t
depending on the mobile business but on its Internet advertising revenues from Adwords and
Adsense. However, Symbian clearly is Android‟s main adversary and competitor on the global
market and will remain it for some time to come.

7 Google: cross-boundary disruptor?

The final question arises if Google actually is a cross-boundary disruptor for the wireless industry that
is a “powerful entrepreneurial change agent whose strategic actions materially affect the equilibrium in
an adjacent or neighboring industry” (Burgelman and Grove, 2007:4). The answer to this question is a
definite yes.

By working with the mobile chain rather than against it, Google has a strong chance of transforming
and rewriting the rules of the wireless industry from its traditional model relying on voice subscriptions
to a new approach of broadband-based mobile advertising revenue (Rebello, 2010).

According to Rebello (2010), Google has continually worked on fulfilling its strategy by targeting the
mobile communications industry with different initiatives ranging from the Android to free maps, free
Wi-Fi services, a Google branded phone – the Nexus One – etc. These initiatives are revolutionizing
the mobile value chain given that they unlock new value and expand an industry desperately
searching for the next big thing (ibid.).

Google is seeking to uncover new user behavior patterns while driving social networking services
through location-based services, the promotion of cloud storage and computing as well as mobile
advertising (ibid.).

One of Google‟s biggest services to the mobile world is that it is offering value for free. A unique and
attractive characteristic of the Android operating system is not only the integration of many of Google‟s
popular web-based services for free (synchronization of Gmail, contacts, calendar etc.), but also the
fact that Google has encouraged the adoption of Android among handset manufacturers, carriers and
application developers by creating an ecosystems where everyone benefits (ibid.).

While the handset manufacturers pay no licensing fee for incorporating the Android operating system
and have the capability to customize the user interface (UI), the application developers and mobile
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operators split the revenue from the sale of downloaded applications at a ratio of 70:30 (Rebello,
2010).

Google has unleashed the mobile world‟s revenue generating potential by leveraging its dominance in
the Internet search and advertising through the implementation of Java on mobile with the goal to
empower mobile advertising mobile commerce. As company founded on the Internet, Google has
clearly crossed the boundaries and disrupted another industry that is the wireless industry by making
the open source operating system accessible and accepted to the industry‟s stakeholders while
making users happy with a free and customizable product offering some complexity but also and most
importantly big choice.

“Because of all these factors, Google is well positioned to reshape the wireless business in its own
image” (Rebello, 2010).

8 Appendix

Appendix 1

Source: Perez, 2010a

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9 Bibliography

Apple Press Release (2007) Apple reinvents the phone with the iPhone.
http://www.apple.com/pr/library/2007/01/09iphone.html [accessed 5 December, 2010].

Burgelman, R. & Grove, A. (2007) Cross-Boundary Disruptors: Powerful Inter-Industry Entrepreneurial


Change Agents. Research Paper No. 1978. Stanford Graduate School of Business. October 2007
[accessed 5 December, 2010].

Perez, S. (2010a) Android Will Be Number 2 Mobile Operating System Worldwide by Year-End.
http://www.readwriteweb.com/mobile/2010/09/android-will-be-number-2-mobile-operating-system-
worldwide-by-2010.php [accessed 5 December, 2010].

Perez, S. (2010b) What's the Hottest Mobile OS: iPhone or Android?


http://www.readwriteweb.com/archives/hottest_mobile_os_its_a_tie_iphone_android_equally_desired.
php [accessed 5 December, 2010].

Rebello, J. (2010) Google Leverages Wireless Industry to Reshape Mobile Business in its Own Image.
http://www.isuppli.com/mobile-and-wireless-communications/marketwatch/pages/google-leverages-
wireless-industry-to-reshape-mobile-business-in-its-own-image.aspx [accessed 5 December, 2010].

Silverman A. & Wittig, C. (2009) Google’s Android: Will it Shake up the Wireless Industry in 2009 and
Beyond? Stanford University: Stanford Graduate School of Business.

Theiss, B. (2010) Good handling. http://www.p3-


group.com/communications/fileadmin/user_upload/downloads/news/Usability_Android_vs_iPhone_en
glish.pdf [accessed 5 December, 2010].

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