Android and standards sponsorship

The story of Google's "sponsorship" of Android has been making the rounds on various mobile phone and gadget websites in the past days. This story appears to be the source. The essence of the story is this:

In just 18 months, the number of Google (NSDQ: GOOG) Android phones being shipped has soared to 60,000 a day, and over that period countless new devices have been released by handset makers for sale by carriers worldwide.

Nothing typically moves this fast in wireless. So how has Google done it?

Well, at least part of the answer appears to be that Google is sharing advertising revenues with carriers that use Android, according to multiple sources who are familiar with the deals. In some cases, sources said, Google is also cutting deals with the handset makers. The revenue-sharing agreements only occur when the handsets come with Google applications, like search, maps and gmail, since that is not a requirement of Android. Google declined to comment, and said terms of its agreements with partners are confidential.

When researchers began studying standards in the 1985-1995 timeframe (see, for example papers by me, Joe Farrell, Garth Saloner, Michael Katz, Carl Shapiro, Marvin Sirbu, Michael Spring and others), we focussed on understanding the market dynamics of standards wars -- why did one standard dominate the market? How did markets prone to standardization behave? Why do firms use the committee process and what is effective in this process?

Mobile phone operating systems for smart phones arguably represent a market prone to standardizations because of the application ecosystem demanded by users and because of the operating efficiencies demanded by carriers. So, why is Android succeeding where WebOS is struggling? One of the significant answers to this question is sponsorship. The endorsement of key handset manufacturers would encourage carriers to adopt the handsets because of operating efficiencies; however, that is perhaps a weaker form of sponsorship. Google's more overt sponsorship is far more compelling because it results in direct revenues for carriers and would account for the more enthusiastic reception of Android. In contrast, Palm has arguably a superior operating system in WebOS (also Linux-based) but does not have the resources to credibly sponsor its OS. As a result, its system and phones have received an embrace by carriers that is far more lukewarm than Android; indeed, it is perhaps only because of its compelling OS that Palm is getting any interest at all! Its Treo Pro phone, based on Windows Mobile, was treated with much less interest than its WebOS phones.

It is nice when reality lines up with theory!

Lock-in and smart phones

This item over at Ars Technica is interesting. The article itself is an analysis of Palm's WebOS and why it failed to attain economic success. While many articles have been written about this (and even though the reports of Palm's death may be premature), I found this section of the article most interesting:

In at least one way, Palm's webOS was a victim of its own success. I ultimately found that the Pre's thoroughgoing cloud orientation, which I made a big deal about in my review of the device, meant that there was nothing tying me to Palm. And unfortunately for Palm, the Pre had to compete with client platforms from companies that also provided important cloud services, with the result that those providers could privilege their own clients and thereby gain a certain amount of vendor lock-in.

Three examples serve to illustrate my point that it was too easy to leave Palm, and that Palm's decision to be solely a client platform put it at a permanent, structural disadvantage against competition that offered both clients and services.

Back in January of this year, after unboxing my new, Google-provided Nexus One, I logged into a few accounts (Google, Facebook, Twitter, Evernote, Amazon) and voila—I had all my data on this new phone, along with my existing phone number (courtesy of Google Voice). Think about that for a moment: I ported all of my data and my phone number to a new phone on a new carrier, without so much as swapping a SIM card or calling a customer service number. And every cloud service that I used on Pre was immediately available on the Nexus One.

So it was that on the day that I got the Nexus One, I dropped my Pre in a drawer and didn't turn it on again for two months, all without missing a single message.

Leaving the iPhone was a lot harder, because—and this is my second example—I was in the habit of syncing my music with iTunes. iTunes syncing was the main way that Apple got its hooks into me, and everyone who followed the Apple vs. Palm battle over iTunes and Pre sync support knows that Apple guarded that key source of lock-in jealously.

....

In the end, Palm's fundamental problem wasn't the lack of reliable, first-party Google Voice or iTunes support, but the fact that Palm itself never offered a similarly essential service that it could use to lock users into the Pre. Google had Voice, Apple had iTunes, and Palm had nothing. The Pre didn't have first-party support for anything that I depended on or enjoyed, so it had no hold on me at all.

By not having any way at all to lock the user into webOS, Palm ended up betting the farm on the proposition that the Pre could and would deliver an overwhelmingly superior mobile client experience for a common slate of cross-platform cloud services. In other words, because Palm doesn't own any part of a user's data or identity, the user experience is the only thing that could tie a user to webOS.

There is economic research that supports the notion that lock-in is good and desirable for companies; in fact, companies work hard to achieve lock-in to avoid being commoditized. So, as we migrate to cloud-based services, how do firms and carriers create compelling lock-in for consumers? Is this a good thing for consumers?

One of the interesting things for me is that Google, with its Nexus One and Android experience, is trying to drive the value to the cloud through a device that works hard to NOT provide lock-in (i.e., contractual or standards), while Apple is trying to create as much lock-in as possible. This is no surprise, given their rather substantially different business models.

iPhone usage and AT&T's network

This item over at GigaOm is interesting:

iPhone users tend to use their devices in the evening and on the weekends, reports Localytics, a Cambridge, MA-based start-up offering mobile analytics services. According to as study conducted by the company, the mobile app usage in the US peaks at around 9 pm EST on week days. Over the weekend, the usage is at its peek during afternoon and nights.

Since these time correspond (historically) with lower voice traffic, why are there so many complaints about AT&T's network? Could it be that their network is only part of the problem (see this earlier post)?

Verizon FiOS buildout

This story is interesting:

They [Verizon] have now canceled planned FiOS deployments for all new territories such as Alexandria, Virginia. According to Bryant Ruiz Switzky in the Washington Business Journal, Verizon is "suspending Fios franchise expansion nationwide." They are "indefinitely postponing" building Alexandria after telling the city they would begin construction several months ago. Alexandria is one of the richest suburbs in the world and a natural part of the network with a lower than average likely construction cost. Verizon "will now focus on installing its network and gaining market share within the areas where it already has agreements." Bostonians and 10M other Verizon customers are apparently screwed.

Verizon has buildout commitments to New York and other cities that will keep some crews working, but had already suggested they might cut FiOS builds by 2/3rds in 2011. This is now a further cutback, canceling areas that for years they had been promising to serve. Verizon's Harry Mitchell sends their perspective. "The bottom line is that Verizon said in 2004 we’d build to pass about 18 million homes by year-end 2010, and we’re on track to do that with the franchises we currently have. Of course, we will also meet any buildout commitments we made in individual jurisdictions beyond 2010."

The article goes on to speculate that Verizon is hoping to get Federal support for this buildout under the broadband plan. If this is the case, then it is a classic illustration of the "moral hazard" of government interventions in markets. Why should a company take private risks when public funding is available?

But this may not be the only explanation. Others have speculated that the business case for FiOS (and similar systems) is weak to begin with. If this is the case, then Verizon's actions are rational.

Google, Microsoft and the smart grid

I have been wondering why Google and Microsoft have been working hard to enter the "smart grid" market. This article over at Seeking Alpha provides the best explanation I have seen so far:

Google, Microsoft (MSFT), Intel (INTC) and others have all launched efforts to control how consumers and businesses monitor and analyze their energy consumption. Why the rush? Neither Google nor Microsoft will charge consumers for PowerMeter or Hohm. However, advertisers will likely pay both companies for the opportunity to hawk energy efficiency services and other energy-related products to consumers who use their respective consoles. Both companies will also mine the data (after it has been scrubbed to protect privacy) to utilities. Don't worry about a loss of dignity or privacy: you'll get a coupon for ten percent off on a new set of storm windows.