By Alok Saboo on July 14th, 2011
Given the rate at which the mobile computing space is growing, it not surprising to see significant interest in this market. The latest entrant in this space, Amazon, has made no bones about its intentions. So much so that M. G. Siegler over at Techcrunch suggests that a “war is brewing” in the mobile computing space between Google and Amazon over Android supremacy and that Amazon is a huge threat to Google.
While I agree that Amazon can have a huge influence on the mobile computing space in general and Android in particular, I actually believe that Google and Amazon are on the same side. That is, it is not Amazon Vs. Google as Siegler claims, it is Amazon AND Google!!
Looks like Siegler’s fanboism got the better of him…
Amazon & Android – Little background
Amazon already had a presence in the mobility market through Kindle. While Kindle is a profitable business proposition, Amazon probably realizes that there is significant value to be tapped in this market and Android is the way to go.
- First, Amazon launched an alternative app store for Android on March 22, 2011.
- Next, Amazon quietly launched its cloud based products – Cloud Drive and Cloud Player – with 5 GB free cloud storage and easily upgradeable to 1000 GB. More importantly, Amazon launched the Cloud Player only the Android (no iOS).
- Finally, it is almost certain that Amazon is working on multiple Android based devices that may soon hit the market.
What does Amazon’s entry mean for Google & Android?
Before answering this question, it is important to distinguish between ‘potential competition’ and ‘realized competition’. Potential competition refers to the possible harm from competitive actions from rivals, whereas, realized competition refers to the actual harm from competitive actions. Mere presence of rivals does not necessarily lead to greater competition. The extent of competition that a firm actually faces depends on the degree of overlap between its objectives and the objectives of the rivals. Just to illustrate this point, United Airlines faces more competition from Delta rather than from Southwest, as both United and Delta compete for the same set of customers. Following the above chain of thought, the extent of damage that Amazon can cause depends on the extent of overlap between the objective functions of Amazon and Google. So let’s try to outline what the two companies seek to achieve from Android.
What’s in it for Amazon?
For Amazon, the proposition is very clear and extremely compelling. While Amazon is the leader in retailing physical products, Apple iTunes holds the crown for selling digital goods, a domain that Amazon will like to conquer. Amazon has the required infrastructure to sell digital goods in form of the Kindle store, It now needs products and services that it can push using its existing infrastructure. Given the explosive growth in the mobile space, this is a logical extension for Amazon. Amazon can certainly develop its own mobile OS, but that may not be the optimal strategy as 1) Amazon is not a software development firm, and 2) the value is not necessarily in developing mobile OS, but deploying it effectively. The open nature of Android makes it the only viable option for Amazon as the other app stores are proprietary in nature. It only helps that Google has done a very poor job with it’s Market.
The only problem with the current solution is that the Amazon App store does not come pre-installed with Android and it takes more than a few steps to get one on your device, something that many people may be reluctant to do. Hence, the need to develop it’s own hardware that can ship with the Amazon App store pre-installed. Not to mention that the Amazon margins are the highest for the products that it manufacturers and sells.
Finally, while Amazon has been reselling products form other manufactures, this is a real opportunity to control the entire value chain and establish a direct connection with the end customer, a.k.a. Apple.
What’s does it mean for Google?
Google clearly has put lot of resources behind Android. However, as I have outlined earlier, Google’s objective is to put Android in every device. Google is NOT in the business of selling Android devices. In fact, Google hardly makes any money directly from the sales of Android devices. Google’s strategy is to partner with firms who are willing and able to manufacture Android based devices. Google gains from Android adoption indirectly by increasing its mobile penetration and consequently getting close to its user base. Thus, Google will be extremely happy to have more partners who can develop quality devices and sell it to customers.
However, there are a few roadblocks in this quest for Android supremacy. Mika, an iOS and Android developer, has a nice blog post outlining the two major issues that faces Android – the Android market, which is related to download and installation problems, and Google checkout, which is related to payment handling. I will encourage you to read the post, but here’s a brief summary:
The Android Market is not the most efficient place to download and install apps. Despite the recent upgrade, several users are not able to download and install apps from the Android Market.
Google Checkout, the payment mechanism used on the Android Market, has its own set of issues. Developers are responsible for handling and resolving billing concerns. In case of Apple, the same is handled by Apple
While the above points reflect the developers perspective, these are also the most frequent consumer complaints against Android. Guess you can now see where I am going with this.
While Google is great at developing technology, the challenges that Android is facing are clearly a result of Google’s lack of experience in retail and dealing with retail customers. Turns out that the areas where Google is currently struggling are actually the areas of strengths for Amazon. Amazon is the undisputed leader in online retail. Amazon’s strength lies in its order fulfillment (including payments) processes. It already has the ability and means to deliver digital goods, as demonstrated by the relatively frictionless Kindle Store. The success of Kindle, demonstrates Amazon’s ability to develop and sell quality hardware.
Put the two and two together and you will realize that Google now has a new ally in form of Amazon. Not only Google gets another manufacturer who is willing to develop and sell Android hardware, it also gets a partner who is very well versed with digital retailing. Android users can now have one less reason to complain.
It is also important to note that Amazon needs Google as much as Google needs Amazon. As I mentioned earlier, Amazon’s competency is retailing and not software development. Thus, it will continue to rely on Google to develop the Android ecosystem
What about the loss of revenues from the Android Market?
If you are wondering that this would mean an end to the revenues from the Android Market, think again. The app stores are costly to manage in terms of bandwidth, datacenter, development, and maintenance costs. Even the Apple App store barely makes any money beyond the cost of running it. Thus, Google is not giving up a huge chunk in terms of revenues by giving up control of the Android Market.
Don’t get me wrong, I am not suggesting that Google will or should stop developing the Market. In fact, Google should continue to work on the Market to make it a superior offering. However, for whatever reason, even if Google fails to achieve that, there is a good backup in the Amazon App Store.