If you are a technology company not named Apple, then the answer to this question is vital to your future. The fact of the matter is that all technology companies (other than Apple) do not solely control their own future. Samsung, HP, Acer, Dell, Lenovo, LG, HTC, Nokia and the rest must rely on either Google or Microsoft to supply the operating systems for their smartphones, tablets, or PCs. So the answer to the question of whether to use Google’s or Microsoft’s software is as strategic as it gets. Making a wrong decision could mean the end of your company.
Right now Google’s platforms are hot-ticket items. But they come with a price — or a lack of a price, for that matter. Google would prefer that all hardware that runs its software be virtually free. That may seem counter to the logic of Google releasing a $1300 Chromebook, but that is simply a strategy to take advantage of a particular market and get early adopters to pay Google for its own market research. It is actually quite brilliant.
The long game for Google, however, is one where its services are running on every device, and getting there requires that the hardware be practically free. This is the world I firmly believe Google wants to see happen. As we study average selling prices of phones, the price deflation happens extremely fast with Android devices, and this is very telling. So if I am one of the aforementioned brands trying to make money in the hardware game, I should be mindful of betting my future on a company that would rather me not make any money on my hardware. Also, Google gets almost all of the ad revenue that comes by way of Android devices. In Samsung’s case, it gets 10% but the rest goes to Google. Who really makes money in this case? If you say Google, you are correct This is part of Google’s end game. How do others make money?
Microsoft, on the other hand, genuinely wants its hardware partners to make money. This is why the company requires a healthy premium for the license of its software. The assumption is that Microsoft software adds value, and is therefore valuable. That value should translate into a reasonable price willing to be paid by the mass market in order to capture that value. This was how it worked for nearly two decades in the peak of the PC era, so is there reason to believe it will not work again with devices in the post-PC era?
The challenge with Microsoft is that its ecosystem is well behind Google’s, mainly when it comes to apps. To put all your eggs, or even most your eggs, in Microsoft’s basket brings with it the assumption that the company will yet again get it right someday, after many tries. Maybe it will.
The Universal Downsides
There are several downsides to licensing someone else’s software as the main interface your customers will be using. First, the hardware manufacturer does not actually own the end user. This creates platform loyalty but not hardware loyalty. In this scenario, the next time a consumer needs to buy a new PC, smartphone, or tablet, he or she may stay loyal to Microsoft or Google, but the previous hardware hardware manufacturer must now compete for that customer each time there’s new hardware to be purchased.
The downside of platform loyalty for the hardware manufacturer comes with the other challenge of licensing someone else’s software. Your competitors may also license that software, which makes standing out much more difficult. Differentiation must go beyond hardware, as it can begin to create customer loyalty. But when all your competitors not named Apple are running the same software as you, it makes it difficult to stand out in a crowd. I call this the sea of sameness, and it’s getting bigger and deeper every year. Standing out in a sea of sameness is the biggest downside of licensing someone else’s software.
This is why every Android OEM adds some secret sauce to its flavor of Android. In fact, it is fascinating to think about how with each new product, the Google part of Android becomes less and each OEM’s part takes over more. HTC’s phones run Sense, Samsung’s phones run TouchWiz and Motorola’s phones run Motoblur. These tactics are how each company attempts to stand out in a sea of sameness. The problem is that these tactics can only go so far.
As an industry analyst, it is this differentiating point that continually intrigues me about Apple. Love it or hate it, Apple is the only company that runs software not found on any other hardware but its own PCs, smartphones, and tablets. In this regard, Apple is truly unique and has the ability to stand out in a sea of sameness.
This is why there must be – and will continue to be — consolidation in the hardware side of this industry. The current players, which license software from others, can not keep going the route they are going forever. Companies may take a stab at building their own operating systems in an attempt to go more vertical like Apple, but they risk losing time and resources to competitors. The platform providers like Microsoft and Google may also start making more of their own hardware, which will complicate matters even further and cause consolidation to happen even faster.
These are certainly tricky waters to navigate. Even those who have done this before are in uncharted territory. The companies that brave the turbulent waters of the sea of sameness will either sail through or sink with the flag of Google or Microsoft mounted high on their masts.
Bajarin is a principal at Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to the Big Picture opinion column that appears here every week.