Google’s Strategy Shift and the Curse of Android

Google’s strategy has been extremely successful for most of its life. But now, having turned 18 years old, the web is dying. And with it, some of the companies that profited from it during the last couple of decades.

Google has to face several threats to its business model, all coming from different sides but with a common origin: mobile. First, it was apps. Then came social networks (Facebook, that is). And finally virtual assistants.

Every time a user launches an app, checks its Facebook timeline or asks Siri, Cortana or M (Facebook’s less known assistant), it is a query outside of Google’s grid. An opportunity lost for monetising what several years ago would have been handled by Google’s knowledge engine.

Google’s business model is like that of a billboard. These billboards need people to watch them in order to be profitable. Just like you won’t see them in a god forsaken road in the middle of a forest, Google’s strategy relies on creating services that act as roads with heavy traffic.

The more traffic they have, the greater the chance to be profitable.

Also, this strategy benefits from the knowledge Google has on its users. It’s easier to place these billboards at the right time and place when you know what your users are up to. That is why Google created several services in order to be right where their users were.

Pretty much like Netflix and its business model makes it the user proximity company. The closer you are to the user, the greater the chance to monetise it.

Up until a few years ago, nobody challenged Google’s strategy. But the thing is, in online advertising you’re only as good as the amount of time spent by a user in your premises. If, for whatever reason, your users start to spend less and less time in them, you’re pretty much toast.

And that’s exactly what’s happening to Google.

The Android Curse

Android seems to play along the needs of Google’s strategy. It has worked as the company intended: create a strong foothold first and a dominant platform later. At the same time preventing Microsoft to replicate their success in desktop systems.

Google's strategy with Android

Google achieved these goals. Android has a massive quarterly marketshare of about 85-90%, the remaining 10-15% in hands of Apple. Microsoft’s mobile platform is nowhere to be seen.

Despite this, Android’s success has a bittersweet flavour. There are two things that have to be taken into account:

  1. In online advertising, just like in TV and newspapers, you need to place your ads in front of people that are not only willing to buy the advertiser’s product but can also afford them. That is why advertisers don’t pay as much for an ad placed to someone in the US, here in Spain or in Asia. iOS users are heavily eschewed into the high end, making them a much more profitable segment.
  2. Facebook has managed to place itself even closer to the user. Combining the power of its social network with the suite of apps they either built or acquired, a user with an Android phone is more likely to be within the premises of Facebook, Messenger, Instagram or WhatsApp.

There is no mystery then, that Google is not as committed to Android as in its earlier days. They have built a platform others are profiting from. Big time.

Monetising Android was not a priority at first. But now the lack of revenues coming from this platform has become a dead weight. That’s why Google’s strategy needed to be reinvented.

Google’s Strategy Tries Hardware for the Umpteenth Time

Tech enthusiasts and pundits alike have lauded Google’s last attempt with hardware. The new Pixel phones are a genuine effort for successfully building and selling devices in the market.

It seems like all the previous attempts to build their own hardware didn’t really matter because they didn’t succeed. As John Gruber put it:

Google has been going head-to-head against the iPhone ever since the first Android phone debuted. You can’t say the Nexus phones don’t count just because they never succeeded.

Google has failed in most of its hardware efforts. The Nexus Q was DoA. The Nexus line of phones never really got any traction beyond developers and tech enthusiasts. Google Glass was so wrong that Snapchat’s strategy was able to learn from its mistakes.

They even tried to make a dent in the smartphone market with the failed Motorola acquisition. And that was over three years ago.

Google’s strategy has been desperately trying to create its own hardware line of products. With the exception of Chromecast, they have all failed. What makes Google think this time will be different? More importantly, why do they bother again with the Pixel phones?

The reason can be found in this article by The Verge’s Dieter Bohn (emphasis added):

“Fundamentally, we believe that a lot of the innovation that we want to do now ends up requiring controlling the end-to-end user experience,” Osterloh says. It’s the kind of sentiment you usually hear from Apple, not Google. The company needs to absolutely nail the Google Assistant experience, and doing that meant not ceding an iota of control to partners in the first iteration. “We needed to build a system that actually ran it perfectly,” Osterloh says, referring to Google Home. “Our aim is to give our users the best possible experience.”

Google’s AI prowess is second to none. The emphasis on its new virtual assistant during yesterday’s presentation was palpable, but it lacks one critical piece of the puzzle: being front and center of the user.

In the previous quote, besides admitting that low and mid range Android devices are not perfect and don’t offer the best experience, we get the answer for our questions. Google’s strategy is pursuing hardware again in order to be closer to the user.

The power of defaults, an unfair comparison we analysed in the strategic importance of Apple Music, beat better alternatives. Siri may be a worse virtual assistant when compared with Google’s new Assistant. But it has the advantage of being built into the core of iOS.

Compare long pressing the home button on an iPhone versus searching Google’s app, launching it and placing your request to the assistant. That is, if Google ever releases it on Android and iOS.

Which brings us to the next chapter of Google’s strategy.

The Horizontal vs Vertical Dilemma

Google, just like Microsoft, has a horizontal strategy. Horizontal strategies imply developing software and services that can run in different platforms. No matter what the platform is, software and services is homogeneous. Meaning that new features get released in all platforms, more or less at the same time.

This strategy has lots to do with Google’s own. As Ben Thompson wrote:

Is Google forgetting that they are a horizontal company, one whose business model is designed to maximize reach, not limit it?

Google and Microsoft business models are horizontal and, thus, are designed to maximise reach.

The new Pixel Phones have some features that differentiate themselves from the competition. But none of them are so powerful as the built in Google Assistant. The thing is that you can’t differentiate your product enough through hardware when everybody else runs the same software and services.

Whether Google Assistant is enough to differentiate Google Phones is a whole other discussion, of course.

This is typically Apple’s approach. Making features exclusive to their devices is what differentiates them in the market. But Apple is a vertical company. It needs differentiation in order to command higher price points. This goes against Google’s horizontal strategy, designed to maximise reach, not margins.

To be honest, I don’t see Google fully committed and pursuing this path. The necessary steps needed to shift Google’s strategy are too painful and, as Thompson argues, go against the company’s own culture.

Furthermore, while Microsoft’s Surface strategy was oriented towards filling a gap in the premium PC market, Google isn’t. Samsung is already serving that segment. That is why Google’s new hardware ambitions are doomed to fail.