Huge Support for Google's Platform Could Benefit Microsoft
As predicted, this year's Consumer Electronics Show (CES) is dominated by Android. Google's platform can be seen on the lion's share of smartphones and tablets, not to mention TVs and other connected devices. It's a clear illustration of Android's dominance and the breadth of support from partners and developers.
At least, that's how it appears. Few can question what Google has achieved and Android's phenomenal position, particularly in smartphones. But the operating system faces fundamental challenges that the hordes at CES can't see or, more likely, choose to ignore.
This isn't the first time CCS Insight has pointed out that Android is unsustainable in its current form. Scope for differentiation is limited and essentially disappearing as a combination of the pressure to get products on the market and Google's need for control restricts manufacturers' ability to set their products apart from other Android-powered devices.
A lucky few, such as Samsung, Sony and HTC, have the assets or financial means to invest in their own services, but this is a risky and capital-intensive approach, as Nokia can testify. And the likes of Facebook, Amazon and Google are formidable competitors when it comes to services.
But more importantly, the economics don't add up for the majority of companies using Android. Few are competing profitably, with Samsung and HTC the enviable exceptions. Add to this Android's accessibility and the burgeoning number of licensees, and falling prices become inevitable. Good for Google, but bad for manufacturers.
The backdrop to CES in this context is HTC's challenges in the fourth quarter of 2011. HTC is by no means on the ropes, but its financial results do reveal the fundamental problem for all Android manufacturers. The appearance of Peter Chou, HTC's CEO, alongside Steve Ballmer to reveal the Windows Phone-powered Titan 2 is little surprise in light of these challenges.
If these dynamics aren't enough of a problem, intellectual property disputes are further rocking the good ship Android. They'll play out for some time to come, but could well be the final straw if royalties and licence costs further strain gross margins.
Google intends to buy Motorola Mobility to strengthen its patent position. But given the predicament of many of its partners, it is surely also an insurance policy that will allow it to push its own agenda should support for Android begin to wane.
Android won't see a sudden and dramatic decline in market share. However, it's hard to see how it can continue to accommodate such a vast number of manufacturers when the economics favour a precious few. There are of course few alternatives, but the scenario certainly validates Stephen Elop's case for a "third ecosystem".
As counterintuitive as it seems, the sheer weight of support for Android at CES could be more to Microsoft's long-term advantage than Google's.