Episode 20 Android

Summary Notes


In episode 20 of Acquired, hosts Ben Gilbert and David Rosenthal dissect Google's strategic 2005 acquisition of Android, a move that not only safeguarded Google's search business from the mobile revolution but also positioned the company at the forefront of the burgeoning smartphone market. The episode delves into Android's inception, its pivot from digital cameras to mobile phones, and the subsequent launch of the Open Handset Alliance. The hosts highlight Android's role in preserving Google's ad revenue by avoiding hefty platform usage fees (revealed to be around 34% to Apple for iOS searches) and discuss the platform's evolution from a technology acquisition to a product, business line, and ultimately a key asset for Google. The acquisition, costing a mere $50 million, has been deemed Google's "best deal ever," with Android reportedly generating $22 billion in profit annually for the tech giant. Additionally, the episode touches on the broader implications of the mobile wars, the rise of app ecosystems, and the strategic positioning of companies like Xiaomi, which forked Android for its devices.

Summary Notes

Introduction and Podcast Overview

  • Ben Gilbert and David Rosenthal introduce the podcast episode.
  • Episode 20 of Acquired covers Google's 2005 acquisition of Android.
  • The acquisition is described as a cornerstone of computing.

"Welcome back to episode 20 of Acquired, the podcast about technology acquisitions. I'm Ben Gilbert. I'm David Rosenthal, and we are your hosts. Today's episode is one that's been coming for a long, long time. It's a cornerstone of all of computing. Today, Google's 2005 acquisition of Android."

The quote sets the stage for the podcast episode, highlighting its focus on a significant event in the tech industry, Google's purchase of Android.

Sponsorship Segment

  • Pilot is a sponsor, providing accounting, tax, and bookkeeping services for startups and growth companies.
  • Pilot is recognized as the largest startup-focused accounting firm in the US.
  • The services offered by Pilot allow startups to focus on their core business.

"Our next sponsor for this episode is one of our favorite companies and longtime acquired partner pilot for startups and growth companies of all kinds. Pilot is the one team for all of your company's accounting, tax, and bookkeeping needs, and in fact, now is the largest startup focused accounting firm in the US."

The quote introduces Pilot as a sponsor and outlines the services they provide, emphasizing their significance in the startup ecosystem.

Audience Engagement and Community Showcase

  • New listeners are welcomed following a feature on iTunes.
  • The podcast format is explained, including segments like the community showcase and acquisition history.
  • Listener Matt Morgante's book, "Patagonia on a Budget," is highlighted.

"So to all of our new listeners, welcome. We were featured on new and noteworthy and iTunes over the past looks like week or two and about doubled our subscriber base. So thanks so much for everyone trying us out and giving us a shot."

This quote welcomes new listeners and thanks them for their support, indicating the podcast's recent growth in audience.

Acquisition History and Facts

  • Android was founded in 2003 by Andy Rubin and others.
  • Andy Rubin's career journey is detailed from Apple to Danger to Android.
  • Google acquired Android in 2005 for a rumored $50 million.

"October 2003. Android is a startup company just founded in Palo Alto by Andy Rubin, Rich Minor, Nick Sears, and Chris White."

The quote provides the foundational history of Android, setting the context for the acquisition discussion.

The Impact of the iPhone

  • The iPhone's launch in 2007 prompted Android to revise its strategy.
  • Responses to the iPhone varied from dismissal to disbelief in its capabilities.
  • Google's Android team recognized the need to compete with the iPhone's innovation.

"What we had suddenly looked just so 90s. It's one of those things that is so obvious when you see it."

The quote from a Google engineer captures the moment the Android team realized the game-changing nature of the iPhone and the need to adapt.

Announcement of Android and the Open Handset Alliance

  • Google announces the Android operating system and the Open Handset Alliance.
  • The alliance includes major industry players like HTC, Sony, Samsung, Sprint, T-Mobile, and Qualcomm.
  • The $10 million Android challenge is introduced to stimulate development on the platform.

"They announce both at the same time. And what's super interesting is as part of the announcement, they also have the $10 million Android challenge."

The quote describes the strategic move by Google to foster an ecosystem around Android and to promote innovation through a development challenge.

Android as an Open Operating System

  • Android is open source and free for anyone to use, leading to various forks like Kindle Fire and Xiaomi.
  • Google emphasized that Android is open to developers before iOS was open to developers.
  • The openness of Android pushed Apple to eventually open iOS to third-party developers.

"Google does, that Android is an open operating system. And that means two things. One, it's open source, so anybody can use it. And later on this leads to forks of Android, like, um, like the Kindle Fire Xiaomi as an Xiaomi become super important later. But it's completely free. Anybody can take the Android software and do whatever they want with it. The other part of open that Google really focuses on is developers can develop for the platform. So this was before the iPhone. IOS was not yet open to developers."

This quote explains the two main aspects of Android's openness: its open-source nature, allowing for modifications and forks, and its accessibility to developers, contrasting with the initial closed nature of iOS.

Apple's Response to Android's Openness

  • Apple announced the App Store in June 2008, which was a shift from their initial stance on third-party developers.
  • Steve Jobs initially wanted to control the entire software stack of the iPhone.
  • Google's open approach to Android influenced the market and Apple's strategy.

"WWDC in July or in June of 2008 is when Apple kind of walked back their you can make web apps and announce the App Store."

The quote marks the pivotal moment when Apple introduced the App Store, changing its strategy towards third-party developers, which was a response to the competitive pressure from Android's openness.

The First Android Phone

  • The first Android phone, the HTC Dream (T-Mobile G1), featured a keyboard, touchscreen, scroll wheel, and hardware buttons.
  • It was released in October 2008 but did not make a significant impact initially.
  • The iPhone's growth was slow by today's standards but was rapidly gaining popularity.

"And that's when the HTC dream in the US, the T Mobile G one. That's right. Is the first Android phone, the much vaunted anticipated Google phone. And that still comes out."

This quote describes the launch of the first Android phone, the HTC Dream, which had distinct physical features and was the first step in Android's entry into the smartphone market.

iPhone's Market Strategy and Growth

  • Steve Jobs aimed to capture 1% of the phone market in the first year of the iPhone.
  • Apple intentionally did not acknowledge smartphones as a category.
  • The iPhone's market exploded after the first year, far exceeding initial expectations.

"And I remember Steve Jobs on stage saying that their goal for the. I think it was their goal for the first year of the iPhone was to capture 1% of phones. I don't think he said smartphones."

This quote reflects on Steve Jobs' initial modest goal for the iPhone's market share, which was quickly surpassed due to the product's success.

The Industry's Realization and Response to iPhone's Success

  • By the holiday season of 2009, the rest of the wireless industry recognized the threat posed by the iPhone.
  • The iPhone's exclusivity with AT&T was a significant advantage for the carrier.
  • Competitors like Verizon and Google had to strategize to counter the iPhone's dominance.

"So it wasn't actually then until around the holiday season of 2009 that Google, who knows how much Google drove this, but essentially the rest of the wireless phone industry ecosystem, except for Apple, realized they have a big problem."

This quote indicates the point at which the industry, led by Google, acknowledged the challenge presented by the iPhone's success and began to formulate a response.

The Launch of Verizon's Droid

  • Verizon launched the Droid in 2009, paying Lucasfilm for the use of the name.
  • The Droid's marketing campaign directly targeted the iPhone's shortcomings.
  • The smartphone wars began to intensify with Android gaining significant market share.

"Which is interesting that by holiday 2009, there's finally been enough time in the product cycle that Verizon, Google, everybody else, all the handset makers, realize they got to do something. And so Verizon launches the droid in 2009."

The quote highlights the strategic launch of the Verizon Droid as a direct competitor to the iPhone, marking a critical moment in the smartphone wars.

The Equilibrium of the Smartphone Market

  • The smartphone market settled into a state where Android holds about 80% market share, and iPhone holds about 20%.
  • iPhone users are more likely to pay for apps than Android users.
  • The market reached a multiplatform equilibrium, contrary to the expectation of a single winner.

"And it's interesting how it's reached this almost like not a peace treaty, but we thought there was going to be one winner in this smartphone wars, and it was going to be a crazy five year thing. And one person, we thought it was going to be Microsoft and Apple all over again."

This quote reflects on the unexpected equilibrium reached in the smartphone market, where both Android and iOS sustainably coexist without a single dominant winner.

The Branding and Perception of Android

  • The Android brand was not initially a consumer brand, leading to confusion.
  • The Droid became a well-known term, sometimes more so than Android itself.
  • The smartphone wars were characterized by companies racing to match or surpass Apple's offerings.

"And it was amazing how, and important. To remember, too, who made the droid. It was Motorola, which we'll get to."

The quote underscores the significance of the Droid brand and Motorola's role in the smartphone wars, as well as the strategic branding decisions that shaped consumer perception.

Samsung's Rapid Response to Apple's Innovations

  • Samsung quickly copied and released features similar to Apple's, such as Touch ID and slide to unlock.
  • The competition between Apple and Samsung was fierce, with Steve Jobs expressing a desire to destroy Android.
  • The tech industry's landscape changed rapidly, with companies shifting alliances and partnerships.

"And so fast, like, two months after Apple would announce something, some team at Samsung would get to it, work all night, and then they'd rush it to market, and then they'd announce that it exists."

This quote illustrates Samsung's aggressive approach to competing with Apple by rapidly developing and releasing features to match those introduced by Apple.

The Role of Google and Android in the Mobile Market

  • Google's creation of Android was to avoid paying for access to their own customers on mobile platforms.
  • Google pays a significant revenue share to Apple for searches conducted on the iPhone.
  • The mobile market opened a new frontier, becoming the largest market in technology.

"And so Google, basically the entire reason that Android exists is so that Google doesn't need to pay for access to their own existing customers."

The quote explains the strategic rationale behind Google's development of Android, which was to maintain direct access to users and control over the search market without incurring revenue-sharing costs.

The Importance of Search Revenue and Google's Strategy

  • Google's primary revenue comes from search and ad clicks.
  • The company pays other platforms, such as Apple, a share of the search revenue generated on their devices.
  • Android's existence allows Google to bypass these costs and retain more search revenue.

"The case for basically Google is a company that makes money when people search and then click on ads. They do all these people search properties."

This quote clarifies Google's business model and the financial implications of search revenue sharing, highlighting Android's role in protecting Google's profits.

Google's Mobile Strategy and Android's Role

  • Google's strategy with Android and Chrome is to prevent any competitors from coming between them and the revenue generated from ad clicks on search results.
  • Android and Chrome are not directly profitable but provide immense economic value to Google by safeguarding their core business.
  • Google has to pay to be the default search engine on mobile devices, which is a significant change from their position on desktop browsers.
  • Android saves Google around $4 billion a year by not having to pay out to other parties for search traffic on Android devices.

"the strategy for Android, the strategy for the reason Chrome exists, these things are all the same. And it's to make sure that no one else is inserted between the revenue generated by clicking on ads from search and their customers."

This quote explains the underlying reason for Google's creation of Android and Chrome: to maintain direct access to their customers and protect the revenue stream from their search engine advertising.

Google's Acquisition of Motorola

  • Google purchased Motorola primarily for its patent portfolio to defend against litigation in the mobile space.
  • Google's ownership of Motorola's patents was a strategic move to protect itself in legal battles with competitors like Apple and Oracle.
  • The secondary goal of producing phones under Google's unified stack did not materialize successfully.
  • Google eventually sold Motorola's assets to Lenovo for significantly less than the purchase price but may have benefited from avoiding costly legal judgments.

"Google makes this move that is in some ways completely brilliant and in other ways completely boneheaded. Where they buy Motorola in August of 2011 for twelve and a half billion dollars."

This quote highlights the dual nature of Google's acquisition of Motorola, which was both a smart move for acquiring patents and a failure in terms of integrating Motorola's hardware business.

Xiaomi and the Forking of Android

  • Xiaomi, referred to as the "Apple of China," leverages a forked version of Android to compete in the smartphone market.
  • Forking Android allows companies like Xiaomi and Amazon (with the Kindle Fire) to control their versions of the operating system.
  • A disadvantage of forking Android is the lack of access to Google's Play Store and services, necessitating the creation of a new developer ecosystem.
  • Google's advantage lies in providing manufacturers with a complete package including the Play Store and Google services, which promotes the use of stock Android.

"Xiaomi basically leveraged open source Android to compete with Apple. And so they make beautiful, relatively low cost devices, sell them in China, they're wildly popular, and they run a version of Android that Xiaomi has completely locked down and controls."

This quote explains how Xiaomi uses a forked version of Android to create a unique offering in the smartphone market, differentiating itself from competitors who rely on Google's version of Android.

Google's Purchase of Android as a Technology Acquisition

  • The acquisition of Android was initially a technology purchase rather than a product, business line, or asset.
  • Android was acquired for its core technology and the opportunity it presented, rather than as a complete market-ready product.
  • Google's purchase of Android was also a strategic move to acquire talent and a technology that would be difficult to replicate.
  • Over time, Android has evolved from a technology to a product, a business line, and now a strategic asset for Google, providing defensibility for the company's core business.

"What they were really buying was kind of this core technology that has actually no one else really went out and tried to build that."

This quote emphasizes that Google's acquisition of Android was centered around obtaining a unique and challenging-to-develop core technology that others had not attempted to build.

The Importance of Owning the Customer Relationship

  • In the current Internet economy, it's crucial to own the front door to the customer because distribution has become virtually free.
  • Companies must win customers by offering the best experience since anyone can build a product and distribute it online.
  • Google's approach to Android, giving it away for free and focusing on the customer experience, contrasts with traditional business models like Microsoft's Windows Mobile.

"you have to own the front door to the customer in this day and age."

This quote captures the essence of why controlling the customer relationship is vital in an era where distribution costs are negligible, and customer experience is paramount.

Evolution of Mobile Technology and Market Dynamics

  • Early mobile technology, like Windows Mobile, was frustrating and lacked a cohesive approach.
  • The mobile market shifted focus over time, from hardware (PCs and Macs) to services (Google vs. Apple services).
  • The current competition is at the application layer (e.g., Uber vs. Lyft, Snapchat vs. Facebook).
  • The concept of moving up the stack to messenger ecosystems and bots is discussed, though still early in the hype cycle.

"So in the old pc world. It was like the hardware. You're going to buy a Mac or you're going to buy a pc, right?"

This quote reflects on the historical focus on hardware in the PC era, where the main choice for consumers was between a Mac or a PC.

"The level of competition has kind of further elevated up the stack to the application layer."

This quote indicates that the competitive landscape in mobile technology has moved beyond operating systems to applications and services, which is where the current battleground for market dominance lies.

Google's Android Strategy and Financials

  • Android serves as a platform for Google’s advertisements and the Google Play Store.
  • The acquisition of Android by Google was strategic, ensuring Google's relevance in the mobile era.
  • Oracle's lawsuit revealed that Android generated $31 billion in revenue for Google.
  • Google's acquisition of Android is compared to Facebook's acquisition of Instagram in terms of defensive versus offensive strategies.

"Android makes money for Google in two ways. One is advertisements supplied by Google and shown on Android phones, and the other is revenue Google takes from its mobile App Store, Google Play."

This quote explains the two primary revenue streams for Google from Android: advertisements and the Google Play Store.

"But the thing that I think Android really did is ensure that Google was safe for the next decade or two as the world changed out from under them."

This quote emphasizes the strategic importance of Android in securing Google’s future in the rapidly evolving mobile market.

Google, Waze, and the Ride-Sharing Market

  • Google's acquisition of Waze and its recent move into ride-sharing signals offensive strategy.
  • The move into ride-sharing through Waze is seen as a potential conflict with Google's investment in Uber.
  • The decision to use Waze for ride-sharing, instead of Google Maps, may be influenced by Google's relationship with Uber.

"Google and Waze announced that they are now doing ride sharing within Waze."

This quote announces Google's foray into the ride-sharing market through Waze, showcasing Google's continued expansion and experimentation in different markets.

"Does that mean that they do a self driving car service rolled out through Waze instead of."

This quote speculates on the future integration of self-driving car services with Waze, indicating potential strategic developments within Google’s portfolio.

Apple's iPhone 7 and AirPods Launch

  • The iPhone 7 and AirPods launch reflects the maturation of mobile technology and incremental improvements.
  • Apple's vision for a future with wireless computing and Siri as the central interface is discussed.
  • The AirPods double-tap feature to activate Siri hints at a shift towards more integrated, always-on computing experiences.

"We're moving to a world where there are no wires, there's no cord to your earphones, there's no power cord, there's nothing tethering you."

This quote captures Apple's vision for a future of untethered, seamless computing experiences, emphasizing the move towards wireless technology.

"Siri, which we've done our episode on Siri, and Ben and I are very skeptical of Apple on this. Siri is going to control your computing experience."

This quote highlights the skepticism around Siri's capabilities but acknowledges Apple's direction towards voice-controlled computing experiences.

Book and Documentary Recommendations

  • "Business Adventures" by John Brooks is recommended for its short vignettes on historical business events.
  • ESPN's OJ documentary is praised for its coverage of OJ Simpson and the broader context of American history, race relations, and the civil rights movement.

"It's called Business Adventures by John Brooks."

This quote is a recommendation for the book "Business Adventures," which provides insights into various historical business events and failures.

"It is five part documentary series. Jenny, my wife, and I are in the midst of watching it now."

This quote recommends the ESPN OJ documentary for its in-depth exploration of OJ Simpson's story within the larger narrative of American social and racial dynamics.

Crusoe Cloud Computing

  • Crusoe is a clean compute cloud provider for AI workloads, partnering with Nvidia and using wasted or clean energy.
  • Crusoe's positioning as a cost-effective and environmentally friendly alternative to traditional cloud providers is highlighted.

"Crusoe's data centers are nothing but racks and racks of a."

This quote describes Crusoe's dedicated infrastructure for AI workloads, emphasizing their specialized approach to cloud computing.

"Because Crusoe's cloud is purpose built for AI and run on wasted, stranded or clean energy, they can provide significantly better performance per dollar than traditional cloud providers."

This quote outlines the benefits of Crusoe's cloud services, focusing on performance and cost efficiency due to their unique energy sourcing strategy.

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