Does Google market Android to cheapskates?

Flickr user Eric E Castro

COMMENTARY Time ran out for Eric Chu, the head of Google's (GOOG) Android software market. He's moving elsewhere in the company as Jamie Rosenberg, who ran Google Music, takes over. The problem? Too few apps selling through Android Marketplace.

It's an embarrassment to Google, an irritation to app developers (just ask developer of popular mobile games Mika Mobile, who just announced that he'd drop support for Android), and a potential major weakness in the Android ecosystem. There are potential explanations for what Google is doing wrong in running its market. But instead of just looking internally, perhaps it would make sense to turn the eyes elsewhere -- on the customers of the smartphones using the mobile operating system, who might happen to be a cheap lot.

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There are different explanations for what went wrong in Google's market, according to Kim-Mai Cutler at TechCrunch. One is a conflicted management structure, in which Chu was responsible for business development and developer relations while another was in charge of product management.

Another is a lack of resources because Google has judged Android's success by activations, not by the number of apps sold. Companies put their money on what they measure as being important to their success. Ignore something as relatively unimportant and you spend your cash and attention elsewhere.

Many major app developers also bring their products to Apple's iOS platform first because, as one recently told me, coding is much easier than trying to write for Google. The fractured nature of Android makes writing an app that works across all the variations inherently more difficult. Here's what Mobile wrote:

There's a big difference between generating revenue, and "making money" - It's not that they haven't generated income, but that income is offset by the additional support costs the platform has demanded. Where did your dollar go? We spent about 20% of our total man-hours last year dealing with Android in one way or another - porting, platform specific bug fixes, customer service, etc. I would have preferred spending that time on more content for you, but instead I was thanklessly modifying shaders and texture formats to work on different GPUs, or pushing out patches to support new devices without crashing, or walking someone through how to fix an installation that wouldn't go through. We spent thousands on various test hardware. These are the unsung necessities of offering our apps on Android. Meanwhile, Android sales amounted to around 5% of our revenue for the year, and continues to shrink. Needless to say, this ratio is unsustainable.

And the results are inevitable.

Android users see pay, read painful

All of those issues are certainly valid, but the big one -- the white elephant sale in the room, as it were -- is the very last point Mobile mentions. Developers can justify a lot of work if there's a proportionate return. Only, there isn't for many on Android

The problem isn't difficulty in getting around the Android Market. (In my experience, Google's site remains far easier to navigate than Apple's.) It's that Android users are choosing first and by far foremost to download free apps.

Is that really so surprising? Consider that the big reason for the market success of Android hardware is that it often reaches lower price points that open vast amounts of additional buyers than wouldn't spring for an iPhone or iPad. That's why the market sees a $20 Android smartphone after a $50 rebate (and even $70 is relatively cheap). Look at AT&T's Android phone page to see all the free and $0.01 phones. And there are many more below $100.

It seems that Android hardware manufacturers, in an attempt to compete with Apple (AAPL), have used lower price as a tool. The problem, though, is that the platform attracts a larger percentage of cost-sensitive consumers as a result. These are exactly the people who are more likely to favor free apps over paid.

Google pays in the long run

It's not that such customers are wrong in doing so. They're expressing their preferences based on their own interests and requirements. But they're different from the large number of people who have purchased Apple products that tend to sell at premium prices and higher margins than usual. Such people are less price sensitive and, as a result, more likely to pay for apps.

But that's a potentially big problem for Google. If the hardware and operating ecosystem attracts many price sensitive people, developers increasingly won't be able to afford to support Android. That could even further cement Apple's position at the high end of smartphones and tablets, absorbing more and more of the available margin, which, in turn, would act like positive feedback, driving Android into even more of a price-centric existence.

Image: Flickr user ecastro

[tmittelstaed]

As a published author myself I will emphasize that just because you know how to WRITE doesen't mean you know what's RIGHT. You just know how to make what you spout SOUND right. I've made plenty of tech predictions myself and trust me, if Erik's predictions come true more than 50% of the time, he wouldn't be here, he'd be on the beach surrounded by young girls in bikinis.

Now let's drop the religious war for a moment and look at some hard cold facts of how the high tech industry has operated for the last 20 years or longer.

Apple has existed for so long because they bring out cutting edge tech. Cutting edge tech costs a mint because you have to pay back R&D costs. It is also risky because you don't know if the dog is going to eat it until his head is in the bowl. But when cutting edge tech is successful, then everyone else copies it at a lower cost. In the past that hasn't mattered to Apple because by the time everyone else has their products on the market at a quarter of the cost, Apple is on to the next new thing.

The reason Apple is unique is that they have self-generated so much of their revolutionary tech. Most companies, Google included, can't develop revolutionary tech, they acquire it by buying up high tech startups. And everyone who knows anything about high tech will tell you the reason Apple has been so good at self-generating revolutionary tech is that they had Steve Jobs who was brilliant at recognizing early trends when he saw them. (It's why he ripped off the Mac paradigm from Xerox)

With the exit of Steve Jobs, Apple is in a quandary, they have lost their visionary and do not seem to have replaced him with someone who can come up with new cutting edge tech. So Apple's managers have 2 choices - either try to mainstream the company, which means going head to head with everyone else and allowing a group of minor startups in high tech determine their next new products, or try to find another visionary. From the looks of the most recent iphone, they have chosen the former. And if they cede their cutting edge tech lead, then they will not be able to command the high dollars for their products that they were able to command in the past - so the entire argument about Google being cheaper is moot - because Apple will have to drop their prices to compete, and the app developers will end up either getting less money for their Android versions of their apps, or less money for their iphone versions of their apps.

Most people buying smartphones want to use them as a:

phone
music player that can download mp3s from the net
video output that can download mp4's from the net
e-mail access to an ISP mailserver or company Exchange server
bookreader
simple "angry birds game" handheld game machine
tethering hotspot to put their laptop on the net
navigation
limited web browsing

That's 80% of it. Apps to do the 80% of it exist in the market right now, for both devices. The app developers making apps that they can get real money for are either fringe minor players, or game developers. And NEITHER the iphone or Android has a big enough screen to ever be a serious gaming platform. Gaming on those devices is a time-killer that people do when they are bored, riding the subway. Thus a series of mediocre games - like Angry Birds which is a rehash of 2 dozen different Atari games that came out in the 80's, and does NOT demand significant GPU ability on the phone - will keep most Iphone or Android users contented.

Yes your probably going to see some "way cool" apps that will exist only for the iPhone. They won't be apps that 90% of the market will ever pay money for, but the people who WILL pay money for them will regard them as critical apps and will pay far more than $10 a copy for.
So yes, Apple can trumpet that they have 100% penetration in the garmet/rfi-tag-reading market, or some other similar niche market, and the handful of developers that write those apps will make money. In the meantime the rest of the world that only wants to to the top 9 apps mentioned above will be on the cheapest platform, and right now that is Android.

If a killer app comes out in the future for the Smartphone then it will reset the market and if Apple identifies it early they will become the market leader in smartphones again. But the killer app that drove the smartphone was navigation - why pay $200 for a Garmin and $40 a month map subscription for it when you can get it for what your already paying for your cell phone - and everyone has that now. And while Steve Jobs was a visionary he was also a world-class ****** who was a control freak and so he never was able to groom anyone younger than him to take over the visionary position - and so he left Apple berefit of any real technical leadership. So, an Apple with a flapping rudder is pretty much equal in match to a management conflicted Google, IMHO, and I see no market leader here other than price.

[eriksherman]

1) I don't think I predicted anything in this post, so that seems like a red herring tangent. And surrounded by women in bikinis? Maybe it's your fantasy; I'm more of a family-centric guy. But then, as you say, being a published author doesn't guarantee that you're right. Or even that your logical processes or observations are sound. For example, there is no "religious war" here unless you're bringing it. This is simply looking at the market.

2) Apple gets a lot of its important technology through acquisitions, just like every other company in the space. (Siri, CPUs, and touch interfaces are three examples.)

3) Apple's R&D expenses as a percentage of revenue are far lower than many of its rivals, including Google and Microsoft, if you actually look at financials and compare such ratios (which I do).

4) Yes, Jobs was important, because he was a great filter of technology. But it's not as though he was the one sitting down coming up with one idea after another. Instead, he forced people to refine their inventions.

5) I'm pretty sure that Jobs was involved with the latest iPhone even though he was ill, so I'm not sure that you can link Apple's current state to a lack of Jobs. Given the timeline of products, that would become more evident in about a year.

6) Apple has dropped its prices over time. Do you remember that the company had to cut something like $200 from the original iPhone within 60 days of it being introduced because sales were tanking? Some degree of price sensitivity always exists.

7) Apple always had a design lead, but not necessarily a technical lead. Voice recognition had been in Android and Windows Phone. Android had multitasking long before iOS. The new camera on the iPad is 5 megapixels - pretty common already. And if design is an important driver, Jonathan Ive is still at the company and remains a design genius.

8) I agree that a small number of apps covers 80% (maybe 90%) of what people want to do. And, you could have added, Google managed to ramp up even without the massive app count of Apple. However, there is consumer perception. It's why Apple pushes so hard on promoting apps. It might be that while it's not critical to sell phones, leading apps could be necessary to selling high margin ones. Apple's traditional business strategy has been to focus on margin and profit.

9) If you're argument that almost everyone would jump onto the cheapest platform were true, then why would Apple have the market share it already has? If people were really making rational purchases based solely on functional needs?

10) Saying that there is no technical leadership at Apple seems a bold statement without backing.

[Anvil_Theory]

Appa are just an excuss for a Android exec not to offer a full fledged Operating System.

Android does NOTHING, you need to constantly buy stuff to make Android applicable. (It is cheap and gimmicktry.)You cannot even mail people a memo you've typed out... I need a $0.99 app for that... it soo laughable that google sells people dumb devices, then expects you to spend another $15 in apps, to make your phone smart.

Android = mediocrity

[tmittelstaed]

who exactly types more than a 3 line memo on a smartphone with a restricted screen and a keyboard that needs q-tips to use?

[eriksherman]

Aside agreeing with tmittelstaed on the restrictions of a smartphone, your statement is factually incorrect. True, Google only includes Gmail as the email client, but I was able to get the versatile K-9 mail as a free download. In fact, the only time I paid for an app was for my tablet, and that was some specialty stuff like Photoshop that I wanted. The assertion that you have to spend additional money to make an Android phone do anything useful falls apart under its own weight.

[pixcchic]

Did it ever occur to Google that maybe their app choices and the functionality of their apps just suck and that's why people don't by them?

[eriksherman]

Many of the apps are the same as you can find on the iPhone, and Google doesn't handpick what goes into the Android market, so I think your point doesn't hold up.

[topgunx]

The question that needs to be answered is how easy is it to create content on Android? Is it going to get better on ICS?

[tmittelstaed]

The question that needs to be answered is how easy is it to create content on a device with a screen that fits in a shirt pocket?

Wake me up when the next War and Peace is composed on ANY smartphone.

[eriksherman]

@tmittelstaed, you know, in Japan there are people who write novels on cell phones. It's a literary subgenre there. I can't imagine doing it, but I've learned that it can be misleading to make assumptions about a market based on personal preferences.

[markelliston]

Android attacks now outpace all other mobile platforms, says McAfee - http://*******.com/42ry2p6

Study: 99% of Android devices vulnerable to attack
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Study: Android malware up 400 percent
Android malware up 400 percent and Wi-Fi networks increasingly vulnerable to attack. -- http://*******/1m677

SOMETHING to be said about a closed system like Apple's iOS. I prefer security over price... no amount I might save on buying an Android device would cover the cost of identity theft.

[eriksherman]

Apple phones are vulnerable in other ways. The company is very slow in patching the mobile version of Safari, which means well-known exploits are viable for extended periods of time.

[Scimajor]

If being a cheapskate means that I want a device which:
- is a better value for my money than Apple products.
- has more hardware choices available than Apple products.
- is not a closed ecosystem (not controlled in such a draconian manner) like ALL Apple products.
- has usb ports (on some models of phones and/or tablets) unlike Apple products.
- has hdmi ports (on some models of phones and/or tablets) unlike Apple products.
- etc.

... then yes I'm proud to be a cheapskate. (Don't get me wrong. Apple products are fabulous except for the above points).

[kaganhud]

The takers/destroyers vs. creators/contributors argument is utter nonsense. Are you really blaming the consumer here? The marketplace in every industry is driven by the supplier in reaction to demand. One could argue that the Apple model will face challenges in much the same way pay for ISP services did a decade ago. How did that work out for AOL? Google's entire model is based, not upon competing in the established Apple marketplace, but on altering that marketplace sufficiently to create room for itself. Free apps also generate advertising revenue. Moreover, a failure of developers to convert free app downloaders to paying ones is a knock on their product, not the consumer. A truly necessary app will convert. One that fails to wow will either sit on a device indefinitely or be deleted.

Had google tried to emulate the Apple model, it would fail miserably. It is a long term plan to get it's OS into as many hands as possible to facilitate the downloading of apps. Conversion percentage doesn't matter. It's a different ballgame for Android. It's about numbers and empowerment of the end-user. Granted, many will pick up the android at the discounted prices without any intention of pouring money into apps. But, if even 1 app is paid for and downloaded, Google is ahead vs. the device never having been purchased in the first place. Market share is the name of the game here. In much the same way Microsoft obliterated Apple in the PC wars by becoming the de-facto standard, Google can eventually win by focusing on flooding the market with devices. A very low percentage of PC users actually buy direct from Microsoft. That hasn't hurt Bill Gates one bit.
Additionally, what drives many Android users is the ability to choose from an array of devices, and performace specs vs. being tied down to a one size device that won't even trust you to upgrade a battery for yourself. The Apple cult is still alive and kicking, but it's only a matter of time before consumers are fed up with the "kid gloves" treatment. Ironicaly, I now see Apple operating exactly as the overbearing control group depicted in their groundbreaking commercial 30 years ago.

Again, this piece attempts to value Google based upon the parameters set by Apple's model. That assumes Google wants to become Apple. Everything Google has done up to now establishes the fact that it is an alternative attempting to alter the market dynamics to suit itseld, not play within Apple's template.

[eriksherman]

First, the takers/creators argument was from a reader, not me. This post does not assume that Google wants to become Apple. But it does recognize that, historically, a big part of what has made computing platforms/ecosystems/whatever-the-name-is-today successful has been third-party software support. And developers need to be able to make money.

The argument about ads has some validity, in that it's another way to make money. But the question is how much app vendors make from ads or whether it's possible to convert free users into paying users. Freemium model businesses are generally doing well if they get 4 or 5 percent conversion rates. According to all the third-party stats I've seen, the vast majority of apps aren't downloaded all that much. Even if there are, say, 100,000 downloads (very rare), a 4 percent conversion rate would be 4,000 paying users. You're likely not getting hundreds of dollars per person, so you're now talking mid-five-figures, which is a small amount of money for developing a full application. And, again, that's only for a tiny portion of the app developers.

Maybe you want to argue that app sales don't matter. As I've noted in posts before, the assumption that apps create the unit sales isn't necessarily true. But do apps make the difference between real establishment of a platform? If so, then Google might be facing problems.

[bobnjersey]

[The takers/destroyers vs. creators/contributors argument is utter nonsense. Are you really blaming the consumer here? The marketplace in every industry is driven by the supplier in reaction to demand. Moreover, a failure of developers to convert free app downloaders to paying ones is a knock on their product, not the consumer.]
----------------------------------
the expectation that everything should be free is an expectation that the consumer in this market has ... not the creator.

as the story states ... and as you have made reference to (supply/demand) ... creators will migrate to markets upon which their efforts can obtain a return.

a supply demand model where everything is free is not supply demand ... it's only short lived ... and short sighted on the part of those who have ridiculous expectations and standards about the 'value' of what others have created.

it will be short lived because of the 'consumers' w/ the demand for everything for free ... not because a whole bunch of creators spend thousands of man hours producing a wide variety of complex applications that nobody was willing to pay 'pennies' for.

the actual dynamics i've described is exactly what's being experienced by developers who make their product for multiple platforms ... and experience the very 'everything for free' expectation more so in one market than they do it another. The story above states this clearly.

it's the same creators making the same product ... and yet it's different 'cheapskate' consumers who are defining the difference in market experience for those very same creators ... with those very same products.

so yes ... i'm blaming the consumer.

[Anvil_Theory]

Of coarse Android is marketed at cheapskates... because Android is ONLY 4 years old.

It is not a real user Operating System, it is a device OS, that allows for apps. Unlike a real OS, that is inclusive and stand-alone, with Android all u get is a blank screen and told to purchase whatever app u like/need.

Android is a toy... I have 2 non-functional phones to prove it.


Ask any 13 year old what OS is on their phone... they will say "Anroid"..! (because they are not paying for it.)That is because Android OS & Phones are dirt cheap.

[eriksherman]

Not sure the age of the OS (and, sorry, it is an OS) really matters. Apple's iOS is only 5 years old. And Android is hardly a toy -- at least that's my experience owning both an Android phone and a tablet.

[nic1234567-2009]

You are incorrect, Android is a Linux-based operating system for mobile devices such as smartphones and tablet computers. It is developed by the Open Handset Alliance led by Google.

[owen66]

cheapskates? i live on a predominantly poor subway line in brooklyn and i see way more android devices than iphones. would i call all these people cheapskates? seems a tad offensive. i appreciate that a choice like android allows manufacturers the ability to provide a wide range of devices so that more people from different economic backgrounds can afford a smart phone and all the benefits that go along with that.

[eriksherman]

It's a bit tongue-in-cheek, reflecting the expectations of software vendors. You could say price-sensitive, which is the term I used in the post. And, absolutely, there needs to be a range of devices for people from different economic backgrounds. However, that creates a potential problem for Google and the Android ecosystem going forward.

[bobnjersey]

[perhaps it would make sense to turn the eyes elsewhere -- on the customers of the smartphones using the mobile operating system, who might happen to be a cheap lot.]
---------------------------------
when most apps cost a dollar or two ... the unwillingness to pay for anything ... or the gripping about what they do pay a dollar for is pretty pathetic.

maybe these people should go to work and not get compensated for their time for a while ... or get a paid a dollar and then be criticized because their output wan't perfect.

the 'free app' model is unsustainable ... and there won't be any apps to complain about if the 'consumer' of those apps find no reason to reward the 'creators' for their effort.

there are fundamentally two types of people in the world ... creators/contributors ... and takes/destroyers. just a few takes/destroyers can undermine the efforts of all the creators/contributors. wanting everything for free makes you a 'taker/destroyer' .... and you're ignorant attitude undermines the richness of experience and options provided for by the creators/contributors.

[eriksherman]

But has the industry actually created the expectation? Increasingly, high tech has used variations on freemium models, offering free services, with a small portion of customers paying for more advanced offerings and providing the necessary revenue. At one point, a service like Facebook would have changed people and received the money. Now? It probably couldn't get away with fees. Maybe that's leaked over to the app space.