What Google can learn from Apple

What Google can learn from Apple
By Richard Waters in San Francisco
Copyright The Financial Times Limited 2007
Published: August 13 2007 03:00 | Last updated: August 13 2007 03:00


Imagine you spotted a market that was just ripe for your company's service. It looks like a goldmine - your chief executive has just declared it the single biggest new opportunity out there. There is just one drawback. The only way you can think of to break into this new market is to try to change the rules of the game for everyone else who already plays there.

This is roughly the position Google finds itself in as it sizes up the mobile internet business. But pushing too hard to change the rules of the gamecould be a mistake.

The cellular world is nothing like the free and open internet where Google now thrives. In many places, network operators decide which mobile services will receive the oxygen of attention, admitting them to their "walled gardens" of favoured services and giving them preferential positions on the "decks", or content menus, that appear in front of users.

By controlling which handsets connect to their networks, they can also block any devices that come pre-loaded with software applications that do not take their fancy. (Translation: if you do not play by the operator's rules - for example, in how advertising revenue is shared - do not expect to reach an audience.)

Meanwhile, handset makers are nothing like the companies that produce personal computers. As vertically integrated hardware/ software companies, they can often seem inconsistent about how much of the mobile pie they want to keep for themselves.

All this explains why Google has started to ape the sort of behaviour you would normally associate with a good old-fashioned monopoly - say, an AT&T or a Microsoft.

Last month it turned up the heat in Washington DC, taking on AT&T and other big US communications companies by trying to influence the rules for an important auction of wireless spectrum. It even went as far as offering to bid at least $4.6bn (£2.3bn) to buy spectrum in order to try to shape the outcome. In this it was at least partially successful, even if it did not get everything it wanted.

Meanwhile, there have been reports all year that Google has been in discussions with handset makers in Asia, prompting speculation that it is developing plans for its own family of Google-branded mobile phones.

If not a shiny piece of Google hardware, how about a range of phones from some of the world's biggest handset makers that run Google software? Building an ecosystem of handset makers for its software is exactly what Microsoft has been attempting. The internet company last week tried to brush off suggestions it has some masterplan in the works, but it is clearly working hard to get wider distribution for its software.

With all this going on, it is not surprising that some outlandish speculation has been doing the rounds. Is Google going to build its own wireless network in the US and take on AT&T at its own game? In its eagerness to break into the mobile market, will it become network operator, handset provider and online service company in one?

The answer to these questions must surely be "no". It is partly a business model issue. If you had gross profit margins of 85 per cent, would you be eager to change your business model that radically?

It is also a matter of good sense. Google relies on breadth of reach: there is no point just getting to a subset of internet users - for its advertising platform to work it needs to get in front of everyone. To set itself up as a rival to an AT&T or a Nokia would risk limiting its reach. It has no choice but to play ball with everyone who is already on the field.

So what exactly has Google been up to with its sharp-elbowed tactics in mobile? The most charitable answer is that it is rocking the boat - hard.

This might well turn out to be a smart strategy. The existing model for the mobile internet business has not worked and is already showing signs of strain. The walls around the walled gardens have been crumbling - more so in Europe than the US, but the failure of operators to generate meaningful revenues from their data services is widely apparent. Flat-rate data-pricing plans are becoming common, again starting in Europe. A more open platform, where users are not charged extra every time they use the service, begins to look much more like the traditional internet. It makes sense for Google to try to nudge the industry faster down this road.

This, though, will only ever be a small part of the answer. Politicking and grand strategising were not the skills that first made Google a world-beater. If it is in search of

a role model, Google should be looking to emulate Apple, not

AT&T or Microsoft.

As Apple's iPhone has shown, true innovation will do more than anything to change the rules of the game in the mobile internet. To become the sole operator to carry the iPhone, AT&T ceded an unusual degree of control of the user experience and applications on the device to Apple. If customers are prepared to line up in the streets to buy your product, you stand a much better chance of calling the shots.

So far, no mobile internet service has achieved anything like this pulling power.

Memo to Google: do not get wrapped up with lobbying and the grand strategies. For the next six months, why not suspend the famous "20 per cent time" that lets all your engineers spend a day a week on their pet projects, and focus all that extra effort instead on building the killer applications of the mobile internet? Now that is something that could really make the world a better place.