I keep thinking about Google and Kodak.
Mainly about how their fates may be similar. See, they have a lot on common. Kodak and Google are both epic American success stories. Both companies have used the classic “razor and blades” business model to make billions. Kodak built its business on selling inexpensive, dependable, handheld cameras, but made billions by selling film to the camera customers. Google built its business by offering -- for free -- the most trusted search on the World Wide Web, but makes billions from selling its AdWords.
Some of you are too young to know this, but Kodak was revolutionary! In 1900 Kodak introduced the Brownie camera which sold for 1 dollar andits proprietary rolled film sold for 15 cents a roll. (Trust me they made made bank on the film.) The Brownie democratized photography allowing everyone to become a photographer and making photographic technology “as convenient as the pencil.”
That was just the start for Kodak. The company would spend the rest of its life succeeding through innovation. Just a few major examples to prove this point: In 1923 Kodak offered its first consumer grade CINE-KODAK Motion Picture Camera, as well as its first consumer grade KODASCOPE Projector. The immediate popularity of these products resulted in a global network of Kodak processing laboratories to meet demand. In 1935 Kodak introduced KODACHROME, the first successful consumer color film. Because of these and other innovations it is fair to say that in many ways Kodak defined consumer grade photography as we know it.
Nearly four decades later singer songwriter Paul Simon would still be begging us not “take (his) Kodachrome away,” but I suspect that not long after this song hit #2 on Billboards Top 100 Kodak’s board of directors was already beginning to “read the writing on the wall.” In 1975 Kodak prototyped the first digital camera. In 1994 Apple would release the Apple QuickTake 100 and 150 both built by Kodak. Kodak would not release their own digital camera until 1995.
Much like Xerox, Kodak’s brief romance with Apple may have been the start of their unraveling. Less than 20 years later Kodak would exist mainly in name and patent rights only. The digital image, one of their many revolutionary inventions, put them out of business.
I think something similar might be happening with Google and their Android effort. Let’s start with what should be good news for Android. There are vastly more phones running some flavor of Android than anything else. (Here are the iPhone numbers for comparison.) This is a trend that has been going on for some time and shows no sign of stopping.
What all these people are doing with their Android phones is unclear. They are rooting and ROMing and modding them. Like everyone, they’re playing a lot of Angry Birds. The have lots of apps to choose from now. One thing is clear though they are not spending a lot of time surfing the web with them.
Know who is surfing the web via mobile devices? iOS users! The iPhone represents only 5.5 % of all mobile phone sales, but according to the online advertising network Chitika iOS represents almost 50% of all mobile web traffic. If we look at the October 2012 Net Applications numbers for browser share iOS controls 60%, while Android controls only 27% share of this market. This is another trend does not appear to be changing and tablet numbers are even worse for Android.
Who cares which device has the most web traffic? Smartphones are about so much more than just web access. Web access is so 1990s. You can do so much more with a smart phone than just surf the web. There’s maps, and apps, and mail and SMS, and Kodak’s gift of digital photography and more much more. And that’s the problem for Google.
Google stole from Apple “developed” Android because it saw that mobile web browsing was going to be huge. Google’s main revenue stream is still web based advertising, largely delivered through its search engine. Google owns search. They own it so much that the FTC keeps fining them and investigating them. They continue to own it on mobile devices, but it is a lot less profitable on mobile devices. Google search is also a lot less visible on mobile devices. On an iPhone/iPad you usually don’t even see Google’s AdWords ads. Plus, there are Apps on iOS and Android and (probably) now Microsoft’s mobile products that make use of Google’s search API that never even show you Google AdWords.
If mobile software nibbles into Google’s immediate Android goals, mobile hardware bites significantly deeper. First devices like the Kindle Fire and NOOK use their version of Android primarily to sell users Amazon or Barnes and Noble content. But then there is Samsung. Samsung banks off the Android OS! The reason that Apple and Samsung are in full on thermonuclear patent war is that they are the only big winners. Google’s Nexus line is sold at or near cost and is still not a big seller. So the biggest hardware winner from all of Google’s investment of time, energy and money isn’t Google -- it’s Samsung.
These are not insignificant investments of time, energy and money on Google’s part. Some interesting “back of the envelope” calculations suggest that Google has spent 15-20 billion dollars on Android. Google first developed Android to bring people to the web so they could sell more Ad Sense deals. Sadly, all of the above suggests that that is not happening. In fact, Google admits that its mobile advertising is “decelerating” its ad revenue.
Some have argued Google made the Android investment to ensure competition. Investing 15-20 Billion dollars to “ensure competition” that is effectively decelerating your revenue is not successful strategy. Spending 15-20 Billion dollars to create a platform which you then --give-- to Amazon and Barnes and Nobel allowing them to sell content to their customers, while simultaneously undercutting your own content deals, is not wise corporate governance. Spending 15-20 Billion dollars to create a platform which you give to Samsung so that competing corporation can make wild profits is just foolish. (Note to Samsung: where’s your App connected media store?)
You might be tempted to think; “Hey, it’s Google. What‘s a few billion?” Well, a billion here, a billion there and pretty soon -- you are talking real money. But I wonder if Android isn’t getting Google ready for its Kodak moment. Kodak was on the forefront of digital imaging. They saw it coming and decided to be the ones that made it happen. And so they did. Every time you use your smartphone to take a picture you can thank Kodak. Unfortunately, while Kodak intensely focused on developing digital imaging technology they never figured out how make that technology into a business. Kodak developed the technology that put themselves out of business.
Google obviously has a greater opportunity for income streams than Kodak ever had, and that is a good thing. Because, in the long run, I suspect Android is not going to be one of them. Personally I eagerly await Google to give me my self driving car. Hear me Google! Perfect the self driving technology, then let Apple design the car.