So here is the kicker. Android, as well as Chrome and Chrome OS for that matter, are not “products” in the classic business sense. They have no plan to become their own “economic castles.” Rather they are very expensive and very aggressive “moats,” funded by the height and magnitude of Google’s castle. Google’s aim is defensive not offensive. They are not trying to make a profit on Android or Chrome. They want to take any layer that lives between themselves and the consumer and make it free (or even less than free). Because these layers are basically software products with no variable costs, this is a very viable defensive strategy. In essence, they are not just building a moat; Google is also scorching the earth for 250 miles around the outside of the castle to ensure no one can approach it. And best I can tell, they are doing a damn good job of it.
With Android, they are not building a business, they are building a moat.
Google has organized this defensive play with precision. Carriers and handset makers that use Android are given economics to do so. The Android version of the “AppStore” shares the majority of its economics with the carrier and handset makers. Once again, they are not building a business, they are building a moat (sorry for the repetitiveness, it’s intentional). Because they are “giving away” money to use their product, this creates a rather substantial conundrum for someone trying to extract economic rent for a competitive product in the same market.
This is the part that amazes me the most. I don’t know if a large organized industry has ever faced this fierce a form of competition – someone who is not trying to “win” in the classic sense. They want market share, but they don’t need economics. Imagine if Ford were faced with GM paying people to take Chevrolets? How many would they be able to sell? What if you received $0.10 for every free Pepsi you consumed? Would you still pay $1.50 for a Coke?