“Our vision is that the powerful platform we're unveiling will power thousands of different phone models” – Eric Schmidt, Executive Chairman, Alphabet Inc.
After reading ‘Bringing Science to the Art of Strategy’ I could draw parallels to Google’s emergence in the smartphone industry and how it formed the Open Handset Alliance to overthrow Apple. Let’s see how the strategy played through in 2008..
Imagine Google at a crossroad - down one path, they could continue being the market leader in the search engine industry. And on the other hand, they had the choice to leverage the upcoming smartphone industry and become a potential threat to the incumbent, Apple.
Google took a step-by-step approach to form possibilities of what they could achieve five years down the line. They had a clear idea that if they continued to exploit the search engine industry, they could reach a dead end soon. They needed to incorporate new innovations and embed the search engine into devices to expand their profitability and market reach. On the flip side, the second possibility had various conditions associated with it:
Segmentation: A large number of customers who want high-quality phones at an affordable cost.
Structure: The target segments will be more attractive than the current search engine segment. More the number of people who use the phones, more people will use Google’s search engine from their phone. This brings in the concept of platform envelopment; marketing all Google products together to form an ecosystem.
Channel: Retailers will value the low price that the phone is selling for and the high quality that they deliver. These phones will bring in a lot of revenue and help retailers embrace this option.
Consumers: Customers will value a range of products that will help cater to different reservation prices. The functionalities and experience will vary according to the price.
Business Model Analysis
Capabilities: Instead of building the OS from scratch, Google can acquire a pre-existing OS company and form strong partnerships with existing telecom networks, handset and chipset manufacturers. This will help them create a strong partnership with potential competitors, and deter their future entry into the market.
Costs: Google can leverage their existing search engine and incorporate their major revenue streams, AdWords and AdSense, into the phones so that they can sell it at an affordable price without compromising on quality.
Predictions: Their phones will begin by focusing on only the mainstream customers who value high quality and affordable smartphones. This will not directly compete with Apple, since their target customers are not the same. Other competitors might vie for this position, but will find it hard to pursue due to the cost associated.
After assessing the validity of the strategy, Google saw that the condition that they had the least confidence in was the Business Model Capabilities. But the partners showed confidence in the ‘Open source OS’ strategy and embraced the changing market. And thus the Open Handset Alliance was formed, with 32 members from the software, handset, chip and telecom industry – giving birth to Android. As part of its efforts to promote a unified Android platform, OHA members are contractually forbidden from producing devices that are based on incompatible forks of Android OHA licensing agreement.
In the year 2015, Android held 80% of the smartphone market share, proof that their strategy was executed perfectly. Furthermore, Google signed a deal with Apple through which it provided Google maps and Google Search as the defaults in Apple products. Google actually earned four times as much from this deal with Apple than from Android! Is the coopetition (competition + cooperation) going too far though?