

Ask HN: How does Google make money off of Android? - kaptain

I've been combing the internets, trying to figure out how Google makes money off of Android. There was an older question [http://news.ycombinator.com/item?id=1600408] that sort of addressed this question, but the answer is basically: "It is making money off of 'search'."<p>I don't understand <i>how</i> it's making money off of search and what prevents Google's competitors from removing that from the source and forking their own version of Android.<p>Since Android doesn't have GoogleAds popping-up all over the place (I'm assuming it doesn't since I don't own an Android phone), how is this better than trying to make the best search engine so that every mobile device will use Google as its search engine? That way they don't have to waste resources on developing/maintaining a complex software stack.<p>I feel like the answer is very obvious but I'm completely missing something.
======
uptown
Your question reminds me of this quote from the movie Sneakers:

"There's a war out there, old friend. A world war. And it's not about who's
got the most bullets. It's about who controls the information. What we see and
hear, how we work, what we think... it's all about the information!"

When you boil Google down to its most-basic form, it a company in advertising
business. In order to present their users with the most relevent ads (which
theoretically will be more likely to be clicked-on) they need to build a
profile of their users. In order to build this profile they need to get people
to use as many of their services as possible, and the phone is just another
component of that. The phone also reinforces people's dependence on their
other services. So while you may not see an ad when using GMail on your phone,
you're likely to use the desktop version of GMail as well, which means you'll
see ads there. Same goes for search, as well as the other services that are
linked through Android.

If you think about what information they have about somebody using their
services (Search, GMail, Voice, Reader, Blogger, Maps, Shopper, Books,
Finance, YouTube, News, Picasa, etc.) adding mobile to that set of data is the
obvious next-step to ensure they know as much about their users as possible.
It's all about the information, and who controls it.

~~~
kaptain
> _If you think about what information they have about somebody using their
> services (Search, GMail, Voice, Reader, Blogger, Maps, Shopper, Books,
> Finance, YouTube, News, Picasa, etc.) adding mobile to that set of data is
> the obvious next-step to ensure they know as much about their users as
> possible. It's all about the information, and who controls it._

For these services, Google can't be dislodged because another entity can't
come in and grab the code that harvests that information. But I don't think
that's the case for Android; someone could rewrite the code so that Google
doesn't get this information.

In reading some comments, I get the feeling that people think we are debating
the technical merits of Android. The question really is: How much does Google
make/lose because it is developing Android? The fact that your would-be
competitors can prevent you from gathering user information (which was the
very reason for the creation of this project) doesn't make sense. This is one
business strike against developing Android.

In this article: <http://techcrunch.com/2010/10/15/google-android-money/>
there's an interesting quote:

> _Schmidt called Android “probably the largest single platform play in the
> market today.” And going forward, he thinks that’s only going to increase as
> more and more people buy smartphones. At the same time, “in the open source
> approach, that means we give the software away, which is always paradoxical.
> People say, well how do you make money from that?,” Schmidt was quick to
> jump to. “The evidence we have is that people who use Android search twice
> as much as everything else,” Schmidt continued. “So, clearly, there is more
> revenue associated with those searches.”_

But Eric Schmidt is NOT saying that they are making twice as much money off of
people who use Android. And there's also no data to measure how much people
would be searching if Android didn't exist. Do people who use WebOS search
twice as much as everything else? What about people that use iOS? What about
people that use Symbian? Etc. If people would have searched twice as
everything else on other platforms, then that takes away a lot of the business
justification for Android: Google would have gotten their doubled-search
without doing anything. This is another business strike.

~~~
uptown
If "everything else" is being compared to desktop searching, then I'd wager
that at least part of the increased search count can be attributed to the fact
that mobile keyboards are imperfect input devices. On my phone I tend to
perform searches with fewer keywords, resulting in a less-perfect result-set
... which sometimes necessitates a second or third search.

------
mechanical_fish
_what prevents Google's competitors from removing that from the source and
forking their own version of Android_

On one level, nothing, and my understanding (at the level of hearsay) is that
some Chinese firms have done just that.

On another level: What kind of lousy smartphone doesn't have Google? To the
extent that people will use their phones to use Google, it doesn't matter if
the phones _officially_ support Google.

Finally, remember that in open source software the people who _don't_ pay you
don't matter, except as a source of goodwill and publicity (or, alternatively,
a source of noise and complaints; the quality of your community is important).
What matters is that enough people _do_ pay you to cover and justify the
costs.

 _how is this better than trying to make the best search engine so that every
mobile device will use Google...?_

That is a good question. The answer three years ago was "to the extent that
the number of smartphones in use worldwide is lower than the _potential_
number of smartphones that _could_ be in use if they were more ubiquitous and
cheap, Google is losing money, so it is in their best interest to make Google-
capable phones as ubiquitous and cheap as possible." And that is still the
answer today. The question, though, is: In the future, once the market for
Google-capable phones is fully saturated, don't Google's incentives get
smaller?

My guess is that, in the end [1], Google's incentives to throw resources at
Android _will_ be smaller, but of course Android will also be a middle-aged
project by then, and probably substantially complete and less in need of
constant engineering, and hopefully with an open-source community that can
help with its maintenance.

\---

[1] Beautiful weasel words, these. It's pretty much guaranteed that Google
won't support Android forever, just as Apple no longer supports ProDOS and
Microsoft no longer supports Windows 1.0. The question is whether _forever_ is
measured in months or decades.

------
Tycho
They're worried that if others control the sector, then they might start
building their own advertising platforms (or change the dominant revenue model
to something else entirely) and cut Google out of the game. It's a preemptive
strike, primarily against Apple. Bit like Microsoft's costly entrance into the
home console market, just to ensure Sony didn't usurp the Windows/PC platform
by providing equivalent services via Playstation.

Edit: they've probably also boosted their overall revenue in the short term
because not everyone can afford an iPhone and the other vendors were so far
behind iPhone OS, ads on their platforms weren't worth as much.

------
danielamitay
Answering the question "how does Google make money off of..." (regarding any
of it's projects) can usually be answered by saying that Google has a vested
interest in getting users to spend more time on the internet. For every hour
that you are on the internet, you're probably using Google a few times.

This is how you can also answer "how does Google make money off of self-
driving cars?" If people aren't driving their cars, they'll most likely be on
the internet during their commute. If they are on the internet, they are
probably using Google.

That said, Android provides a number of benefits to Google. Namely brand
recognition, user interface research, and user GPS data. Ultimately though,
the introduction of Android as a cheaper alternative to iOS and a more
flexible alternative to BlackBerry probably contributed to smartphone sales
much larger than the actual sales of Android devices (meaning: having an
additional smartphone stimulated the demand for smartphones themselves).

TL;DR: The open-source nature of Android encourages increased smartphone
production and consumption, thereby increasing consumer usage of the internet,
and by default, Google.

------
wisty
Better smartphones = more browsing = more google traffic.

Before the first iPhone came out, most people only used their mobile phones to
browse the net if they were desperate. Mobile browsers (except Opera) sucked.
Only high-end phones had Opera.

Android makes smartphones better and cheaper, so more people will buy them. It
makes mobile browsing better, so more people browse the web. This all drives
traffic to google.

~~~
kaptain
_Better smartphones = more browsing = more google traffic._

 _Android makes smartphones better and cheaper_

Android might make smartphones better but it doesn't make better smartphones;
that's up to the phone manufacturers. When we say 'better' what do we mean by
that? Better than what? Right now, the mobile OS's that are in this
conversation are: iOS and Android (and maybe RIM's OS and webOS).

If an iPhone is a better smartphone because it encourages more browsing [1]
why go through the trouble of writing your own OS AND writing your own OS in a
way that your competitors could backstab you?

\-----

[1] I haven't done any research on this. I think it's fair to say that the iOS
is a relatively decent smartphone that encourages web browsing. I'm sure
there's data to point to the iPhone increasing web browsing.

~~~
cryptoz
> If an iPhone is a better smartphone because it encourages more browsing [1]
> why go through the trouble of writing your own OS AND writing your own OS in
> a way that your competitors could backstab you?

What a loaded question. First, Google pays Apple something like a few hundred
million dollars per year to be the default search engine. With Android, that's
money saved. A _lot_ of money saved. Second, I've got no idea what you're
talking about with the backstabbing. Hhuh? Are you somehow insinuating that
open source software invites backstabbing?

Edit: For the Apple part, it's also security. What if MS or Yahoo ponies up a
billion dollars per year? Then what? Since mobile is growing so rapidly,
Google can't afford to be so easily shut out.

~~~
kaptain
> _What a loaded question._

Whoa. Let's rephrase the question then. The parent defined better smartphone
as better browsing. Let's replace iPhone with Palm Pre (or something else
other than an Android phone). My point isn't that the iPhone is better than
the Android, my point is that I don't understand the incentive to create a
smartphone that browses better than a standard phone when other companies will
do it for you.

> _First, Google pays Apple something like a few hundred million dollars per
> year to be the default search engine._

I'm not sure where you got this number. The closest number to this is here:
[http://www.tomsguide.com/us/Google-Apple-Search-iPhone-
Bing,...](http://www.tomsguide.com/us/Google-Apple-Search-iPhone-
Bing,news-5818.html) and that's not even a quote. This is just speculation
anyways. The best place to look is here: <http://www.apple.com/investor/> and
analyze the reported data to see where this number might be hidden.

But let's suppose that Google didn't pay this money. Do you think that all the
iPhone users would not use Google? I think that Apple would have eventually
folded and just made Google the default engine, or made none of the search
engines default and allowed the user to select the one they wanted. Google is
clearly the search leader and it's not clear to me that Apple would wipe every
trace of Google off of its phone.

> _Second, I've got no idea what you're talking about with the backstabbing.
> Hhuh? Are you somehow insinuating that open source software invites
> backstabbing?_

Nope. Sounds like I pushed a button here; didn't mean to. I'm saying that
phone manufacturers could take advantage of the Google's investment in Android
by thwarting the business purpose for Android by partnering with another
search engine to fulfill the search needs for their users.

I'm not debating the merits of Android or open source. I don't understand how
having it makes more money than not having it.

~~~
Travis
>"My point isn't that the iPhone is better than the Android, my point is that
I don't understand the incentive to create a smartphone that browses better
than a standard phone when other companies will do it for you."

Sure, companies have tried to build their own OS. They absolutely sucked. I
suspect that Google understood what it took to build a mobile OS that enabled
easier search. And they got so fed up by the horrid interfaces of the OEMs
(seriously, remember how terrible every single one of them was?) that they
jumpstarted the process.

Better mobile OS = better adoption, more searched per handset. More revenue.

You can either try to take a bigger piece of the pie, or make the pie bigger.
Google's strategy is to make the pie bigger (and with their top of mind
branding, they also get the biggest slice). Combine that with the phone
manufacturers' stunning incompetence in building a decent interface, and you
have the perfect situation for google to build android.

The less generous side of me also realizes that google understood that the OS
developer had great control over the handsets (defaults are a very powerful
force). And if a competitor (say, Nokia) were to get huge adoption of a phone
OS, they would naturally be drawn to build their own ad system. Just look at
how Apple did with the iOS apps.

------
petervandijck
<http://techcrunch.com/2010/10/15/google-android-money/> "the annualized run
rate on mobile for Google is now one billion dollars" -> that's the money they
make of people searching on mobile (not just Android though) and clicking on
ads.

If they control the platform, then it's much more likely that their search
engine will run on it, and that they will make money of ads in that way.

~~~
Tyrannosaurs
That number is interesting but it's not 100% clear how significant.

The number is the amount of additional search revenue Google are getting from
mobile. That's not from Android, that's from mobile.

This will break into three categories:

1) Searches which were made on Android but where, if Android hadn't ever
existed, the user would have had another mobile device and made the same
search anyway. These are searches which are more lucrative for Google (because
Apple or whoever aren't getting a cut) because of Android but where some value
would still have existed.

2) Searches which were made on Android where, if Android didn't exist, the
user wouldn't own a smart phone and the search would never have happened.
These are the biggest contribution (per search) as it's revenue where Google
are taking a large share and no revenue would otherwise have existed, however
it's not clear how many there are. On one hand you could argue that almost
everyone who bought an Android phone would probably have bought another smart
phone (I personally don't think open source purists are a massive market
share) but on the other hand there is a very real case that Android and it's
battle with Apple has raised the profile of smart phones and generated choice
which will have resulted in smart phone users who otherwise wouldn't have
bought a smart phone (yet).

3) Searches which weren't made on Android. On the surface these wouldn't seem,
as far as I can see, to actually support an argument for Android from a
financial perspective, but I'm not sure that's true, for the same reasons
outlined above (the larger general market - that is Android has driven the
smart phone market and in doing so has helped sales for all smart phone OSes)

Google probably have the data to break the number down between these
categories (at least roughly), the rest of us can only speculate, however I
think even the most conservative estimates would suggest that Android is
pulling it's weight and in all probability, then some.

~~~
kaptain
Hrm. The number quoted doesn't sound interesting because it sounds fake. $1
billion dollars sounds like something Dr. Evil would say, not a real figure
that got worked out in some SEC filing.

I like how you broke down the different categories for search revenue related
to mobile though. Let's put some phony amounts on them just for fun.

Let's begin with the assumption that Google gets $1 per mobile search. (I'm
using _mobile_ search here because that's the category of search we are
interested in.) That is, every mobile search, on average, generates $1 in
revenue.

1) _Mobile searches which were made on Android but where, if Android hadn't
ever existed, the user would have had another mobile device and made the same
search anyway._

Google loses money here because the search would have been made anyway. The
loss comes from developing Android. Let's say Google loses 10 cents. (Total BS
number!)

2) _Mobile searches which were made on Android where, if Android didn't exist,
the user wouldn't own a smart phone and the search would never have happened._

Google earns $0.9 here because they had to develop Android, but making $0.9 is
better than making $0.

3) _Mobile searches which weren't made on Android._

I feel like this goes in the same category as 1) because these are mobile
searches that would have been made anyways, regardless of the existence of
Android. The only difference is that in case 1) the search was made on
Android. But for the purpose of justifying the existence of Android, they are
one and the same. So Google loses 10 cents here because the would have gotten
this search if they had done nothing.

Clearly Google needs category 2) to be as big as possible in order to justify
the existence of Android. So the whole thing boils down to: "If Android didn't
exist, the user wouldn't buy a smartphone to do mobile search".

I feel that if Android didn't exist, users would go out and buy an iPhone or
something similar. I don't think the phone manufacturers would have just let
Apple run away with the smartphone market so it would be in their best
interest to create something competitive. But the bottom line is that Android
seems like a needless expense for Google.

~~~
Tyrannosaurs
Fake numbers are often the most interesting sort, that's why we need to look
at them closely. $1bn dollars in revenue isn't that big a deal for a company
like Google, the question is what are the associated costs and what's the
resulting profit. Many a company has come a cropper thinking about revenue
when they should be thinking about profit.

>> 1) Mobile searches which were made on Android but where, if Android hadn't
ever existed, the user would >> have had another mobile device and made the
same search anyway. > Google loses money here because the search would have
been made anyway. The loss comes from developing > Android. Let's say Google
loses 10 cents. (Total BS number!)

For non-Android OSes, Google pay Apple (or whoever) to run with Google as the
default search engine. In essence they're sharing the revenue for these
searches if they're not run on Android which is why they're more profitable
because Android exists so they do "make" money rather than lose it.

In this category Android is best seen as a mechanism for cost control - it
doesn't increase their revenue but it does reduce their outgoings.

> 3) Mobile searches which weren't made on Android. > I feel like this goes in
> the same category

I agree this is the hardest category to justify and part of me agrees with
you. The only thing that gives me pause is (a) Google and it's partners have
thrown a lot of money into advertising and PR which will likely have had some
impact on public uptake of smartphones and (b) Android has bought smartphones
in at lower price points which simple economics tell us will have expanded the
market - you can get a decent Android handset in the UK for free on a
contract, the iPhone 4 kicks off at over £300 on the same monthly deal.

> I feel that if Android didn't exist, users would go out and buy an iPhone or
> something similar. I don't think the > phone manufacturers would have just
> let Apple run away with the smartphone market so it would be in their best >
> interest to create something competitive. But the bottom line is that
> Android seems like a needless expense for > Google.

I think that's easy to assert but the attempts of RIM, Nokia, Palm, Microsoft
and others don't really back it up. RIM has a place for sure but it's not
directly in the iPhone space. The others have all tried and produced offerings
which are either technically or commercially not in the same ballpark as Apple
are managing. What makes you think any of them (or someone else - Samsung?
HTC? Morotola? Sony-Ericson? Not exactly go to companies for great software
experiences) would be capable of competing?

Frankly Android is the only mobile OS going toe to toe with Apple with any
level of success.

------
maguay
Doesn't Google charge OEMs for Android certification and for the Google core
apps (Gmail, Maps, Android Marketplace)? That's what I thought they were
making money from.

Edit: Ah, yes, the Android documentation says that they're licensed
separately:

"Android Market is only licensed to handset manufacturers shipping devices."

"The Google apps for Android, such as YouTube, Google Maps and Navigation,
Gmail, and so on are Google properties that are not part of Android, and are
licensed separately. Contact android-partnerships@google.com for inquiries
related to those apps."

\- via <http://source.android.com/faqs.html>

That still doesn't necessarily mean that they're charging for them, but I
strongly suspect they are based on that wording. Does anyone know for sure?

~~~
HelloBeautiful
Sure they are. $10 - $12 per device sold, depending on volume. In return the
manufacturer gets the right to use the trademarked 'Android' name, non-open
source apps like Market and a very good deal on Google Ads.

~~~
jrubyer
Funny, that's around the same amount MS charges for WP7! And they say WP7
can't compete with Android b'coz it's non-free.

~~~
HelloBeautiful
From what I've heard MS currently gives WP7 licenses away and offers free
support in development, testing, marketing.

------
phamilton
Google passively makes money proportional to the number of people browsing the
web. It is in Google's greatest interest for everybody to be online at all
possible times and in all places. It doesn't matter where you are, what you
are viewing. Your presence (in large numbers) converts to earnings for google,
due to their large spread of Adsense ads.

Gmail, for example, has been a highly profitable endeavor. Not because they
can serve ads, but it raised the bar for browser based email. More people are
doing email in their browser because Gmail came out, whether it's on yahoo,
hotmail, etc. Not leaving the browser increases the time spent browsing the
web, which increases pageviews on google ads.

Android is just another free product Google uses to keep you browsing the web
as much as possible.

------
brg
Google's philosophy is that the more people who use the web, the better it is
for Google. They believe that they are better than any competitor at
monetizing the web, and so will win by helping others. So the more interaction
with the web, the better it is for Google.

Keeping this in mind, a lot of Google's moves are rationalized. For instance,
free wifi at Christmas, subsidized Google TV, and the android platform.

------
_delirium
Controlling a major app store might be one motivation. Manufacturers don't
have to hook their device up to the canonical Android app store, but many do
(though some don't). The revenues are very small so far on a scale of search
revenues, but might grow.

By designing both the app store and the platform, they can also try to ensure
that their own apps are able to do what they want them to do. For example,
it's not clear they could've rolled out the app that crowdsources Google Maps
traffic data on another platform, especially a few years ago when it was
rolled out on Android ([http://googleblog.blogspot.com/2009/08/bright-side-of-
sittin...](http://googleblog.blogspot.com/2009/08/bright-side-of-sitting-in-
traffic.html)).

------
cx01
For apps sold on the Android market Google takes a 30% transaction fee, which
is split between the payment processor and the carriers. Since AFAIK Google
Checkout is the only supported payment processor, that should give them some
revenue.

------
xutopia
Google's profit come from secondary sources. If they make you use gmail and
address they're able to know what kind of ads to show you and your friends.
Increased profit is incidental for them.

------
smackfu
First class support for GMail etc. above other providers wins conversions to
GMail, then users use GMail on the desktop and are logged into Google whenever
they are surfing the web.

------
reazalun
One possibility: By the apps made by Google that are finely tailored for
Android. Example is Google Voice.

So Google can indirectly generate money off Android.

------
headhuntermdk
No one really knows outside of Google.. We are all really speculating.
Meanwhile Apple makes no bones about how much cash iOS is brings to the table

~~~
kaptain
This is the only reply that I've seen so far that makes sense to me.

------
shareme
Android Market APP via CTS for OMEs to get it they have to abide by Android
CTS and include google search.

OPhone can go different way because they provide their own Android Market and
own Android Market app.

By enforcing some mobile devices having google search google makes money back
on ads..$1 billion or more for mobile ads in 2010 and as the Google Android
engineer staff is quite small and vastly below the $1 billion revenue figure
in terms of costs.

