Saturday, September 3, 2022

To turn Android's decline around, Google should negotiate with Epic Games and the EU--and generally treat app developers as strategic allies, not adversaries: the failure of fauxpenness

If smartphones could vote instead of the people using them--a prospect I joked about in light of a "human rights" motion Apple brought in Colombia--Tim Cook would become the 47th President of the United States. In recent months, Apple overtook the aggregate of all Android devices in terms of active U.S. smartphone usage, as Counterpoint Research report (as reported by the Financial Times and Barrons).

Almost ten years have passed now since a Wall Street Journal article that asked in its headline: Has Apple Lost Its Cool to Samsung?

There hasn't been a landslide lately: for several years in a row, iOS has gained U.S. market share at Android's expense.

The bold, visionary, and entpreneurial Google of 15 or 20 years ago wouldn't have let that happen, at least not without a fight. Today's Google is a shadow of its former self in some respects. To revitalize Android, Google must stop being just Apple's junior partner in the "Goopple" duopoly and think different--different than Apple, but much more like the amazing Google that it used to be.

It's not that Google isn't aware of the problem it has: its #GetTheMessage campaign is transparently self-serving and in the public interest at the same time. It is a sign of desperation over Android's endlessly dwindling U.S. market share.

But what Google doesn't seem to have realized is that

  • faced with the choice between overtly closed (Apple prides itself on its heavy-handedness and walled garden) and fauxpen (pretending to be open), users in the U.S. and some other markets clearly prefer the former over the latter; and, therefore,

  • the answer is not to be more fauxpen, but to make bold moves in order to depart from a failing strategy.

By "fauxpen" I don't mean to say Android isn't more open than iOS: but it's only marginally more open. For me, that gradual difference was enough of a reason to remigrate to Android last year. But the market at large doesn't seem to decide on that basis.

If Google wants to regain momentum for Android, it needs to solve a hardware problem and seize an opportunity on the software side: to become developers' friend again.

First, the part that I--perhaps subjectively--consider most important: app developers.

Google is still acting too much like Apple. Just yesterday, Google announced the extension of its third-party billing system pilot to India, Australia, Indonesia, and Japan. I've criticized that kind of fauxpenness on other occasions: in connection with a European announcement (that still doesn't seem to dissuade DG COMP from its preliminary--and soon probably formal--investigations), the Korean situation, and Google's recent public reaction to a Match Group lawsuit (by the way, Google's counterclaims against the Tinder company have not been dismissed at this early stage because Match Group made arguments that went beyond the content of Google's pleadings).

I do understand that Google needs to make money with Android, but there are--and could be--other ways than the app tax. The problem with the app tax is not just the cost to developers, but that it forces Google to rule its ecosystem with an iron fist, almost like Apple.

Google should change its Android business model, focus more on direct revenues from device makers (and on selling its own devices), and above all, create a situation in which the app developer community will have a strong incentive to promote and strengthen Android against iOS.

While there are more apps on Android than on iOS, the fact that the billion iPhone users worldwide are essentially the world's richest billion people means that app developers with commercial ambitions need to be on both platforms. Cross-platform development tools like Unity and Xamarin are ever more popular.

Google couldn't dissuade anyone from developing for iOS, or persuade anyone to make the Android version of a given app functionally superior over the iOS version.

But Google could open up--which should even include allowing an Android version of the Epic Games Store, for instance--and greatly improve revenues opportunities. Apple destroyed the iOS ad business with App Tracking Transparency, and Android got affected because of budgets shifting. For many types of apps, ad revenues are still an interesting revenue opportunity, and Android could also reduce user acquisition costs. In fact, having alternative app stores like an Epic Games Store compete with each other could create opportunities for developers and improve app discoverability.

With Google eliminating the app tax on Android--I really think it should be no problem to just make that money through license fees collected from OEMs--app developers would be able to offer substantially lower IAP prices on Android while still having better margins there. As a result, app developers would be interested in motivating end users to use the Android rather than iOS versions of their (functionally identical) apps. While I don't think highly of the anti-anti-steering consolation prize that the district court handed Epic in its fundamentally flawed decision, it's a fact that Apple couldn't easily prevent app developers and Google--especially if they did it together--from promoting lower IAP prices to consumers--possibly even within iOS apps.

As things stand today, Apple benefits from App Tracking Transparency in multiple ways. It totally overstates the consumer benefits (in reality, consumers are harmed because of money being sucked out of the app developer ecosystem) and consumers buy it; it harmed other Big Tech players, particularly Meta/Facebook; it forced iOS app developers to focus more on the revenues that Apple can tax; and now Apple basically owns the fastest-growing large advertising business itself.

It's Google's turn to make a bold move. To come up with a game changer. Originally, developers were interested in Android because of Google's openness at the time. Google was cool, geeky, nerdy. Today's Google isn't like that. But the company could go in that direction. The #GetTheMessage campaign raises a valid concern, but is not going to solve the more fundamental problem that Google has in the U.S. market even if Apple adopted an open standard (which appears unlikely right now, except maybe in jurisdictions that force it to do so through legislative measures, but then they could still block access via any open protocol in the U.S.).

At the moment, developers are caught between a rock and a hard place when looking at how Apple and Google are treating them. Android should become developers' sweet spot.

Would it take quite some courage for Google to be the anti-Apple, to be truly open again, and to be developers' ally rather than adversary? To charge device makers rather than app developers? Absolutely. Would it make Google uncomfortable that promoting openness could make it harder to maintain the search engine monopoly? Yes, but Google itself always says competition is just one click away, and with every percent of market share that Apple gains at Android's expense, Apple can significantly increase the amount it demands from Google for being the default search engine on iOS.

Android was a moonshot. Opening up would be a bold move, but not a long shot. If done right, it would definitely work.

Imagine what it would mean if Google settled with Epic Games, with Match Group, and with others. The collective power of the developer ecosystem is huge:

Fauxpen Google < Closed Apple

Open Google + Developer Allies >> Evil Apple

Now, the hardware problem, which is in no small part a geopolitical one. Simply put, Chinese companies are nowhere to be seen in the U.S. and the only major non-Chinese Android smartphone maker left is Samsung. I still have great respect for the quality of Samsung's products, but that one company is not enough to stop the erosion of Android's market share in the U.S. and some other places. Other than Samsung, there's just Google with its Pixel brand (which I really like a lot). Things are going to get worse with the Biden Administration now even contemplating an executive order against U.S. investment in China.

I don't want to take a strong and definitive position on the hardware aspect of this, as I'm naturally more interested in what all of this means for app developers. So, without having thought this through, I believe Google should consider one or more of the following options:

  • Put even more muscle behind the Pixel. Make it a much better product than the iPhone in more people's eyes.

  • Talk to the European Commission (yes, the same Commission on whose Google Android antitrust decision the EU General Court will pass judgment this month). The EU is now very much concerned with digital sovereignty, but none of the world's leading smartphone makers is based there anymore. Maybe HMD (the licensee to Nokia's brand, and a company in which Google--like Qualcomm--made a defensive investment) is a good starting point.

  • The most important company in terms of U.S. wireless innovation is Qualcomm. But it's not so much of a consumer brand, and it would obviously be a very difficult decision for Qualcomm to compete with its own customers. Maybe some solution could still be found to harness the strength of Qualcomm's innovation pedigree and undisputed Americanness as an alternative to Apple. The "Intel inside" of wireless devices.