Google shoots itself in the foot in mobile

I wish I knew the inside story on Google's recent confrontation with the Chinese government. At first Google's announcement looked like a principled, well thought-out stand in a long behind-the-scenes dispute (link). But as more details have emerged, it has started to look as if Google didn't think through the consequences outside of its core search business. In the mobile market, those consequences could be significant. Here's why...

Google's Android OS has been gaining enormous support among mobile operators and handset vendors because it was viewed as the most feasible alternative to total domination by Apple. All of the other OS options had nasty baggage -- Microsoft was viewed as both controlling and unable to create demand, Symbian was seen as Nokia's pet, and the other flavors of Linux were all below critical mass.

In contrast, Google seemed technically competent, vendor-neutral, and capable of attracting users. (By the way, it says something about Apple's growing power in the mobile industry that a company as controlling as Google was seen as the safe partner; it's kind of like cozying up to a kodiak bear to escape a tiger.)

Google's dispute in China damages its image as a safe partner. A phone announcement in China involving Motorola, Samsung, and China Unicom has now been delayed because of the dispute, and it's not clear when it will be rescheduled. The public story on the delay is that Google demanded it (link), but I'm not sure I believe that. China Unicom is basically owned by the Chinese government, and I wouldn't be surprised if the delay was forced by them as a way to punish Google.

Either way, picture how this must feel to Motorola and Samsung. They have nothing to do with the dispute, but now they're trapped between Google and the Chinese government. That wouldn't be a big deal if we were talking about, say, the Cambodian phone market (no offense, Cambodia), but Samsung and Motorola both view China as a critical growth market. They can't afford to be pushed out of it.

Even aside from the political fears, real economic damage has already been done. Google's actions have delayed the imminent release of some major licensees' devices. Unless you have worked in a handset company, it's hard to understand how utterly unacceptable that is to them. Product launches are planned many months in advance, and are coordinated down to the day. Samsung and Motorola both have phone inventory waiting to be sold. There's cash tied up in that inventory, salespeople can't make their quotas, advertising was probably planned that now has to be rescheduled at additional cost, and so on. Plus, both companies now lose ground to competitors selling other devices. Most phones have a short lifetime anyway, so sales lost now probably can't be made up later. If you were a Motorola employee and you caused that sort of disruption, you'd probably get fired. But Motorola can't fire its OS supplier.

At least not immediately.

Because of problems like this, Google is now talking hopefully about retaining its business unit in China even if it closes down its search engine there (link). That raises the question of why Google threatened to completely pull out of China in the first place. If I were an official in the Chinese government, I'd view this flip-flop as a sign of vulnerability, and would be tempted to systematically go after targets like Android in an effort to put more pressure on Google. But for the moment the government appears to be moving cautiously, perhaps to avoid creating sympathy for Google.

Maybe in a week Google and the Chinese government will have come up with a neat, face-saving resolution to the whole problem. But even in that best-case scenario, Google's image as a supplier to the mobile industry has been damaged. The company has shown that its search business is more important to it (and more top-of-mind) than its mobile OS. Mobile operators outside of China won't care about this, but the handset vendors will. Some of them are based in China, and almost all manufacture there and sell into that market. Who's to say that Google won't end up in another dispute in China in another year? Add in Google's decision to start making its own phones in competition with licensees, and it now looks like a much less reliable OS supplier than it was six months ago.

To a Chinese phone company, relying on Android must now feel extremely uncomfortable. I bet Samsung went ballistic in private; it is completely intolerant of a supplier who's interested in anything other than making Samsung rich. I'd expect Samsung to put more emphasis on its other OS options in the future. And somewhere at Motorola, a harried executive is probably rolling his or her eyes and starting work on evaluating alternative smartphone operating systems, yet again.

The question is what alternative they'd choose. There's speculation that the LiMO alliance may be strengthened (link), and I could picture Chinese officials eventually trying to create a home-grown OS standard, just as they did in 3G (link). But the most straightforward alternative is Symbian, and I suspect it may get a quiet second look in many places -- although for the handset companies, that would feel like fleeing a tiger and a bear in order to hug an anaconda.

16 comments:

Mark Wilcox said...

By competing against its partners with the Nexus One, and then shafting them in China, Google seems to have taken a shotgun and unloaded one barrel into each foot.

Symbian's governance is genuinely independent, it's just that most of the code is still developed by Nokia.

However, Nokia handed over development of a couple of the packages to another company last week and I'm sure they'd happily do the same with other OEMs if they were willing to take them on.

Anonymous said...

It could happen to anybody who is doing business in China. Not just Google.

Laowai said...

I agree with your analysis of the consequences, but to understand the bigger picture one needs to go further and consider WHY did Google do their retreat from PRC market in such a rude way? Samsung's & Motorola's postponed/canceled products are just "collateral damage" in that game. What did Google gain from openly blaming Chinese for these attacks? Why did Google just close their offices in normal, non-offensive way. Google burned all the bridges behind with their attack. There is zero chance to get any kind of agreement with Chinese government after insulting them so badly. The Chinese government will revenge. The revenge may come right away, but it will come.

Google decided to retreat from PRC for business reasons, but they chose the rude way of the retreat for two reasons; to buy 1) goodwill among the US government and protection against monopoly charges in the US and 2) to buy goodwill among consumers around the world.

It is good to remember who was among the first ones to join the choir of human rights and free access to information; Hillary Clinton - US Secretary of State.

Troy Peterson said...

This is a good article, but it can't be said that this is a political statement OR a business issue it's both.

AS for Nokia and Samsung not being involved, they are doing business in China with Google.

When they came for the pornographers I did not protest because I wasn't a pornographer.

When they came for the Chinese dissedents emails, I did not protest because I was not a Chinese dissident.

When they came for my Google Phone...

Troy Peterson
CEO Nibipedia.com

Avi said...

Really, Symbian? In the wake of the Nexus One and Google/China spat I'm seeing a lot more interest in WinMo. But this is really MSFT's last chance. If 7 doesn't get both dev's and consumers excited, it's going to be in crossed off the list.

Anonymous said...

and I kept wondering why Samsung was making such a big deal about Bada....

Michael Mace said...

Mark wrote:

>>Symbian's governance is genuinely independent, it's just that most of the code is still developed by Nokia.

Understood; that's why I said Symbian is "seen as" Nokia's pet.

Symbian is in a weird spot. Either Nokia loves them, in which case it is seen as too powerful an influence over the OS; or the fear is that Nokia is about to drop them for Maemo. Either way a licensee gets uncomfortable.


Anonymous wrote:

>>It could happen to anybody who is doing business in China. Not just Google.

Yes and no. The hacking and arbitrary political behavior can (and do) happen to anyone. That's scary, especially for smaller companies that rely on consistently-enforced laws in order to operate overseas.

But the deliberate, public confrontation with the Chinese government is a unique choice made by Google. As for how that'll play in China, let's go to the next comment...


Laowai wrote:

>>What did Google gain from openly blaming Chinese for these attacks? Why did Google just close their offices in normal, non-offensive way. Google burned all the bridges behind with their attack. There is zero chance to get any kind of agreement with Chinese government after insulting them so badly. The Chinese government will revenge. The revenge may come right away, but it will come.

I fear you are completely right. There are many subtler ways Google could have chosen to handle this thing. Either they are inept, or they lost their temper, or they deliberately chose to create a confrontation. I think it's mostly 3, mixed with some 1.


>>Google decided to retreat from PRC for business reasons, but they chose the rude way of the retreat for two reasons; to buy 1) goodwill among the US government and protection against monopoly charges in the US and 2) to buy goodwill among consumers around the world.

Maybe, but I am not sure those were Google's only, or main, motivations. I think it may have wanted to trigger a political conflict over web censorship between the US and China. The thinking may have been something like, "if we can't do business the way we want to in China, we'll make it hard for anyone else to do it either."

We need to think about the politics of this not just in China, but in the US as well. The Obama administration cherishes its ties with tech companies (they did a huge amount of fundraising here before the election). They're worried about the upcoming midterm elections, and the Republicans are already beating the drum that the administration is wimpy. Google created a situation in which the US government is almost obligated to make a political stand in their defense.

The NY Times says that both countries are trying to step softly and avoid politicizing the dispute, but I'm not sure that will be possible.

Anyway, if you were running a handset company, would you want to step into the middle of that?

Michael Mace said...

Troy wrote:

>>When they came for the Chinese dissedents emails, I did not protest because I was not a Chinese dissident.

Yikes, I can see how this is going to play out in the blogosphere -- imperialists vs. Nazis.

I agree with the moral message behind your comment, Troy.

At the same time...China is not Nazi Germany, and the US is not the British Empire. Looking broadly at the US-China relationship, the two countries are going to need to learn how to live together. Neither one can wish the other away, or magically change the other's political system. That doesn't mean anyone should abandon their values, but we have to find ways to prevent conflicts from getting out of control. It's going to be a very difficult process because there are huge cultural, political, and economic disconnects between the two countries. Those latent disputes could easily take on a life of their own. It would be incredibly damaging and dangerous to both countries if we ended up with another cold war.


Avi wrote:

>>In the wake of the Nexus One and Google/China spat I'm seeing a lot more interest in WinMo.

Interesting.


>>But this is really MSFT's last chance.

I don't believe that. If you have a strong brand and enough money, people always give you another chance. But the odds against them get longer every time they do a restart.

And the rumors about WInMo 7 sound like a huge reset -- do you think they'll really break compatibility with every existing app?


Anonymous wrote:

>> and I kept wondering why Samsung was making such a big deal about Bada

They must feel like geniuses right now for doing that.

Michael Mace said...

By the way, there was a good comment on a Russian-language blog that I thought deserved repeating (link). If I am decoding the machine translation correctly, the author pointed out that I was assuming the Chinese government is a monolith, when in fact it is a vast bureaucracy with sometimes very loose ties between various departments. So I should not assume that there would be a coordinated response to Google so quickly.

I think that's an excellent point, and I'm kind of embarrassed I didn't think it through.

Anonymous said...

Yeah but couldn't Google pipe the service to China through satellite VoIP and circumvent it at some point, or something along this line?

Everything's heading that direction anyway....

Skay said...

this is a very foolish and amateurish article. Google has just said it will withdraw and NOT censor it search website (so essentially China has to block the search portal) but it NEVER said it won't support Android OS

Steven said...

the issue is not only about Google, but everyone doing business in China. however, Google is so far the only one who is brave enough to stand up and talk about it openly!

you should notice that after criticizing Google for porn, the Chinese government media is now targeting on Baidu, a Chinese brand search engine.

for companies like Nokia or others, their business has little to do with censorship related issues (at least now), but Google does. so how can companies like Google do his business well in China?

Scott said...

Perhaps they knew exactly what they were doing (although you never really know the potential extent of the reaction) and ultimately could not care less if their business in China is hurt or two OEMs that have been left behind get mad and terminate agreements.

Michael Mace said...

Great comments, folks! Keep it up.


Anonymous wrote:

>>Yeah but couldn't Google pipe the service to China through satellite VoIP and circumvent it at some point, or something along this line?

I don't know what the technical details would be, but for search I think the issue would be whether they can operate unblocked inside the Great Firewall. Also, Chinese companies might be reluctant to advertise on a site the government disapproves of.

For other mobile services, I think it would depend on the exact architecture of the app. But it would be hard to make anything work reliably if the Chinese government really decided to mess with it. This is exactly why it seems strange that Google went out of its way to insult the government.


Skay wrote:

>>Google has just said it will withdraw and NOT censor it search website (so essentially China has to block the search portal) but it NEVER said it won't support Android OS

I think the issue is that Google's actions had the effect of messing up the mobile licensees' businesses. What counts is the results, not the words.


Steven wrote:

>>the issue is not only about Google, but everyone doing business in China. however, Google is so far the only one who is brave enough to stand up and talk about it openly!

That is indeed a huge underlying issue, and it deserves a whole book on the subject.

To me, the recent situation with World of Warcraft is even more troubling than the Google situation. Here was a company doing its best to comply with the rules (as far as I can tell), and it still got messed up. But Mrs. Clinton didn't give a speech about that.

When speaking with Chinese businesspeople, the consistent story you get is that you have to comply with the laws in China, but you also need as many local connections as you can make in order to avoid trouble. For a small or even midsize foreign company, that is extremely difficult to do. The more successful you get, the more you may run into trouble.

It is a very, very serious problem for outside businesses in China, and a big asymmetry -- there are not the same barriers to a Chinese company doing business in the US or Europe.


Scott wrote:

>>Perhaps they knew exactly what they were doing (although you never really know the potential extent of the reaction) and ultimately could not care less if their business in China is hurt or two OEMs that have been left behind get mad and terminate agreements.

Could be, but if that's the case I think you'd be reckless to license mobile software from Google if you want to do any business in China.

CEO said...

no other company in the whole world, past and present, can do what Google did -- confront a big profitable market (China), for its believes. No other company can do that. I'm sure Google understand's the consequences of such decision -- timing is important, and time is on Google's side *today* (as Google is strong and can do what they did). Other's are begging for business. So, I think Google did a calculated decision (that can go wrong, yes), but the time to put such stake in the ground is today and tomorrow might not be possible any longer. It is a love/hate relationship all around between Google and the ecosystem built around them...

ceo

rubbi said...

With google vs china the winner is baidu.com which is been alternative search engine that replace google search in mobile, its been anounce by motorola that they will using baidu.com for option to there users