Why Google Is Losing Billions on Android

Yahoo Contributor Network

COMMENTARY | As Charles Arthur of The Guardian reported (and Digital Trends' Geoff Duncan clarified and explained), Google may well be making four times as much money from ad impressions on Apple's iOS devices than on gadgets running its own open-source Android operating system ... or roughly $2 billion to roughly $500 million per year, respectively.

Worse than that, though, is the ratio of Google's earnings from Android to how much it's spent on it. Google is spending $12.5 billion to acquire Android device manufacturer Motorola Mobility, probably its largest single expense to date as part of its Android strategy. Even if we round that down to the nearest $10 billion, forget all the other resources that Google has put into Android, and pretend that Motorola is actually making (as opposed to losing) money, that's still a 20 to 1 ratio between expenses and income.

Why is Google letting this happen? We can break this down into two questions ... why Android's not making much money to start with, and why Google keeps throwing more money after it.

Why Android is making less money for Google than iOS

Because it's just plain not as good. A better browsing (and app-buying and -using) experience means more people doing it more often, which means more ad revenue, which is Google's cash cow. Apple's user experience (and apps) still top the charts, which is why Apple's still way ahead of Android when it comes to things like how many people use its gadgets how often to go on the web, according to Net Applications.

To put this in perspective, keep in mind that Apple's just one smartphone manufacturer. Whereas there are at least a half-dozen top-tier Android device makers worldwide, and it takes all or most of them put together to outsell the iPhone. And across all those Android devices, people are still seeing fewer ads than on Apple's.

Why Google is throwing its money away on Android

Because Google is just plain not good. Where by "good" I mean the opposite of "evil," as in "Don't be evil," as in the founding principle of Google that's now only mentioned ironically.

What does that have to do with this? The other company that's notorious for its huge money sinks is Microsoft, which has thrown billions and billions away on Bing, Windows Phone, and the Xbox. It does so because it's a convicted monopolist, that wants to get paid automatically anytime someone buys something computer-like. And the existence of computers that don't run Microsoft software threatens it.

Google's not a convicted monopolist, but its business model involves getting paid automatically any time you use an app or visit a website. It's threatened by people seeing ads that aren't Google's, so it sees stuff like Facebook and the iPhone as existential crises. Just like Google did to Microsoft, they show a glimpse of a future where Google doesn't own the market. So Google is attacking your privacy and its competitors more than ever, throwing billions of shareholder dollars away in the hopes of a future where it owns the net.

Keep in mind

Of the properties Microsoft threw money away on, the one that started to turn a profit -- the Xbox -- only did so once it became something that a lot of people genuinely liked. What was once an ugly box of commodity hardware is now a sleek centerpiece of numerous living rooms, with Kinect games that delight kids and adults alike.

Google is taking steps towards creating a delightful experience with its Ice Cream Sandwich version of Android. But its strategy across both Android and the web still seems to be centered on gaining market share at all costs. That's why it's failing: Because something became more important to Google than making actual people happy. Or even "not being evil."

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