Google's Misunderstood Android Phone

Since the launch of Google's Android cell phone recently, much discussion has focused on Google vs. Apple. On how big a lead the iPhone has, how many units sold, users, applications downloaded, etc.

This all misses the point.

In fact, the Android provides an example of what my old boss at Chase Manhattan, Gerry Weiss, and his team at GE, in the 1960s, identified as 'arena competition.'

Portraying GE's businesses in arenas, they noticed way back in that era how cable and other entertainment forms could and would have impacts on GE's television and related businesses. The most damaging sorts of competition, they found, were when one company inadvertently entered another arena other than its own, typical product/market, in order to support business strategies in its core areas.

These new entrants often undercut the profitability of the business models of the existing competitors because their main focus was on another sector.

Google is following online eyeballs from PCs to cell phones. In order to control the environment, they want to control the operating system. To do that, they simply added the commodity platform, too. A new cell phone.

Because they don't want to earn all, or even most of their profits from the cell phones, they represent a danger to other cell phone makers. And, as one pundit noted, to Microsoft, by reducing that company's market for mobile operating system sales.

Apple? Google probably doesn't really care that much about the iPhone, per se. Rather, they care about extending their advertising business to the cell phone market.

If they can support healthy growth in ad revenues on cell phones with minimal outlays for Android, or break even, they have probably met their objectives.

In the process, they are reducing the carriers to "operators," teaching people to buy a phone, then choose the network, and disrupting a product/market they don't really even see as central to their profitability, except as it supports and facilitates continued ad revenue growth.

Rather like IBM cannibalizing all manner of products, services and labor as mainframe computing applications marched out of the first areas, into more accounting, inventory and other business processes. How many purveyors of supplies and services to old-fashioned offices of the early 1960s were put out of business by IBM, while IBM only saw rising mainframe and applications software revenues?

It's the same for Google and its Android.