By Joe Levi | October 3, 2010 11:52 AM
When Google announced they were buying what eventually became the Android operating system — an operating system intended for cell phones — everyone immediately thought that Google was getting into the cell phone business, maybe even the cellular carrier business. Rumors of a “Google Phone” began to circulate. It was to be free, and you’d never have to pay another cell phone bill again.
At least that’s what the rumors hinted at.
We all know that didn’t happen. Google doesn’t make hardware. They don’t even have their own handsets any more (long live the Nexus One!). Google doesn’t even “own” Android. Google released Android as Open Source, basically giving it away for free to anyone that wants to use it.
How can you make money when you’re giving it away for free?
In a nutshell, Google doesn’t make any money from Android — not from the OS. With all the hours they spend contributing to the Android Open Source Project, Android actually costs Google money — a lot of money.
Last time I checked Google isn’t running a charity. How can their shareholders be happy with them throwing money hand-over-fist at Android? I’m glad you asked. Shareholders did to. Google asked them to trust them for the time being. I think the shareholders are happy with Google’s progress with Android. But to see why, let’s dig a little deeper.
What kind of company is Google?
Some would say they’re a search engine company. Others would say they’re an email company, or a web host, or a content distribution network (CDN) provider, or an application provider for businesses, or… the list goes on.
Google is an advertising company.
Google sells advertisements. They sell ads that they include on their search results. They sell ads that they include in your email. They sell ads that run on websites you visit. They sell ads that show up in the apps that you run. Google sells ads.
To sell ads you have to match advertisers with potential customers. The better you can do this — the more relevant the ad is to the person viewing the ad — the more likely that customer would be to act on that ad.
Think of it this way: if you see an ad for a retirement community in Florida, you’re much more likely to act on that ad if you’re someone who has reached (or will soon reach) retirement age. If you’re a 14 year old boy seeing the same ad, well, you’re probably not going to request more information or buy a condo.
How does Google know who you are and what your interests are?
That’s the beautify of Google, and may be a more accurate representation of what Google “is”. You see, they don’t just sell ads, they also match them up with the viewers — by figuring out who you are.
They way they know who you are and match ads to you is Google’s “secret sauce”.
Google looks at your surfing habits by offering Google Analytics and Google Adsense to webmasters and content providers. These two bits of code on various pages help build a profile of what your interests are based on what sites you’re browsing. But not all websites run either of these.
To capture those viewers Google offeres their own web browser (Chrome) with an integrated search bar and address bar in one. Google even offers DNS services — servers that resolve computer names (www.pocketnow.com) into it’s computer address (the IP address). By letting geeks use Google’s DNS and web browser, Google can see where people are going without the resulting site using any of Google’s services. Those geeks get faster DNS resolution times and faster web surfing, and Google gets the data.
But surfing isn’t everything. Searching for stuff on the web is becoming more and more relevant to good, old fashioned reselling. Before you go out and buy that big-ticket item, you want to find out if it’s a good buy. You search for reviews, you search for opinions, and ultimately you search for prices. At that point why not buy right now, online, and have it delivered tomorrow? Ta-da! Google works! Both for you (the researcher turned buyer) and the advertiser (turned seller). Google got their cut along the way (for selling the ad, and by learning more about you on the way).
Oh, and if you used Google Checkout, they got more money that way, too!
Back to Android
But why would Google be so interested in giving away a mobile operating system?
Google makes money (and justifies giving away the OS) by licensing the Google Apps that come on most Android phones (but not all). Apps like Gmail, the Android Market, Google Search, and others come in something called GAPPS. The Market is really where Google is interested. Sure, the other GAPPS add value to the phone (hence why carriers license their inclusion on Android-powered phones), but Google is making money with every app sold through the Market.
Even free apps make Google money. Developers have to pay to have an account to list their apps under. Even ad-sponsored apps are likely using Google Mobile Ads, so Google’s getting revenue from that source as well.
That’s not the elegance of Google’s mobile revenue stream. Google isn’t so much after making money from apps sold through their Market, or even by charging developers an admission fee to get their apps listed.
Instead, Google saw that computers were getting smaller and smaller, more and more mobile, and connected to the internet in more ways.
Now, instead of trying to remember something to look up on your desktop computer later, pull out the laptop… or better yet: your phone.
Starting to see Google’s foresight now?
But Google didn’t stop at just having their search engine in your pocket. They made search easier. You can search through Google’s database by using your keyboard, using your voice, and even by using the camera on your phone. You can “scan” a barcode and see who has the best price (getting ads along the way) before you make your purchase.
Google even knows where you are, so your search results are even more relevant to you. Google can tell you that you can buy that item for $5 less at a store 1.5 miles away. They’ll even give you turn-by turn directions to get there.
Google knows that searching using input other than text is the next big thing. Spoken search is important, but people speak very differently all over the world, even across the country. To address this, Google bought a company called Grand Central (now Google Voice) to get voice samples from people — and give you “free voicemail transcription” along the way. You can even call Google (+1-800-GOOG-411) to get free 411 information from your phone — any phone. They’ll even connect you for free.
Google knows that searching by taking a picture is going to be big, too. So Google Goggles was created. Tie this in with the new face-recognition feature of Google Picasa and you may soon be able to search for someone just by snapping a picture of them.
How does Google make money? By learning who you are, what you’re interested it, and how you search for stuff… then helping you find it in an intuitive manner anywhere you are.
Android just helps them be able to do that even more efficiently.