Competition is what makes the world a better place, not intelligent design by God or by bureaucrats. Therefore, protecting competition is one of the key responsibilities of the European Commission. But in the case of Android, it is about to make a huge mistake, writes Žiga Turk.
Žiga Turk is a professor in Construction Informatics at the Faculty of Civil and Geodetic Engineering at the University of Ljubljana, Slovenia. He was twice a minister in the government of Slovenia and secretary general of Felipe Gonzalez’s Reflection Group on the Future of Europe.
Before the emergence of Android, the smartphone market was segmented. Blackberry, Nokia, Ericsson, Motorola and others each tried to build smart features – such as email and Web browsers – into their handsets. Then in 2007 Apple invented the iPhone – a concept of the modern smartphone with a graphical user interface, 3rd party apps and the app market.
Each of these manufacturers produced their own devices that ran their own operating systems and their own apps. Or, in the case of Apple, apps that Apple was willing to sell on its App Store. The competition was limited to competition among few manufacturers. Everything else came as a part of the package.
The price of those smart devices was in the order of magnitude of 1000€. Top managers and politicians used early smartphones, the rest of us had dumb phones such as the legendary Nokia 1100.
It was created by Google but was offered as open source to any hardware manufacturer that wished to use it. After a few versions, it caught up – quality wise – with Apple’s iOS and finally the consumer had a choice of smartphones. They could choose among platforms such as iOS, Blackberry and Android. And within the Android ecosystem, they could choose among a dozen more manufacturers and several flavours of Android.
This drove down the prices of smartphones dramatically and democratised access to this technology. Today, one can enjoy very similar services on a 150€ Xiaomi as on 1050€ Samsung. The apps are the same.
Even in pure hardware specs, the 150€ phone of today has the battery life, screen resolution, processors speed, RAM size etc. of what was a flagship device just three years ago. It has been the open-source Android platform that made this possible, and the competition of device manufacturers. Prices of iPhones remain high.
Android open up another market of competition – that of apps – the software that makes a dumb phone a smartphone. Nearly three million apps have been written by creative people from around the world. This started what is called “the app economy”.
Many European companies take part as well. Among the 20 top app developing counties there are six EU member states. The app economy created about 2 million jobs in the EU.
To sum up, Android (1) democratised smartphone technology more than any policy of state subsidies or social policies could, (2) Android created a highly competitive market of smartphone hardware and (3) Android created a highly competitive and creative market of smartphone apps.
Enters the European Commission
It is investigating if, perhaps, Google is abusing its market position and obstructing competition. According to Reuters, EU antitrust regulators have postponed to next week (16-20 July) a finding against Android.
The development of Android is not free and for sure, Google is not running a charity. It is earning money when people are using Android to search the Web, browse the Web and buy Apps and content on the Play Store.
And yes, it is encouraging the manufacturers to preinstall Chrome, Search and Play Store on their devices. In exchange, the headset manufacturers get the operating system for their smartphones for free, they get other Google apps for free, and they even get a share of the revenue Google generates through these apps.
To those who choose to sign, Google is offering three agreements which are subject to EC investigation: Compatibility Agreement, Mobile Application Distribution Agreement, and the Revenue Sharing Agreement.
The first is making sure the Android system is not Balkanised into manufacturer versions and that an app written for Android will run on all its flavours, be it Samsung, LG, Motorola, Huawei, Xiaomi …
It is not mandatory. Amazon chose not to sign it, they simply took the free and open source Android and installed it on its tablets. But users now cannot be sure if Android apps will run there or not. App authors need to write a special version just for Amazon tablets. This is what a step towards a less perfect market looks like.
The second agreement is asking the manufacturers to preinstall eleven Google apps, including the ones that make the most money for Google. They may choose not to preinstall any. But Google does not allow for cherry-picking.
Yes, this does give Google apps an advantage over third-party search and browsers, but manufacturers have a choice to stay out of the Google ecosystem. I had a Chinese phone once that did not come with Google and worked just fine. Adding Google apps later was an effort of a few taps.
Revenue sharing is also available under certain conditions. Normally, manufacturers have to pay to software developers to install operating systems such as MS-DOS and Windows on their devices. Phone manufacturers get paid if they install Google Search.
This too works to the advantage of the end users. It is not each owner of an Android phone that had to cash something out for the software license, it is the rich and heavy users that are subsidising the poorer ones. Because the revenues come from using and making payments on the platform, not from licensing the software that makes it work.
Exit Competition and Innovation
Are a few Google apps in a better position than the competition? Yes. Eleven. But this is a small price to pay for a global competitive smartphone ecosystem. Developing an operating system like Android is not free.
But it is the free and open-sourced Android that creates a competitive environment for hardware manufacturers. It creates a competitive environment for app developers. It created a challenger and an alternative to a closed, proprietary and vertically integrated business of Apple.
This all drove down prices and made smart mobile computing available to the masses. Besides, installing alternatives to Google apps is a few taps away and can always be done.
To slightly improve the competition of three apps, the Commission wants to kill the business model that created a competitive market for smartphone hardware and software in the first place and that allowed also European startups to compete in the previously Apple-dominated market.
This reminds me of killing a cow to eat a steak. Let’s think about this.