Print 47 comment(s) - last by Pirks.. on Dec 24 at 6:41 AM

Former CEO defends Google using Caribbean tax shelter

While Q3 smartphone sales numbers are slightly deceptive as the much-anticipated Apple, Inc. (AAPLiPhone 5 was yet to launch, it's hard to deny that Google Inc. (GOOG) brightly outpaced its rival in unit sales, with Google's Android taking 72 percent of the market, versus a mere 14 percent for Apple.  In a new interview, former Google CEO Eric Schmidt says that equated to 1.3 million Android smartphones activated a day, a key to Google outselling its rival 5-to-1.

I. Google v. Apple == Microsoft v. Apple Computer?

He compares his company's war against Apple to Microsoft Corp.'s (MSFT) successful campaign against Apple Computer back in the 1980s and 1990s.  He remarks to Bloomberg, "This is a huge platform change; this is of the scale of 20 years ago -- Microsoft versus Apple.  We’re winning that war pretty clearly now."

To Eric Schmidt, the sales triumph is vindication of Google's decision to give away Android to third party OEMs, versus Apple's policy of zealously possessive in-house efforts.  Comments Mr. Schmidt, "The core strategy is to make a bigger pie.  We will end up with a not perfectly controlled and not perfectly managed bigger pie by virtue of open systems."

Eric Schmidt
Former Google CEO Eric Schmidt claims Apple is repeating its own painful history.
[Image Source: The Sydney Morning Herald]

As for his company's and the general economy's outlook, he says he sees signs for optimism in the Chinese recovery.  But he warns that the so-called "fiscal cliff" -- a series of automatic tax increases and spending cuts -- could kill a similar emerging recovery in the U.S.

He warns, "It will be tragic for the country if the sum of the government can’t resolve this.  You can think of what’s going on as one set of special interests versus another, and a big fight and they all have to feel like they’ve been heard."

He sees Europe as another soft spot, saying that region will struggle to recover as southern nations like Spain, Italy, and Greece dangle on the edge of financial insolvency.

II. Schmidt on Gov't Regulation, Taxes

Mr. Schmidt defends his company's decision to shuffle $9.8B USD to a shell company in Bermuda to escape $2B USD in taxes from countries like the U.S., UK, France, and Australia.  

He comments, "We pay lots of taxes; we pay them in the legally prescribed ways.  I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate.  It’s called capitalism.  We are proudly capitalistic. I’m not confused about this."

Gimme Shelter
Schmidt says nothing's wrong with Google using a tax shelter. [Image Source: Hook Worldwide]

On the topic of spectrum crunch, which AT&T, Inc. (T) and others have bemoaned, Mr. Schmidt says it is a real problem, but that smart antennas may be able to help.  He comments, "[True] all the modeling says the existing strategy will run out of cellular bandwidth in 2016 or 2017.  [But] today you get dedicated bandwidth on your phone, and your phone doesn’t say, ’Ah ha! I can go over here or over up here.’ Smart radios can do that."

Google+ was also plugged by the former chief executive, which calls a "viable competitor to Facebook", thanks to its 100 million active users.

Source: Bloomberg

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RE: Uncle Eric lost in the Hall of Mirrors
By Pirks on 12/13/2012 9:07:40 PM , Rating: 2
If Android one day has 90% market share and Apple 6%, will you be making the same argument?
If Android still has peanuts in terms of profits it brings Google and Apple still grabs lion's share of profit in the market - will you stop trolling then?

By Dorkyman on 12/13/2012 9:26:51 PM , Rating: 2
Yes. But only if.

RE: Uncle Eric lost in the Hall of Mirrors
By nocturne on 12/14/2012 1:50:49 AM , Rating: 2
You're missing the entire point.. Google may give Android away, but it gets far more back in advertising and analytics. They could care less about making a phone OS, they just saw a new market to be taken advantage of. Hell, they could give devs all of the store profits, and still be making billions from the platform. Even better, by offering their apps on Apple, even for free -- they even make money from iDiots.

RE: Uncle Eric lost in the Hall of Mirrors
By slunkius on 12/14/2012 6:02:09 AM , Rating: 2
so what's your point? should apple give away iOS for free and go into advertising business? different strategies for different companies. for now looks like apple is winning (in $$$ department, but that's the point of business). regarding future we can only guess. if someone thinks he knows which company will win 100%, i think he would do better in stock market than on message boards.

By nocturne on 12/14/2012 11:53:12 PM , Rating: 2
Actually read, people.. I'm not extolling one over the other, just trying to quell the thought that Google doesn't profit off of Android. That's just ridiculous! And of course Apple does too! In different ways entirely, though.. like comparing Apples to Googles..

If I was a gambling man though, and you asked me which, if either, would be gone in 30 years.. My money would definitely be on the 'most valuable tech company in the world'.

RE: Uncle Eric lost in the Hall of Mirrors
By Tony Swash on 12/14/2012 7:24:34 AM , Rating: 1
You're missing the entire point.. Google may give Android away, but it gets far more back in advertising and analytics.

Except it doesn't. All evidence very strongly points to the same conclusions.

First that advertising revenues on mobile devises per user are significantly less than advertising per user in a traditional desktop browser. As more users switch away from accessing the web via desktop browsers and switch to mobile devices and increasing access via apps Google faces an erosion of it's revenue base.

Google knows this and it's response has been two fold, one to drastically increase the density of advertising on all it's web properties (check out the proportion of ads above the fold on a Google search page) and the other is of course Android. The Android strategy does not alter the fundamental shift in ad accessing rates on mobile devices but Google hopes that by selling many more Android devices than the number of desktop PCs that were sold in the old PC markets it can make up the drop in ad income per user. However the Android strategy has hit problems where numerous vendors of devices have taken Android and stripped out Google services (Amazon, Barnes and Noble, many of the big Chinese handset vendors). The huge disparity in profits amongst Android OEMs which means that that Samsung takes almost all the Android OEM profits means that Samsung could one day decide to also fork Android and dump Google, the recent comments from the iPhone using Samsung executive show that Samsung is aware it needs to do more in developing it's own content ecosystem lock in and not cede that terrain to Google.

Secondly Google's Android ad revenue strategy is also undermined by the differences in platform utilisation between iOS and Android that I have already mentioned in my first comment. Even though Android devices are outselling iOS devices by a significant margin and even though the owner of Google is an advertising company and thus have a very high stake in promoting and securing ad revenue via the Android platform all the evidence shows the same thing: iOS is a better ad platform. Look at this chart showing the percentage of ad traffic and revenues across various platforms as of October 2012

The chart comes from this article

This data (and there is plenty of other data sources showing the same pattern) shows that iOS trounce all other platforms in ad income and that Android, for all of it's hundred of millions of devices sold, can only manage a 17% of ad revenues compared to 58% for iOS.

So the notion that Google is racking in revenues on the back of all those Android device activations is not tenable. Android remains a cost center for Google.

By maugrimtr on 12/14/2012 8:25:28 AM , Rating: 3
Your analysis is bull****. So long as Googles revenue from advertising across the Android ecosystem exceeds its cost to develop Android, then Google is making profits.

As usual, you declined to contemplate REALITY. Increases in mobile device traffic will reduce desktop traffic. Google's use of Android ensures that those mobile users are primarily diverted to Google's ad platforms. The alternative is to refuse to adapt, cede the market to Apple/Microsoft, and lose significantly more ad revenues to competing platforms.

You are a manipulative chancer, Tony. You take reality, locate some half-assed articles, and twist and torture it until it fits your imaginary world. The problem is people are catching on. Android is beating Apple's market share consistently and Apple's share price is nosediving off a cliff.

RE: Uncle Eric lost in the Hall of Mirrors
By nafhan on 12/14/2012 12:04:13 PM , Rating: 2
What exactly is your point?

A company like Google that's irrelevant on the mobile web. Is just irrelevant. Even if the profit margins are terrible on mobile compared to desktop, even if they have to build their own mobile OS, etc. It doesn't matter. The point is, they cannot afford to miss out on the mobile market. Google knows this, and Android is their way of making sure that they don't.

Also, there's this thing called strategy... you don't have to make money on every service or product you sell in order for that product to contribute in a positive way to your business.

On top of that, I think, in the long term, companies that primarily make money off of hardware sales (rather than software, services, or advertising). Hardware is getting marginalized. I think this is what Apple should be most worried about.

By nocturne on 12/14/2012 11:59:58 PM , Rating: 2
Exactly! And exactly why I said I doubt Google truly cared about developing a phone OS, and more or less just saw a market it needed to expand into out of necessity.

I shudder to think how much money Google has made off of me over the years.. without paying a single dime for any service, or buying a single one of their product derivatives. Between search clicks, analytics, adsense, browser activity, etc.. sure it's at least 5-6 figures. Quite incredible, if you really think about it.

By maugrimtr on 12/18/2012 8:21:43 AM , Rating: 2
Tony doesn't make points. He creates illusions.

"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation

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