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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 estarkey7 on 12/14/2012 7:09:31 AM , Rating: 3
A good post, by the way. It was sensible, logical, with no religious like bias as most iPost - I commend you for your logic coming from a self described Android fanboy.

In my opinion, the main loser I see in choosing Apple is the consumer. The reason for this may not seem apparent, but is evident for the very reason that Apple is more profitable from it's phone business. You see, Apple has to make money on the front end back end and the side (that being translated to the subsidy from carriers, the princely sum paid by end users, and the reaming imposed on developers, both HW and SW, respectfully) in order to justify selling their phones and iOS at all. This is the traditional business model: Make something at one price and sell it for a higher price all while charging a tariff to allow devs to get in on the fun.

Google's business model is completely different. It's the same model used by magazines and newspapers: Sell end product at a loss, but make up that loss by monies gained in advertising. Google can afford to almost pay you to buy Android when they go to every other business in the world and say "Hey, want to advertise directly to 2.4 million moms between the ages of 22 and 26 in Ohio and Florida that drive gray Toyota Camary's? We got that covered in Spades!" or what every demographic that a business directly wants to target.

Google understands that ultimately the thing that consumers want most is a choice, not a mandate. And in giving them that choice there is an abundance of leverage to capitalize on the periphery.

Can you imagine the market share iOS would have if Apple opened up their hardware platform to other manufacturers? And I'm not saying Apple should do it for free by any means, as I feel a steep premium should be paid for a ticket to ride. But Apple will only do that as a last resort to survival because they could not continue to exist (in their current form anyway) outside their monopolist business model. If Apple took on Samsung, Acer, Dell, Lenovo and HP and licensees their market share would jump 20 points minimum in a year! Devs would make a killing, consumers would have competition and iOS and Apple compatible products could make a real go at the enterprise market. But Apple's ego will never let that happen!

They are fine with charging an iArm and iLeg to a continuing shrinking piece of the market because no other method makes business sense. Remember, iPhones have only been around since 2007, and they have had a good run at it for that time. But it the long run, I feel Android will continue chipping away at market share which will cause a shift in interest on the supporting infrastructure devs provide.

By bupkus on 12/14/2012 10:26:50 AM , Rating: 2
Can you imagine the market share iOS would have if Apple opened up their hardware platform to other manufacturers?
I can imagine the share holders would string up both the CEO and the Board of Directors.
Depending on Apple's sustainability this won't occur until Apple's shares drop to < $100.
Apple TVs or iRobots may stall that eventuality although Apple may reinvent itself.
I really don't want to see Apple fail. I think it has a remarkable history but can anyone remake Apple in Steve Jobs' shadow?

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