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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 Tony Swash on 12/14/2012 12:46:22 PM , Rating: 0
The problem with your arguments (like many here on good old DT) is that it only applies to the US. Indeed, iOS use in the US is higher than Android. But a look at the worldwide stats shows a different story - a clear decline for iOS over the last year, where Android is going strong.

I think your comment pretty much comprehensively misses the points I was making. I agree completely that Android devices are outselling iOS devices. But something odd then happens, all those Android users don't appear to be using their devices to do much or buy much. Numerous different surveys and studies across a wide range of different metrics all show the same pattern year after year, iOS is used more than Android, and iOS users buy more stuff than Android users. Examples where this applies are:

App sales
Developer income
Ad impressions and Ad revenues
OEM revenues and profits
Web browsing
Web commerce and shopping
Business, educational and government adoption

And the difference between iOS and Android is not small, iOS often out performs Android by a significant margin even though many more Android devices are sold. And it's a world wide phenomena. So clearly something is happening here but nobody is really sure why.

Now one could argue that it doesn't matter, that units sold and market share matter in their own right but I think that is a hard position to defend. If greater market share brings no benefits to those who wish to build upon that platform (developers, content sellers, etc) , if all the money flows towards the platform with the smaller smaller market share why then does market share matter? Market share became a useful metric to use in the past because it seemed that lots of other things flowed from having greater market share but if those things no longer flow as a result of greater market share then why in itself does market share matter?

I don't know why iOS users use their devices to do things way more than Android user or why they seem to be so much more willing to spend money than Android users, I suspect the answer is complex, but I am absolutely convinced that it is not a trivial phenomena, that it has and will have profound consequences for the evolution of both platforms.

If we could side step the tribal affiliations for a moment it would be interesting to hear people's ideas as to why there is this profound disparity between platform usage. In particular I would like to know from Android users what may be deterring them from using their Android devices for surfing the web, shopping online, buy apps, clicking on ads, etc

By nafhan on 12/14/2012 3:55:03 PM , Rating: 3
First of all, the metrics I've seen tend to be focused on US e-commerce, which will usually be skewed more towards iOS than if you looked at the rest of the world.

Secondly, a lot of Android devices are crap to browse on - low end phones on inexpensive VERY limited data plans. That certainly doesn't mean that these people and their possible future purchases don't matter, though. That's an important mind-share and market-share to get for the future.

Third, (this is more personal observation) those on midrange or higher Android phones, I think, tend to have pretty similar usage patterns to someone with, say, an iPhone 5. I personally find the Galaxy SIII to be much nicer to interact with for things like web browsing than an iPhone thanks to it's larger, higher res. screen. The "mid range and higher" people are probably where the majority of the Android "hits" on websites come from.

For the near future, I think the percentage of mobile web browsing originating from Android phones will continue to increase at a rate that exceeds iPhone usage increases. A huge part of this is that the cheap "throw away" smart phones are starting to get good enough to actually be pleasant to use for these types of activities.

By Paj on 12/17/2012 8:28:45 AM , Rating: 2
No, I dont think I did. I agree that the data from the US supports your arguments. I also agree that market share != profitability. Certainly, the App Store is likely to be more profitable for developers.

But this logic doesnt apply to everything.

If we could side step the tribal affiliations for a moment it would be interesting to hear people's ideas as to why there is this profound disparity between platform usage. In particular I would like to know from Android users what may be deterring them from using their Android devices for surfing the web, shopping online, buy apps, clicking on ads, etc

The stats I posted show that more people are using Android browsers for web browsing on a worldwide basis - which directly refutes your point that more people are using iOS for web browsing than Android.

This in turn could reasonably mean that, worldwide, mobile advertising would be more lucrative on Android, as a greater number of impressions for any given ad campaign could be made. This is how advertising is sold.

Also, saying that Android users dont buy things is incorrect, considering that Amazons entire business model is based on content sales - which uses their custom version of Android built into the Kindle range.

"I mean, if you wanna break down someone's door, why don't you start with AT&T, for God sakes? They make your amazing phone unusable as a phone!" -- Jon Stewart on Apple and the iPhone

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