Consumer Watchdog Sues Google for Android "Monopoly"
May 6, 2014 9:26 AM
Google does dominate sales -- but is it a natural monopoly or the result of abuse?
To fans of Google Inc.'s (
) Android OS, the company is the
defender of freedom and choice
. Many also praise the company for helping to drive down costs versus companies like Apple, Inc. (
) that charge
large markups on their devices for small upgrades
a few more GBs
(gigabytes) of storage.
I. Android -- Open or Secretly Closed?
But a new lawsuit from self-proclaimed "consumer rights" law firm
has painted Google's role in the mobile industry in a far different light.
The lawsuit raised eyebrows due to the high-profile lawyers filing it.
The filing firm is currently locked in a high-profile legal battle against General Motors Comp. (
) over the deaths caused by faulty ignition switches that have since been recalled. Hagens Berman -- considered a top expert in its field -- also
$1.4B USD in a class action settlement
certain Toyota Motor
back in 2010
The new lawsuit, which is seeking class-action status, says that Google -- whose operating system is loaded on roughly five out of every six smartphones and two out of every three tablets globally -- is
acting as an abusive monopoly
The crux of its argument comes down to a set of little known details that explain how Google turned its open source software project into a serious moneymaker.
All of the claims in the case currently revolve around the fact that Google's platform currently controls large leads in both tablet and smartphone unit sales. At the same time, one basic accusation is that Google has engaged in anticompetitive bundling, similar to the kind the EU took Microsoft Corp. (
) to task for.
These claims may come as a shock to some Android fans, but less of a shock to others. After all, there have always been questions about how open Android really is. One cannot deny that Google has been flexing its muscle more of late. Thus the case must be examined in the context of the past, present, and future of the world's most used mobile device platform.
II. From the Begin Android was Committed to Openness, But as a Means to an End
From the start, you could make a case that Android -- and later Google -- would use "openness" as an end to achieve a means: mobile ad dollars.
It's hard to escape the feeling that Android -- even before Google owned it -- leaned on open source more as a crutch or selling point, rather than a guiding philosophy. Android CEO and cofounder Andy Rubin would later state that the goal of founding Android was to offer "smarter mobile devices that are more aware of its owner's location and preferences". In other words, from day one the objective of Android was to create a targeted advertising driven monetization scheme.
Since day one Android was focused on mobile ad clicks. [Image Source: Google]
But Mr. Rubin correctly identified that it was highly difficult for a veteran PC maker like Apple or Microsoft to launch a branded smartphone product, much less a relative unknown like his company. And since his model was based on ad revenue, it was crucial to maximize unit sales. That organically led to Android opting to go open source and free of licensing fees, in order to try to win OEMs to its side.
The startup would soon gain a powerful, like-minded backer. In 2005 Google -- which had pioneered the model of offering paid-quality content for free via the enhanced revenue of targeted advertising --
. Over the next two years Google would continue to grow its team, quietly preparing an open source mobile operating system with a selection of key utility apps and firmware.
officially announced in Nov. 2007
, just months after
late Apple CEO Steve Jobs announced his market-shifting iPhone
. Perhaps because of the close relationship
between Steve Jobs and then-Google CEO Eric Schmidt
, Google carefully watched and to some degree borrowed from key elements of Apple's strategy at a time when it was viewed as a mere novelty.
The iPhone would eventually force veteran phonemakers into defense mode.
[Image Source: Getty Images]
For example in 2007, Apple was the first OEM to offer multi-touch, a product that had been tested in the 1980s but was slow to see commercial adoption. Apple was also obsessive in its focus on graphics, an approach that differentiated it. This was particularly crucial, give how low-resolution smartphone screens were at a time.
These moves left veteran phonemakers like Samsung Electronics Comp., Ltd. (
) and Motorola scrambling to keep up. At the time they were allied with Google, but were wary of sharing their precious revenue with Google and relying on
such an unproven partner
III. The iPhone Disruption
But Google moved faster than them in adding the key features that were driving the iPhone's success.
Android appeared the easiest route to a polished iPhone alternative back in 2008.
[Image Source: TNW]
And Android would soon prove it wasn't just leaning on market veterans and Apple alike for inspiration. It would unveil features like a notifications center (again, a Linux idea brought into the mobile space). The model would eventually be copied by Google's rivals, but the credit went to Google for popularizing it.
It also in Nov. 2007 announced its intention to
create a third-party marketplace, with an easy to use SDK
(software developer kit) designed to allow Java bytecode apps capable of running on a variety of Android devices. At around the same Mr. Jobs reversed his earlier
prohibition on third-party apps
Again, most didn't take this too seriously, but after the
launch of the iPhone 3G in 2008
and with it the App Store, Google was again left as the only one who was offering a full-fledged alternative to Apple at the time.
If veterans like Samsung and Motorola needed any more prodding to join, it came with the release of the
"G1" smartphone by HTC
) -- a newcomer to the OEM business.
The HTC G1, the first major Android release
At the time critics raved that the HTC device was one of the best alternatives to the iPhone, much to the chagrin of Samsung and Motorola, which were still experimenting with iPhone challengers running less polished proprietary operating systems. The OEMs were forced to swallow their doubts, and before long their smartphone efforts were almost entirely centered around Google.
IV. Tensions Grow as Honeycomb Closes Source
But as their success grew and Android adoption exploded to become the world's most used mobile operating system, quiet tensions began to brew behind the scenes between Google and the OEMs.
Google -- which cared most about having a strong brand that consumers wanted -- was
frustrated at OEMs
a sluggish pace of firmware updates
. Google would also grow concerned about the rising dominance of Samsung, which by 2011 was
starting outpace other Android OEMs globally
To partner firms and other outsiders like Amazon.com, Inc. (
), which was
eyeing a tablet companion
popular Kindle eReaders
, the frustration was with Google. It only shared a small cut of ad revenue with its partners and declined to share any substantial portion of its minority portion of proceeds from paid app sales. Companies liked Android, but disliked Google's efforts to monetize it, efforts which primarily benefited Google.
Amazon began toying with the idea of an LCD-based tablet as early as 2010. According to some rumors it met with Google, but was unhappy with Google's demands for certification when it came to revenue sharing.
Perhaps in response to the failure to reach a partnership agreement with Amazon, Google made the controversial decision of c
losing its first dedicated tablet operating system's source
-- Android v3.0 "Honeycomb". This decision -- made with
Honeycomb's release in Dec. 2010
-- led to Google's first widespread spat with the open source community, and led to
a rather shrill response from Google
in light of media criticism.
The open source community wasn't happy with Google's decision to close the Honeycomb source, but they were stuck with it. [Image Source: Google]
Part of what added insult to the injury of the temporary closed sourcing was Google's threat to potential Android v2.2 "Froyo" adopters in the tablet space was that it
might cut their access to the app store
if they released non-Honeycomb tablet products. The spat was the first real sign that the Android situation was more complex than its backers would wish.
In 2011, Vision Mobile
Android to MeeGo, Linux, Qt, WebKit, Mozilla, Eclipse and Symbian in terms of "openness" and came to the conclusion that Google's project was the least "open".
We found Android to be the most "closed" open source project. In the Open Governance Index, Android scores low with regard to timely access to source code in that the platform does not provide source code to all developers at the same time; it clearly prioritises access to specific developer groups or organisations and has acknowledged this with the delayed release of Honeycomb. Additionally Android scores low with regard to access to developer support mechanisms, publicly available roadmap, transparent decision-making processes, transparency of code contributions process, accessibility to become a committer (in that external parties cannot 'commit' code to the project) and constraints regarding go-to-market channels.
Android’s success may have little to do with the open source licensing of its public codebase. Android would not have risen to its current ubiquity were it not for Google’s financial muscle and famed engineering team. More importantly, Google has made Android available at zero cost, since Google’s core business is not software or search, but driving eyeballs to ads. As is now well understood, Google’s strategy has been to subsidise Android such that it can deliver cheap handsets and low-cost wireless Internet access in order to drive more eyeballs to Google’s ad inventory.
Critics alleged that Google quickly grew to pressuring OEMs to comply with its policies in order to get certified to use Android's core services like Google Play, Google Maps, and Gmail.
The use of
denying OEMs apps that Google claims are "free"
is one key topic of the class action lawsuit filed last week. In a press release Hagens Berman
The lawsuit, filed in the U.S. District Court for the Northern District of California, alleges that Google’s monopoly of these markets stems from the company’s purchasing of Android mobile operating system (Android OS) to maintain and expand its monopoly by pre-loading its own suite of applications onto the devices by way of secret Mobile Application Distribution Agreements (MADA). According to the suit, these agreements were hidden and marked to be viewed only by attorneys.
According to the suit, Google’s role in placing this suite of apps, including Google Play, and YouTube, among others, has hampered the market and kept the price of devices made by competing device manufacturers like Samsung and HTC artificially high.
That comment would seem to suggest that in addition to what we already know about the Android certification process and its role in pressure OEMs, there's perhaps some surprises in store -- surprises that Google looked to keep out of the public eye via the
closed-door, legally-bound-by-secrecy sessions it holds with partners
V. Amazon Leads Rebellion With Branching
But the approach did little to stop the brewing OEM resistance to Google's policies.
In an effort to corner more of the profit, many OEMs took to either swapping out some of Google's core apps or forking Android and opting for a full replacement set of apps. This approach was possible because many parts of Android -- perhaps as a selling point -- were open source.
The kernel has always been licensed under the permissive
GNU GPL v2
, and likely will continue to be. At the time Android was substantially more "open" from a source perspective, as well given that most low level APIs were licensed under moderately permissive open source terms, such as the
Apache License 2.0
Google still wielded the stick of certification -- required to gain access to key apps. But it could quickly see that it was losing its grip on OEMs and running the risk of rampant branching.
Kindle Fire (original)
But even with the closed Honeycomb source and threat of app denial, certification proved an important deterrent, as the not-so-secret development of
Amazon's Kindle Fire
With Honeycomb unavailable, Amazon simply
scooped up an early version of Android for smartphones, forking it
and swapping out Google's apps for
its own alternatives
. At the same time it still was able to enjoy much of the fruits of Google's hard work -- its open source SDKs. The availability of these SDKs not only cut the development time for an OEM like Amazon, they also ensured a quick port from Google's app market to
a third-party app store
But Google's efforts to wrangle the unruly OEMs not only seemed to backfire in sales growth -- it ultimately failed to stymie the genesis of the Kindle Fire, exactly the kind of device Google appeared eager to avoid.
The trouble was, it had worked so hard to avoid OEMs unbundling its monetization technology, that it had stunted its platform's own growth in the process. The Kindle Fire was imperfect, but it came at an attractive price and with seemingly more content than Google had been able to convince its divided Android ranks to offer at the time.
By the time the Kindle Fire came along, Google was still trying to sell customers on Honeycomb. In many ways Fire OS channeled the free spirit of early Android adoption, and the difference between it and the stunted Honeycomb was hard to ignore. Many flocked to Amazon's platform, which some viewed as
the first strong competitor
to Apple's iPad, which by then
was in its third generation
VI. After Sales Failure of Honeycomb, Google Changes Approach
While some backlash against the closed sourced, unpolished Honeycomb seemed inevitable, what was surprising was just how strong it had been.
You could blame Honeycomb's failure to stick on any number of things, but recall that lack of polish hadn't really stopped early builds of Android from catch on. In terms of modern user expectations, the iPhone 3G was in many ways closer to the smartphones of today than the HTC G1, which came out months later. But Honeycomb seemed unable to get over the hurdle, in part because the glowing positivity that the "open" Android of the smartphone space was hailed with had given way to tepid apathy and negativity, amid the first signs of a darker, less open brand of Android.
Honeycomb was Android's first major miss. [Image Source: Sin Amigos]
For the two years of the Honeycomb era, Android failed to mirror its dominance in the smartphone market;
against the restricted, less-supported Honeycomb OS.
Aside from the
modestly successful Samsung Galaxy Tab
(which was powered by the smartphone Android v2.2 "Froyo" OS, not Honeycomb)
early Android tablets like the Motorola Xoom
(eventually discontinued), or Acer Inc. (
market flops or disappointments
Motorola's ill-fated Xoom was a typical example of the sales struggles of the closed-sourced, unpolished Honeycomb.
The success of the Kindle Fire made it very difficult for Google to continue on its course. Within a month of the Fire's release, Google removed the open source blockade with the announcement of
Android v4.0 "Ice Cream Sandwich"
The approach seemed to rekindle Android's hopes in the tablet sector. Newcomers like ASUSTEK Computer, Inc.'s (
) quickly showed that Google wasn't dead in the tablet market. Google's decision to unify and reopen the tablet source -- which Google insisted was in the cards all along --
slowly rebuilt Android's momentum
in the tablet sector.
ASUSTek was among the top early success stories of the Android Ice Cream Sandwich tablet revival.
That's not to say that there aren't some mysteries of why Ice Cream Sandwich was able to do what Android Honeycomb could not.
One curious question is why there was such a relative lack of affordably priced Android Honeycomb tablets. Perhaps this was mere timing and a combination of other factors, or perhaps this had something to do with Google's undisclosed requirements for Honeycomb. Either way, one undeniable upside of Ice Cream Sandwich was a key driver of Android adoption in its early smartphone days -- a lower cost of entry for budget buyers.
VII. Google Tolerates Android Reskinning, Eyes Microsoft's Android Branch Warily
Google's initial Ice Cream Sandwich came with a stern warning to smartphone and tablet partners to tone down their reskinning efforts.
And OEMs responded to some extent, even as Google backed off
its plans to "ban" third-party skins
HTC's Sense UI
, Motorola's "MotoBlur", and Samsung's Touchwiz.
Google ultimately declined to make any bold moves to "kill" OEM skins like HTC's Sense UI, allowing them full access to its apps, as long as they play by its fundamental rules.
Forking continued. It wasn't quite as dire as Google feared, as in many ways its threat of app denial appeared to have worked (as the new lawsuit claims). Whether or not it broke antitrust laws is open to debate, but Amazon would lose some steam to become just another player in the tablet market, eventually overshadowed by Samsung, which is today the world's second largest tablet maker.
A number of Chinese OEMs also forked Android, but this again wasn't as grave an issue as it seemed at one time. China was already a hard-to-monetize market for Google and dominated by third-party app stores. So if anything these forks might have been a bit of a blessing for Google, disassociating it with China's
malware-laden mass of Android phones and tablets
But a more flagrant test to Google's policies has since come the recently acquired Nokia Devices
announced a version of Android
forked and reskinned to look like Windows Phone
Google will likely make nothing off Microsoft's Nokia X devices, which were based on a branched version of Android, reskinned to look like Windows Phone.
It replaced the Chrome browser with a Nokia Devices-developed alternative, it replaced the app store with an app port of Nokia's Ovi store, and it replaced Google Maps with Nokia Oyj.'s (
) HERE. Even more so than Amazon's Fire OS branch of Android or the various Chinese braches, Microsoft/Nokia's branch of Android systematically stripped the OS of Google's data mining and ad-driving apps and replaced them with its own alternatives.
But if Google is upset about Nokia X it isn't doing so publicly.
VIII. App Duplication Proves More of a Win For Google, Loss for OEMs
These days there are so many stock Android devices, that Google's biggest priority has been to try to force its top OEM partners not to strip out its apps. HTC, Samsung, and others were quite fond of replacing Google's apps with third-party derivatives.
Since day one Google could choose to some extent how it wanted to deal with this as its apps were, as mentioned, mostly proprietary since Android first launched. Given that OEMs typically would want to leave most of the stock Android apps intact, Google originally opted to ignore this potential annoyance and let OEMs customize as they saw fit.
Rather than crack down on OEM reskins with v4.0 Ice Cream Sandwich, Google took a less controversial approach, opting to force OEMs to package its app as well, despite the redundance, when offering custom replacements to some of it core apps.
But recently -- it appears sometime around the advent of Android v4.0 "Ice Cream Sandwich" -- that policy began to shift behind closed doors, according to numerous reports. Google offered OEMs a simple condition for certification to use its app bundle -- which is today collectively known as the Google Mobile Services (GMS) suite: take it all, or take none.
OEMs have by and large chosen the former option, but they have somewhat skirted Google's efforts by simply bundling two apps -- one made by Google, and one made in-house. The upside to this approach is that some percentage of users will use its app, which in the case of mobile browsers and other ad-friendly apps means new monetizing opportunities.
Clearly, OEMs like Samsung are
less than happy with this state
. One unfortunate reality for them is that often their apps just aren't as good as Google's. As the
effects of Windows bundling
Microsoft's Internet Explorer market share in Europe
showed, many users are lazy and will opt for even a bad app over a good one. In Google's case it not only bundles in, but also it's often the better app. This represents a combination of competitive excellence -- and perhaps anticompetitive tactics -- that make it hard to beat.
Top OEMs clearly feel it's their brand and products that's selling devices, more so than the underlying OS. If they can't unbundle Android's core apps, some appear on the verge of considering phasing out Android for now. For these companies, likely the biggest thing holding them back is lack of compelling alternatives.
Samsung is actively exploring
a potential escape route with Tizen
, a mobile Linux competitor to Android.
And other OEMs have
eyed Firefox OS
(also based on a mobile Linux kernel) as an Android fill-in. But these solutions will
have to mature
in order to prove a real threat to Android.
For now, Google's bundling and certification policies have OEMs right where it wants them.
IX. KitKat Brings Troubling SDK Purge
And when it comes to companies like Amazon and Microsoft, Google's
most recent Android v4.4 "KitKat" release
brings a tough new deterrent to forking, one which has largely flew under the radar. Android KitKat brings many SDKs that were previously open source into the Play ecosystem. No longer will developers of forked Android distributions be able to use the previously open SDKs of Location, In-App Billing, and Remote Syncing. Even security is at risk, as OEMs that opt to fork will also now lose access to Google's Mobile Malware Prevention.
The net impact of this policy has yet to be seen. But in the long term it appears the open parts of Android are slowly becoming proprietary. Google's approach is that it will give you its open source "vehicle", but it's stripped out the seats, the stereo, the trim, the wheels, and more, leaving you with the task of repairing a wreck that's basically unusable in its present state.
Android is removing many key SDK components (APIs) from its its open source package, shuffling them into its proprietary Play package. [Image Source: Vision Mobile]
That's a key thing that most don't realize. The open parts of Android are no longer enough to make an actual phone. A project that was once deemed mobile's "least open open source project" has found a way to become even less open, while defiantly continuing to brand itself "open source software".
That's not to say that Google has necessarily broken the law. So far most nations whose regulators have examine the Android monopoly and its criticisms
say that it's largely a natural monopoly born of its own merits
. If Google acted in an anticompetitive manner,
it did so in only smaller ways
, allowing Google to
avoid the big antitrust fines
companies like rocked Microsoft
) -- for now at least.
At the same time legal woes have meant Google's dominant position in mobile device unit sales (roughly 5 out of every 6 smartphones and 2 out of every 3 tablets), isn't as easy to exploit. Android OEMs have faced lawsuits and bans from Apple, Nokia, and Microsoft. They typically settle, but settling isn't cheap. According to testimony in the latest court case, part of Apple and Samsung's confidential licensing deal for Android included an assurance that Google will pay part of the court damages if features it distributes are the source of infringement damages.
While the recent verdict in the
second trial between Apple and Samsung Electronics
was a relative win for Samsung and Android, it will likely cost Google. Samsung's arrangement will likely lead to a payout after a jury found some features in Android that shipped on Samsung phones infringed on a trio of Apple software patents.
X. Will the Future of Android Be Open or Closed?
The Hagens Berman suit offers a new challenge to Google, as it appears to offer a more nuanced criticism that has been slowly festering within the Android movement and Google's own alliance.
The new suit against Android may be motivated by greed, but it provokes a necessary discussion into the platform's future. [Image Source: Play Store/Amber Money]
Hagens Berman partner Steve Berman remarks:
It’s clear that Google has not achieved this monopoly through offering a better search engine, but through its strategic, anti-competitive placement, and it doesn’t take a forensic economist to see that this is evidence of market manipulation. Simply put, there is no lawful, pro-competitive reason for Google to condition licenses to pre-load popular Google apps like this.
The more use an internet or mobile search engine gets, the better it performs based on that use. Instead of finding a way to legitimately out-compete other internet and mobile search providers, they instead decided to choke off competition through this cynical, anti-consumer scheme.
This comes down to a combination of Google’s power in the U.S. general mobile search market and their power in the realm of tablet and smartphone manufacturers. As a result of the pricing conspiracy, everyone loses. Google and its competitors face an uncompetitive, stagnant market, and consumers are forced into one option.
Given his firm's track record on such cases, it's entirely possible that Google could be beaten in court or forced into an early settlement. At the end of the day this will largely be a payout to lawyers – namely, Mr. Berman's firm -- in fees, leaving customers with perhaps a small per-device refund.
But even if the lawyers in this case are likely motivated at least in part from the profit a win of some kind would bring, that doesn't discount that there is some validity to what they're arguing. Such a savvy firm wouldn't even consider such a case if Google's actions hadn't created a fairly strong likelihood of doubt in its own ability to win in court. In fact, looking at what has been stated thus far in some regards they haven't even said all of Google's questionable actions (e.g. the recent push to move Android's SDK's into the proprietary bundle of software).
After playing such a progressive and disruptive role in the mobile industry, Google now finds itself in a dominant position and is falling dangerously towards a "Tarkin Doctrine".
[Image Source: LucasFilm/Disney]
Unlike past lawsuits between Google and its rivals, this court battle could actually have a positive outcome for Android users. It raises valid arguments and represents a firestorm of coming negative publicity for Android; it may force Google to rethink its Tarkin doctrine of gripping OEMs tighter to try to prevent them from escaping.
You could argue that the case represents a hope of saving Android from its own dark side. And
even the greatest can fall
if they travel down that path.
Hagens Berman [press release]
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