Don't Declare Victory For Android Just Yet

By Business Insiders

As 2010 ends with Android growing faster than any other smartphone platform, some are declaring 2011 as the year of Android, imagining that it will vanquish all competitors like Windows did after 1995.

But if that's so, why are phone makers hedging their bets with alternate platforms?

That's the question asked in a provocative blog post at Counternotions. The blogger, Kontra, clearly has no love for Google, and some parts of the post--like criticizing Google for doing business in China--veer way off topic. But he also makes a few solid points:

• Google's goal with Android is to increase mobile use of Google services. Eric Schmidt said as much on Google's last earnings call, when he said that Android's main contribution to revenue is increasing the number of Google searches conducted from mobile phones.

• To meet this goal, Android doesn't have to provide the best user experience. Instead, Google can compete primarily on cost--Android is free---and let phone makers and carriers figure out how to attract users.

• This is very similar to Microsoft's business model for Windows, which wasn't free but was a relatively inexpensive part of the PC (compared to the hardware) back in the 1990s. This worked out great for Microsoft, which got to control the pace of innovation and spend only as much on R&D as necessary to preserve its huge margins.

• This was not so great for the PC makers, who ended up making more or less identical beige boxes and were forced to compete on price, with devastating effects on their margins. 

If phone makers let Android dominate the smartphone market, they could end up in a very similar position to the PC makers in the early 2000s--a race to the bottom on price, with ever shrinking margins.

The phone makers know this, which is why they may not embrace Android with the same level of enthusiasm in two years as they do today.

Kontra points out that two very successful Android phone makers, Samsung and HTC, are hedging their bets by supporting Windows Phone 7 and Samsung is also building its own Bada platform.

It's also worth noting that the biggest smartphone maker in the world, Nokia, has refused to jump aboard the Android bandwagon, and may be ready to embrace Microsoft's new platform instead. Research In Motion still has good market share in the U.S. and isn't going down without a fight either.

As for Apple, it lived through this scenario once before, and it's hell-bent on avoiding a repeat. This time, it's being more aggressive with lowering prices and making sure it attracts lots of third-party developers, while continuing to focus on user experience and innovative hardware. Looking at the massive spike in iPhone app downloads over Christmas, it looks like this strategy's working out quite well.

In other words, the smartphone battle is far from over. It's just beginning.