Stranger than Fiction
Jean Louis Gassée is one of the more intriguing former Apple managers. During Steve Jobs’ exile in the 1980s, Gassée served as head of Macintosh development, Steve’s old job. John Sculley liked him a lot, and promoted him to head all of advanced product development and worldwide marketing in 1988, and there were rumors that he was on his way to taking over the presidency from Sculley until the board sent him packing in 1990. One of his babies was the infamous Newton, the ur-iPad that was too little too early.
Over the weekend, Gassée imagined a surprise Apple announcement:
We’re at the end of the 2011 iPhone 5 launch. The demos went well; Steve Jobs has come back on stage to thank everyone and conclude the proceedings, “…but before you go, just One More Thing. I’d like you to meet someone.” And the CEO of Deutsche Telekom walks onstage. “Deutsche Telekom owns a company you know as T-Mobile USA, but let’s start calling it by its new name: Apple Wireless.”
An audible gasp — louder than the one when Jobs announced the $499 price for the iPad – and then the room erupts in applause. At long last, iPhone users will enjoy the level of carrier service and support that is their birthright.
This is fiction, of course, wishful thinking. But bear with me…
I wouldn’t hold my breath waiting for this to happen if I were you, but it’s an interesting thought experiment. There are dozens of reasons why Apple would never buy a networking company, and you don’t have to think too hard to come up with several of them; Gassée himself discusses some of them:
First, there are regulatory problems. Getting FCC approval for a new iPhone is one thing; wrestling with Washington bureaucrats for spectrum allocation is another. Apple’s maverick culture, its blatant spite for government bureaucrats and Congress windbags won’t do well there.
The phrasing reflects how long Gassée has been out of the loop at Apple, but the sentiment’s more or less correct. A merger between a company like Apple and a company like T-Mobile would set off all sorts of vertical integration alarms at the FCC, the FTC, and the Justice Department as it goes right at the heart of Tim Wu’s Wireless Carterfone fears. As much as Gassée would like Apple to run a mobile network, it’s not going to happen.
But today something almost as strange happened, the announcement that Google intends to acquire Motorola Mobility, the former Motorola gadget division that’s been a standalone company since January. Once we get over the shock of Google getting into the consumer electronics business, there are two obvious reasons and one more subtle one why this deal makes sense from Google’s point of view:
It protects Android from patent suits against all the functionality in Linux that was imported, re-invented, or downright copied from other systems. These suits have been heating up recently following a ruliung by the International Trade Commission that HTC’s Android phones are infringing:
Over the [July 19th] weekend we reported that HTC and Android had been dealt a major blow by an International Trade Commission judge ruling HTC infringed two key Apple patents. Those patents turned out to be fundamental to the way Android works, not just limited to HTC smartphones specifically.
If the ruling stands, then Apple can quite rightly ask for all sales of HTC Android phones and tablets to be banned in the US. But because this relates to Android it is also feasible that Apple may request all Android devices be banned from sale.
These kinds of infringement judgments are generally settled by swapping patent rights between the two parties, but in the case of Android, there’s not much of a patent portfolio to swap. That’s one of the pitfalls of FOSS. Moto has a massive portfolio, of course, so Google will now have something to trade. The media picked up on this rationale right away.
The second reason goes to monetizing Android. While there are certainly a lot of Android phones in the world, Google doesn’t make any money from the Android code directly. It’s licensed as free stuff, which only benefits Google on the back end from some potential increased ad revenue, but it’s hard to characterize how much, if anything, that might amount to. Presumably, Google makes no more money from searches that come from an Android phone than from any other one. But the idea of paying licensing fees to Apple and Microsoft for code they give away for free isn’t very enticing to Google.
The less obvious benefit is that the merger of Google and the premier Android handset developer gives Google a reference platform for the Android user interface that’s currently in disarray. Unlike Apple, which controls the iPhone user experience from app to device through stringent control of the App Store, Google allows handset manufacturers to add their own tweaks to the Android user interface and application developers to do their own thing. This is becoming increasingly problematic for users and developers, as each manufacturer is essentially creating its own version of Android, fragmenting the code base and making it hard to ensure compatibility.
Google can now define the Android user experience with as much precision as they control the Google search page, that classically spartan piece of code that still looks like a throw-back to 1995, and pretty much was before the Live Search ornamentation was added a year ago (ed. note: Live Search is not an improvement.) This will encourage the other device makers (Samsung, HTC, LG, etc.) to support the Google standard before they pile on the enhancements and slow down the fragmentation of the code base.
This is more easily said than done, because Google’s entry into the device business has to make Samsung, HTC, and LG nervous. Google has done more than any other company to sound the alarm against the evils of vertical integration, yet “now they are one.” It’s not like the gadget makers don’t have choices; Symbian has gone by the wayside, but Microsoft is more earnest about regaining market share in mobile than they’ve been in quite some time, and they clearly have the ability to compete. Palm OS, now owned by HP, is also no slouch and similarly backed by a deep-pockets owner.
All of this shows that there are benefits to scale and vertical integration in the networking business, even if they don’t extend quite as far as Jean Louis Gassée imagines. Apple’s control over physical devices, operating systems, and basic applications now allows it to build spectacular computers, portable gadgets, and mobile broadband devices that are essentially without peer. It also allows it to pioneer new computing categories like the iPad, the market changing device that the industry has been struggling to produce since the late ’80s.
Vertical integration hasn’t always worked as well as it does now, in part because the lowest part of the product pyramid – chips – used to be closed off to device manufacturers. With the advent of ASICs and advances in the ease of programming, simulation, and verification, anybody can be a chipmaker now and reap benefits all the way from the design of a power control circuit to the app that controls it.
Contrary to what you might have heard, vertical integration is beneficial in networking, and the evidence mounts every day.
UPDATE: Writing on Forbes, consultant Chunka Mui recasts Gassée’s fantasy in terms of Google buying Sprint, for some reason. He sees such an acquisition as semi-magical:
If Google buys the quickly eroding Sprint, on top of today’s purchase of Motorola Mobility, it could completely change those dynamics. Such a combination would have all the elements to change the rules: national network footprint, device expertise, boundless content and applications, all funded by the magical Google search-based business model where more traffic equates to more revenue.
It’s a point of view alright. H/T to Doc Searls for the Chunka Mui link.
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