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Android's Road to Ruin


Following the pack, Google's creation will stay in the road's shoulder.

I don't think there's any question that Apple's (AAPL) iPhone redefined the smartphone market two years ago. More importantly, in doing so, it blindsided the competition. Since that point, the rest have been playing catch-up with varying degrees of success and/or failure.

Google (GOOG) entered into the smartphone waters with the introduction of its "license-free" Android platform in November 2007. While Android may prove to be an attractive solution for some handset original-equipment manufacturers (OEM), it's really a double-edged sword.

Just how well Android does and its impact on the market is anyone's guess at this point. It garners more than its share of fawning media coverage, as demonstrated by the commentary from the recent announcement between Google and Verizon (VZ).

However, two things are very clear: Android exists for the benefit of Google and its long-term mobile objectives; and if you're an Android-based OEM, you've demoted yourself to assembling someone else's technology.

As to the first point, this is nothing new or profound. Companies like Google (i.e. dominant, cash-rich, big ideas) have been launching similar efforts for the supposed benefit of an industry or group for a long time. In this instance, Google needs to broaden its search and advertising service into the mobile Internet world as quickly as possible.

Given a fairly fractured handset market that's lead by proprietary products, what better way to open that market to all-comers than to offer your own platform. And who's going to argue with the price? If that new platform accelerates the acceptance of Google applications and other Google assets, everyone wins, right?

But that really depends on how you define "win".

There's no question that Android levels the playing field for every handset OEM and wannabe to enter the smartphone and/or mobile Internet device market. But in reality, what investors will see is a rerun of the personal computer (PC) market from a financial and investment standpoint.

During the heyday of the PC, companies such as Xerox (XRX), Honeywell (HON), AST Research, Digital Equipment, Group Bull, Wang, and Zenith Data Systems were all designing and selling their own PCs. All had grand plans to be a "major force" in the industry.

The enabling factors that allowed each to enter the business were the purchase of a microprocessor from Intel (INTC) and an operating system from Microsoft (MSFT). Those two elements constituted the intellectual property of a PC. Nearly everything else that went into the box was a commodity available from a number of companies.
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