Why Google are Delaying Open Source Distribution of Android to Year End

Today The Register ran a report from Google I/O stating

Google won't open source fondleslab Android before 'year end'

I wrote a couple of comments on the article that now I wish I had published as a post in their own right. What is the real reason for the delay? We can only speculate as to the real motives of men, but in this case, I feel there is more than a little justification for adopting one position as above the others. To a large degree this is a rehash of a point I have already made (so you can save yourself some time if you have already read that article), but I think Google's latest announcement more than confirms it.

Google is making no money outside of advertising revenues and advertising "management" revenues. Sure they attribute about a billion in revenues to Android. But anyone who knows how these reports are prepared and who the audience are will know how companies take great care to present, within the bounds of legality, the picture they want to be seen and it's what's not said that is just as revealing as what is said. Google are also now coming under pressure for being, in terms of revenue, a one trick Pony. You can be damned sure they did everything they can legally do in their reports to dispel that notion. Only they can't because the figures don't lie. Here, from their Q1 2011, report is the tell-tale disclosure:

"Advertising revenues made up 96% and 97% of our revenues for the three months ended March 31, 2010 and 2011. We derive most of our additional revenues from offering display advertising management services to advertisers, ad agencies, and publishers, as well as licensing our enterprise products, search solutions, and web search technology."

I'm rephrase this to say what I think it really means:

"96-97% of our revenues are advertising with the rest coming from advertising management services only their is a negligible amount from other sources, so we will leave it vague as to how much of that 3-4% (ok, ok, how much of that 3%) is actually from non advertising related sources, such as Android preferred supplier relationship fees and licensing."

You can bet, with the heat already on in the earnings calls, if they had anything at all significant to say about Android licensing they would have said it. And even if talking about Android advertising you can be sure their accountants will have been instructed to attribute as much to Android as can conceivably, legally, be attributed to maximise as far as possible the appearance they are starting to diversify. But the analyst community isn't fooled.

Now consider Google are now number two in the massively exploding tablet market; yes that market where the PC industry is being turned on its head, and where for all Google's investment and for all the massive and growing consumer spend, they are making no appreciable money.

Meanwhile Apple are raking it in; $7.4 billion on iPad sales over the last two quarters, and that's also with the constraint of a huge order backlog and reduction in sales due to customers waiting for the iPad 2. To be clear iApple are earning more than half of Google's revenues on iPad alone! All on a product that has been out only a year. And yet there is Google, in the not to be sniffed at number 2 spot making, as near as damit, big fat zero outside of their same-old single-horse revenue model (and one that is highly susceptible to competition from the likes of Microsoft's Bing at that, at least when compared with the MS hegemony courtesy of owning a proprietary closed license OS like Windows). Now consider there is only one thing separating them from instant profit in this insanely exploding market, and that is their public backing of what, to the stock market money men, seems like the slightly hippy ideal of OSS (Open Source Software). That's not what I'm saying. But it's what the money men are thinking. And we should also be clear, it's in Google's power to go back on their pledge and to take full control and just start licensing Android as any proprietary closed source software vendor has done before them. The fall out would be interesting, and they would burn a ton of goodwill, but I say again - look at the opportunity cost of a promise made in youth that can be broken !

Now to technologists like you and me and to people who think about more than multi-million dollar bonuses, Google's stance might sound very laudable. But when you have to explain yourself and the huge $168 odd billion valuation the stock market perceives your company to have to hard thinking, shrewd calculating analysts on an earnings call, it is understandable that Larry Page bridled at being given the opportunity. And of one thing you can be sure, if Google haven't made any headway diversifying revenues, the next call will be much harder. Think of that feeling you have if there is one thing you promised your boss and you suddenly realise the next progress meeting is already upon you and it hasn't been done. That's what it's like in these earnings calls multiplied by the sums involved and the fierce torchlight of exposure in an all too public crucible.

It's becoming all too apparent to investors, the opportunity cost of keeping Android Open Source as opposed to closed and proprietary is so staggeringly huge, Google are beginning to look more than a bit, well, like a bunch of impractical idealists who don't have the balls and guts needed to create the diversified revenue streams they so badly need.

With their pledge to Open Source, they have made themselves a hostage to fortune. But confronted by a staggering revenue earning opportunity they are getting cold feet and, rather than do a full "we admit it, we're no more or less evil than the rest" about-face, they are attempting to leverage value by keeping Android closed long enough it may as well be, and are seeking to leverage money through charging for key add-ons like the Marketplace and preferred partner agreements and seem to be hoping no-one notices why they are doing it. In other words they are trying to have their cake and eat it.

So far to a degree it is working. Many of the more Fandroid of the worker bees in the development community, like brides left at the altar, are now wandering about a bit lost, and coming up with every excuse as to why their beloved Google has abandoned their ideals, except, pierced by Cupid's arrow, they refuse to see the "ugly" capitalist truth. So excuses currently include,

"The codes not good enough for public viewing." (when it's kind of the point of Open Source that community feedback patches up the difficulties)

"It's needs to be merged back into Android for phone first." (No it doesn't)

"It's to protect the open source way from predatory companies who would adopt it and fail to adopt the spirit of Open Source." (No answer required !!!)

But the simple fact is the longer Google keep it under wraps the more they can leverage money through preferred partnerships and charging for their closed source pre-integrated, advantage over the competition, key strategic technologies like the Marketplace. It's sad that devoted and energetic followers are left out in the cold by the harsh realities of unforgiving corporate finance, but that I fear, is the truth.