Why Google Hates Android

First, some facts.

Next, my hypothesis: Google wants Chrome OS to beat Android. There are lots of reasons for this.

History: Google’s history is web software, and they excel at quickly creating simple, scalable web applications. Android is native software (i.e. software that is stored and executed on your device), which they historically have eschewed. Consider the Google Voice Desktop App saga. If true, Google pulled a potentially killer desktop product because it was not ‘web’ enough.

Control: Android is almost fully open source, while Chrome OS’s web underpinnings inherently make it closed source* Chrome OS’s user experience is loaded over the wire after Chrome OS gets onto the Internet, ensuring that closed web apps take top billing on the OS. Because Android’s source code is readily available, other developers and device makers can fork it, customize it, even go so far as to rip out Google as the default search engine and drop Yahoo or Microsoft in its place. The same (likely) can’t be done to Chrome OS, because the guts of the operating system are loaded from Google’s servers when you turn the machine on. UPDATE: struck out the incorrect bits. Thanks, Mark.

Economics: Google’s decision to deliver the 30% cut of Android Market app sales to telecom companies, instead of keeping it for itself, results in a lack of incentive for Google to invest in the Android Market. Why would they? They make no money on it. This manifests itself in many ways:

  • Android Market pales in comparison to iTunes and (at least by the screenshot) Chrome’s upcoming Web Store. 2+ years and 100K apps after the first Android phone was released, there is still no web presence (outside of a couple hundred apps) for the Android Market, while the other two have (or will have) robust ways to navigate and discover new apps from your PC.
  • The developer console to the Android Market is plagued with repeated, significant problems. Most recent: developers with multiple apps have not been able to see all of their apps for many days now.

Having built such a success in Android, Google has no choice but to continue building upon it. But that doesn’t mean they need to be committed to it. I believe they will continue to invest the bare minimum to show progress and appease their wireless and handset partners. I believe this will result in the following outcomes:

  1. Google will lengthen Android’s release cycle from every 6 months to every 1 year… oh wait, they have already announced this. Increasing the cycle length reduces the speed at which features and functionality will be built into Android, and allows its competitors to catch up or keep moving past Android’s feature set.
  2. Google’s press/blog entries for Chrome OS will increasingly talk about how it will power phones.
  3. Google will fast-track Chrome OS to try to beat Android on tablet devices. The Galaxy Tab sold a reported 600K units in its first month. While solid, this number is still low enough to allow Chrome OS to supplant Android as the non-Apple dominant tablet OS. Google has to act quickly for this, however, as the momentum behind Android by device makers is very significant.
  4. Having considered Android, and the smartphone space as a whole, ‘conquered’, Google’s senior Android engineers will increasingly be allocated to Chrome OS.
  5. Unless Chrome OS dies out of the gate, future Android releases will be underwhelming in both user features and developer tools.

* Yes, Google released the source code of Chrome OS. However, much like Android, the key bits are either going to be closed-source (GMail, Calendar, Android Market), or hosted on Google’s servers where they are untouchable to outside developers.

Thoughts? Other points? Factual inaccuracies? I’d love to hear from you.

Wall Street actions are a result of incentives

How can the financial crisis be a result of anything other than the incentives created by incomplete regulation and incorrect company structure?

People will always respond to the strongest incentives they see and are able to take on. The strongest incentives are so far-reaching across financial firms and the government:

  • Complete lack of either oversight or transparency of the derivatives market creates the incentive to build supposedly market-neutral bets that are orders of magnitudes larger than what capital reserve requirements dictate
  • Compensation packages that pay bonuses now on trades that can blow up later creates incentives for employees to take risks now; if the house falls down, they will be laid off, but will also be much wealthier.
  • The tacit understanding that the largest banks and hedge funds will be rescued no matter how stupid the actions that got them there to begin with creates the incentive to take on increasingly risky positions. If you aren’t playing with house money, you will be playing with taxpayer money.
  • The SEC’s inability to regulate Wall Street, because Congress told them not to, because they were told that regulation hampers innovation by a Wall Street lobbyist, creates the incentive to continue doing what you are doing, as no one from the government will bother you.

I am sure I am missing probably 3-4 other causes for these incentives, but to me these are the biggest.

The financial regulation bill reaching Congress today is a step in the right directly, but will likely introduce or leave behind holes. This will create additional incentives that financial firms will rush to fill. I don’t know what those holes are, as I haven’t read any part of the bill, but I know they will be picked apart by the blogs I do read (mentioned below).

Any argument that talks about morals (e.g. “Wall Street is too greedy”) is doomed to fail. Spend five minutes with a trader from one of these firms, and economic morals is generally completely lost on them. They wouldn’t be successful traders if this wasn’t the case, as their jobs are to take advantage of these kinds of inefficiency.

This post was inspired by this summary from Russ Roberts on Marginal Revolution, as well as from two years of reading Naked Capitalism and Marginal Revolution

“1. It isn’t “too big to fail” that’s the problem, it’s the rescue of creditors going back to 1984, encouraged imprudent lending and allowed large financial institutions to become highly leveraged.

2. Shareholder losses do not reduce the problem even when shareholders are the executives making the decisions

3. These incentives allowed execs to justify and fund enormous bonuses until they blew up their firms. Whether they planned on that or not doesn’t matter. The incentives remain as long as creditors get bailed out.

4. Changes in regulations encouraged risk-taking by artificially encouraging the attractiveness of AAA-rated securities.

5. Changes in US housing policy helped inflate the housing bubble, particularly the expansion of Fannie and Freddie into low downpayment loans.

6. The increased demand for housing resulting from Fanne and Freddie’s expansion pushed up the price of housing and helped make subprime attractive to banks. But the ultimate driver of destruction was leverage. Either lenders were irrationally exuberant or were lulled into that exuberance by the persistent rescues of the previous three decades.”

(Side note: I use the term Wall Street quite loosely here. In reality, many firms that contributed are not physically on Wall Street, and many that are on Wall Street did not contribute in meaningful ways.)

Leaving a dentist near you…

UPDATE 4/22/2010: And like that, the ridiculous program requirements that Align Technologies put into place has been removed. Fortunately I did not follow through on that short – the stock is up almost double since this program was announced.

ORIGINAL 7/9/2009:

.. Invisalign.

In what could be the dumbest business decision I’ve heard of in a long time, Align Technologies (NASDAQ: ALGN), makers of Invisalign® has decreed that all dentists offering Invisalign must start 10 cases per year and complete 10 CE credits related to Invisalign per year (copy of letter sent to one dentist here).

What this means for the consumer:

  • The consumer experience will undoubtedly improve. Those who truly want Invisalign will now have a limited set of very experienced dentists to choose from.
  • However, competitive pressure may change that – see notes on ClearCorrect below.

What this means for the dentist:

  • The national average for a case is $5,000/year(source). Convincing 10 patients per year to fork over $5,000/year for a truly elective procedure is very, very hard in the vast majority of markets out there. Only the ones that market heavily and whose business consists of a very high percentage of cosmetic dentistry will make this quota.
  • Every dentist who became certified in the past 5+ years was required to pay $1K-2K to become certified. This, combined with a mandatory reduction in services, is going to lead to a large number of very unhappy dentists at this decision (I know a few myself). And, you can be sure that unhappy dentists across the country will do whatever is in their power to keep a patient in the door. A few choice quotes from the online dental community DentalTown:
    • “Absolute idiots IMHO !!! I wonder if they will be refunding doctors certification costs as they decided to change the rules in the middle of the game?”
    • “While there are many doctors that may not submit many cases to Invisalign, I suspect these same doctors talk alot about invisalign and are a terrific advertising/referral source for high volume invisalign offices or orthodontists. I’m sure many of us won’t have very many nice things to say about Align right now.”

What this means for Align Technologies:

  • I would expect that this knocks out 50-75% of their dentists (by number), but only knocks out 10% of revenue in year 1*. They can align sales/admin costs against this expected reduction in revenue to minimize the impact to net income. This, however, does not include the general softness expected in their business due to offering an expensive, elective procedure during a severe recession, which analysts have already identified.
  • Beyond intentionally cutting revenue during the recession, their timing is poor. Between being found as violating patents by one competitor (Ormco Corporation) and seeing another upstart invade their turf (ClearCorrect), they are leaving dentists with plenty of options that are not Invisalign.

How long will they have until this newfound exclusivity takes a toll on their brand strength and share price? I don’t think their 2Q earnings will reflect the change, as the few fringe dentists are likely pushing Invisalign hard to hit their quota, but I would be surprised if they don’t have to lower guidance again in future quarters, partially as a result of this policy.

Comments? Thoughts?

*These are gut-feel numbers, not based on financial analysis.

Why Android and Why Chrome

There has been a lot of discussion recently (at least among those who follow this stuff) about Android 2.0, Google Maps adding turn-by-turn navigation, and Google introducing the Chrome OS, it’s new operating system. For those who know me, I have been following Android-vs.-iPhone very closely for over a year now, and have believed from the very start that Android will win. There are a lot of similarities between Android-vs.-iPhone to the Windows/PC-vs.-Mac battles in the 1990’s, from a high level.

Android is open, like Microsoft was open: Any manufacturer or carrier could use the free Android operating system on any of their platforms. Conversely, Apple is closed. No other manufacturer is allowed to use the iPhone OS, and (at least for now) iPhone is contractually limited to AT&T.

However, this article by VC Bill Gurley lays out very clearly why the pace towards adoption of Android will accelerate: Google is sharing search revenue with its partners.

“Google will give you ad splits on search if you use that version! That’s right; Google will pay you to use their mobile OS.”

So, not only is a manufacturer like Motorola able to load the Android operating system without paying a licensing fee to anyone, if they load the Google-versioned Android operating system, they can receive a chunk of revenue from Google search that flows through their handsets. Bill Gurley dubs this “less than free“, and while I don’t agree with that name, the generally brilliant concept is that Google is buying market share for Android.

Now, step forward to Google Chrome. Google representatives have announced repeatedly that they are building an operating system called Chrome, ostensibly to take on Microsoft Windows. For a long time I questioned why, but this article makes it clear: with an operating system that HP or Dell or Acer loads (for free, of course, relative to Microsoft Windows), and with partner search revenue that flows from Google to the PC manufacturers, the adoption of Chrome will be lightning fast.

Small business 401K provider?

Does anyone have recommendations for a 401K provider for small businesses?
We are currently using SurePayroll with Sure401K/ePlanServices. This has been a complete disaster.

  • The numbers provided by both companies vary wildly for our Form 5500, and those differ from what our accountant thinks the numbers should be as well.
  • There is no single point of contact as these are two different companies.
  • For several problems the answer has been “don’t ask us, ask the other guys. We just get the number from them.”
  • We had to get our accountant involved as well, which has driven the cost up for this service dramatically, as no one at either company can provide a straight answer.
  • Emails and phone calls to both organizations have gone unanswered many times. We have to actively get someone on the phone, or then worry that our phone calls go into a black hole.

Before setting up the 401K, we were very happy with SurePayroll and recommended them to all of our friends. Now, however, that has changed.

Your suggestions are appreciated! Please post them below or email me directly.

Google Voice (today) –> AT&T (1980’s)

This is a great opinion piece by Judy Shapiro at Advertising Age. It draws parallels between the widely acclaimed Google Voice service and the breadth and reach of AT&T’s investments in the ’80s and ’90s. The conclusion is that this is a dangerous path for Google, as it takes it far afield from its core business, and that while the core business may not suffer today, it may (will?) in the near future as a result. From the article:

Much like AT&T did 20 years ago to maintain its growth, Google is trying to do the same — control the data distribution channels. In the case of AT&T, it was all about information delivery to business and residential users. In the case of Google, it’s all about advertising delivery to its “product” — the users of its services.

The trouble with wanting to dominate all delivery channels (whether it be information or advertising) is that you are forced to go further and further afield from your core competency. And while playing in disparate businesses is something a leader brand can afford to do, over time the core business tends to suffer — slowly but inextricably. Then at some point, you are willing to throw out the knitting needles. AT&T did, and it did not end well. Google looks like to be headed in the same direction.

Are expensive running shoes a waste of money?

A fascinating article in The Daily Mail about running shoes and whether they are worth their money. If you are a runner or even like to walk a lot, it is well worth the read.

My favorite quote:

Dr Craig Richards… revealed there are no evidence-based studies that demonstrate running shoes make you less prone to injury. Not one.

It was an astonishing revelation that had been hidden for over 35 years. Dr Richards was so stunned that a $20 billion industry seemed to be based on nothing but empty promises and wishful thinking that he issued the following challenge: ‘Is any running-shoe company prepared to claim that wearing their distance running shoes will decrease your risk of suffering musculoskeletal running injuries? Is any shoe manufacturer prepared to claim that wearing their running shoes will improve your distance running performance? If you are prepared to make these claims, where is your peer-reviewed data to back it up?’

Dr Richards waited and even tried contacting the major shoe companies for their data. In response, he got silence.

And also,

Runners wearing top-of-the-line trainers are 123 per cent more likely to get injured than runners in cheap ones.

Explaining the credit crunch

The New York Times has a fantastic piece explaining how the little subprime mess has ballooned into trouble at some of the nation’s premier banking institutions. Great for those who know a little about the current situation, but probably not detailed enough for those bankers who live in it every day.

Favorite quote:

“The mortgages were then sliced into pieces and bundled into investments, often known as collateralized debt obligations, or C.D.O.’s (a term that appeared in this newspaper only three times before 2005, but almost every week since last summer).”

eBay’s woes

I found this great article about eBay’s problems on the New York Times website (although it was unfortunately centered around the hypothesis that Amazon should buy eBay), along with this follow-up on Wired.

From the Wired article:

From where we’re sitting, it looks pretty chaotic. eBay’s CEO is out playing politics; one of the highest-ranking executives is publicly trashing the business; and customers are apparently planning a revolt. There are roughly 248 million registered users on eBay — and while not all of them are going to be happy, the company’s listings fell 3 percent during the first nine months of 2007, which indicates that a huge chunk of its customer base is taking its business elsewhere.

I personally have come to hate eBay. After:

  • 2 of my 3 attempts to sell an old laptop were foiled (the first time, a Nigerian scammer won my auction; the second time, a Nigerian scammer hacked into the winning bidder’s account and then won my auction)…
  • Spending 3 months trying to repeal the fees eBay charged me for these 3 listings…
  • And spending many hours trying to just look around their clunky, confusing website to find even slightly relevant information…

I have all but given up on using them. Too bad there are no really valid competitors to put real pressure on eBay.