Episode 20: Android

[0] We should have like a fighter jet fly by, if you guys heard that at all.

[1] The Seahawks game started.

[2] Oh, nice.

[3] That is a cool plane.

[4] Not a Concord, though.

[5] No. Who got the truth?

[6] Is it you?

[7] Is it you?

[8] Is it you?

[9] Is it you?

[10] Is it you?

[11] Is it you?

[12] Sit me down.

[13] Say it straight.

[14] Another story.

[15] Welcome back to episode 20 of Acquired, the podcast about technology acquisitions.

[16] I'm Ben Gilbert.

[17] I'm David Rosenthal.

[18] And we are your hosts.

[19] Today's episode is one that's been coming for a long, long time.

[20] It's a cornerstone of all of computing today.

[21] Google's 2005 acquisition of Android.

[22] I'm speechless.

[23] Yeah, it's interesting.

[24] I mean, 2005, when you think about the numbers, doesn't feel that long ago.

[25] But when you think about the first time you saw an Android phone and heard about what Google was working on, it seems like the iPhone hadn't come out yet, right?

[26] Yeah.

[27] This was pre -Ivon before iPhone was just a glimmer in Steve Jobs' eye.

[28] Yeah.

[29] Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow.

[30] Yes, Service Now is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency.

[31] 85 % of the Fortune 500 runs on them, and they have quickly joined the Microsoft at the NVIDIA's as one of the most important enterprise technology vendors in the world.

[32] And, just like them, ServiceNow has AI baked in everywhere in their platform.

[33] They're also a major partner of both Microsoft and NVIDIA.

[34] I was at NVIDIA's GTC earlier this year, and Jensen brought up ServiceNow and their partnership many times throughout the keynote.

[35] So why is ServiceNow so important to both NVIDIA and Microsoft companies we've explored deeply in the last year on the show?

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[38] Interestingly, employees can not only get answers to their questions, but they're offered actions that they can take immediately.

[39] For example, smarter self -service for changing 401K contributions, directly through AI -powered chat, or developers building apps faster with AI -powered code generation, or service agents that can use AI to notify you of a product that needs replacement before people even chat with you.

[40] With ServiceNow's platform, your business can put AI to work today.

[41] It's pretty incredible that ServiceNow built AI directly into their platform, so all the integration work to prepare for it that otherwise would have taken you years is already done.

[42] So, if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to servicenow .com slash acquired, and when you get in touch, just tell them Ben and David sent you.

[43] Thanks, ServiceNow.

[44] So to all of our new listeners, welcome.

[45] We were featured on new and noteworthy and iTunes over the past.

[46] Looks like a week or two and about doubled our subscriber base.

[47] So thanks so much for everyone trying us out and giving us a shot.

[48] I think what I want to do is go over the format of the show since a lot of you are new and talk about what we'll cover today in kind of reviewing and grading Google's Android acquisition.

[49] So the first thing is something sort of newish that we're trying called Community Showcase.

[50] And we felt it was important since we have so many listeners who are working on projects and building things, a lot of entrepreneurs.

[51] And we like to on each episode talk about something that one of those people is working on.

[52] So that will do our community showcase.

[53] Then we go into acquisition history and facts where David takes us through what actually happened.

[54] Yeah.

[55] Yeah.

[56] And then, uh, then we get into the acquisition category where we decide if it's a people acquisition, technology, product, business line.

[57] We recently added asset to our categories or the, uh, ever -encompassing other.

[58] Yes.

[59] Then we talk about what would have happened otherwise.

[60] Uh, what tech themes, this.

[61] illustrates for us.

[62] We then formally give the grade of our acquisition from the episode.

[63] Then we have some follow -ups and a section called the carve -out.

[64] This is where David and I grab something from our lives that we've seen with a book or a piece of software or anything in the media that we think is either related or completely unrelated to the topic at hand.

[65] Just something fun that strikes our fancy.

[66] The other thing that we sometimes do now is hot takes.

[67] If something big in the in a world or otherwise happened in the past week or two, we'll do a quick discussion.

[68] We will.

[69] So that's the show.

[70] Indeed.

[71] All right.

[72] So our community showcase this week, listener Matt, I might butcher this, Morgante, released a book called Patagonia on a budget.

[73] It's on product hunt right now.

[74] If you search on Amazon for Patagonia on a budget, you can find it.

[75] And it's how to have your adventure in Patagonia on $30 a day.

[76] And there's a ton of cool photographs in there.

[77] I should go pick up a copy because it looks super cool.

[78] Patagonia is awesome.

[79] That brings us to also for our new listeners, our Slack community.

[80] So we have a community channel on Slack.

[81] And if you'd like to join it, there's lots of great discussion going on on there.

[82] Just go to our website, Acquired .fm.

[83] And there's a sign -up forum there.

[84] And then you can hang out with the community throughout the week.

[85] Yeah.

[86] And if you want us to show off what you're working on, drop a link in and we'll check it out.

[87] So on to this week's topic.

[88] David, you want to hit it with the acquisition history and facts?

[89] As always been.

[90] So Android has been mentioned, this one has been a while coming.

[91] We've had a lot of requests for this.

[92] We've been saving it and we felt it was time to finally dive in here.

[93] There is so much to unpack here.

[94] So we'll get into it.

[95] October 2003, Android is a startup company just founded in Palo Alto.

[96] by Andy Rubin, Rich Miner, Nick Sears, and Chris White.

[97] And Andy, Rubin, the CEO, was basically born to start this company.

[98] So Andy's career started at Carl Zeiss, the camera lens, camera technology and camera lens manufacturing company.

[99] Then he moved to Apple.

[100] At Apple, he met a bunch of folks.

[101] This was during the John Scully era.

[102] Wow, I did not know he was at Apple.

[103] He was at Apple.

[104] Yep, there for a couple years, and he and a bunch of other people spun off from Apple and started a company called General Magic, which not a lot of people remember, but this was a spin -off from Apple actually went public itself, and the whole, they never launched a product, but what they were doing was they were building essentially a tablet, like a personal communicator, you know, sort of a POM competitor.

[105] and a lot of that tech, I believe, ended up in the Newton at Apple.

[106] They went public?

[107] It was a public company, yep, and it ended up going bankrupt.

[108] Wow.

[109] It was super ambitious at the time.

[110] I believe also some of the technology that they developed there became the standard for USB.

[111] Huh.

[112] A lot of really cool stuff happened there.

[113] So he went from Apple to General Magic, and then a bunch of General Magic went and started a company called WebTV, which you probably do remember.

[114] And web TV was part of, this was in the kind of mid to late 90s, vision that a lot of people in technology had at the time that the internet was not going to happen on computers in a big way, it was going to happen on your TV.

[115] That's right.

[116] So this was a set -top box, like your cable box.

[117] This is in the era that Microsoft's making the bet that they should do MSNBC, like a technology -enabled television channel, joint venture.

[118] This is the AOL -L -Time Warner Days, like, It's all new media, old media, eyeballs.

[119] It's the eyeball economy.

[120] So WebTV ends up getting acquired by Microsoft.

[121] And Andy and the team go up to Seattle, work in Microsoft.

[122] I don't know if they actually ever came up to Seattle.

[123] But they build Microsoft TV, which, as we know now, is an abject failure.

[124] But shortly thereafter, Andy leaves and he starts a new company called Danger.

[125] So Danger was founded in the late 90s, I believe, after Andy left Microsoft, and they made a little device called The Sidekick.

[126] And this was sort of, RIM already existed.

[127] So there were Blackberries out there, but this was the first consumer -focused smartphone, really.

[128] Yeah, and it had like celebrities where it had a cool factor because they would show their danger and, you know, photo shoots.

[129] And like this was a thing.

[130] You wanted to have one of these.

[131] I remember the first time that I started hearing about the sidekick in danger was watching Entourage.

[132] Oh, man. And it was like, everybody on Entourage had a sidekick.

[133] I think there's actually an episode where this is a plot point.

[134] The turtle, like, gets a sidekick and like it's, you know, he's super cool.

[135] I can't remember exactly.

[136] It's so recognizable, too, the way that it spun out.

[137] I mean, the industrial design was crazy, unique, and super cool.

[138] Yep.

[139] See, I mean, there was very little on the market.

[140] Like this, like I said, there were smartphones.

[141] They existed, but this was like the Windows mobile days.

[142] There was Blackberry.

[143] It was for business people.

[144] It was for business people.

[145] And then the sidekick comes out and it's the first time like, oh, we can bring this technology to consumers as well.

[146] So Andy was the CEO of Danger.

[147] And then he ends up leaving relatively early on in the life of the company.

[148] Oh, by the way, supposedly Larry Page and Sergey Brin were huge sidekick users as well.

[149] And so he ends up leaving and starting a new company that he calls Android.

[150] And the vision for Android is...

[151] This is post -acquisition?

[152] No, no, this is pre -acquisition of danger.

[153] Danger doesn't end up getting acquired by Microsoft until 2008.

[154] Oh, wow.

[155] Much later.

[156] But in 2003, Andy leaves and starts Android.

[157] And whereas Danger was a sort of full stack company, they were making the hardware, they were making the software that went on these sidekicks, they were dealing with carriers, everything.

[158] Android is an operating system company.

[159] And they want to take Linux and essentially make it into an operating system capable of running on mobile devices.

[160] And the first sort of, we now know, Android runs on.

[161] so many devices today.

[162] The first target market that they're going to go after is digital cameras.

[163] That's right.

[164] That's right.

[165] I remember reading that.

[166] And I think what they assessed that it's not a big enough market.

[167] Which is interesting because like it was a huge market at the time.

[168] I mean, this was 2003.

[169] Everybody had the point shoots.

[170] And it would be interesting to know like what the process they went through and deciding that that wasn't big enough.

[171] But fortunately they made the right call.

[172] Yep.

[173] And quickly pivot into focusing.

[174] the device on mobile phones.

[175] Yeah, I wonder, it didn't, you know, hindsight's 2020, but I don't think it was apparent in 2003 that point in chutes would go away and become part of phones.

[176] Like, could you, is there a world where you see that maybe the other way around that you're like, we should build a really great camera because at some point cellular technology will become, you know, lightweight enough that we can put it in.

[177] Into the camera.

[178] Yeah.

[179] It would certainly been hard to imagine.

[180] cameras on phones to the extent they even existed then getting good enough that you could actually take real pictures on it yeah I don't think I had a camera phone until 2005 or six yeah later than this time period oh they were just horrendous oh they were awful um awful uh I mean even the first iPhone in 2007 like the camera was part of it but it wasn't like that was a big selling point and contrast that now with I literally huge the camera is on the iPhone I literally just preordered a form factor that I don't want because the camera is better.

[181] Like I, the plus is too big for me. And I just, I, you know, I had this weird realization that, wow, I use this thing more as a camera than a phone.

[182] Maybe Andy and team were like more right than they thought at the time.

[183] Anyway, getting back on track.

[184] So as far as we know, they never raised any venture capital at Android.

[185] but Steve Perlman who had been the CEO of WebTV and who had been at General Magic with Andy and Andy had worked for him at both places at one point there's in the lore of pre -Google Android apparently Andy was running low on cash and Steve shows up at the office at Android with an envelope with $10 ,000 in cash in it and he just gives it to Andy and he refuses to take a share in the company Andy tries to give him shares for it And he says, no, no, this is just for you.

[186] He's just giving him the cash.

[187] What a good friend.

[188] I know.

[189] That's awesome.

[190] I know.

[191] Steve, will you be our friend?

[192] So that happens.

[193] They're working away on this operating system.

[194] And as we mentioned a minute ago, Larry and Sergey had been big sidekick fans.

[195] They had actually met Andy back in the day when he was working on danger.

[196] and July 2005 comes along and Google ends up just acquiring Android before they've shipped anything.

[197] They're a long way away from shipping anything.

[198] Deal terms not announced.

[199] This was a small team hadn't raised any venture in Palo Alto, rumored to be about $50 million.

[200] And what's interesting is that many years later, David Lawy, who was at one point head of Google's corporate development in 2010, he's being interviewed and he calls this Google's quote, best deal ever.

[201] So they've acquired this company.

[202] It's Andy and Team.

[203] They're working on this operating system.

[204] Immediately, you know, Google had just gone public a year before.

[205] Lots of rumors start circling about what Google is up to here.

[206] You know, are they working on the G -phone?

[207] You know, this is kind of like the G -Drive that we talked about.

[208] With Google Ducks, the Wrightley acquisition, for years, people are speculating what is going on here, what is going on here, and there's no G -phone.

[209] Andy and team are working away for years.

[210] And so pretty much nothing happens until 2007.

[211] And then in January 2007, the world changes.

[212] Steve Jobs announces the iPhone.

[213] The breakthrough internet communications device where nobody really understands what he's talking about and applauds a little bit.

[214] It's an iPod.

[215] It's a breakthrough internet communications device.

[216] one of the best, um, one of the best, you know, product launches and speeches and presentations of all time.

[217] Yep.

[218] Um, so that happens in January 2007.

[219] Meanwhile, Andy and team within Google had been working on the operating system and they'd been working with hardware partners about what the, you know, phones that they would ultimately bring to market would look like and they were working with HTC.

[220] And, uh, they had a prototype and it looked a lot like the Palm Trio, if you're remember that it was not a touchscreen it had you know blackberry like keys on it right um not sure if it had a stylus uh it may and and so then they they watch the iPhone announcement which you know at the time it was it was amazing like I I lined up for the first iPhone like I couldn't wait to get it but like I lined up for the first iPhone and didn't buy one I was I was young and did not have any money and it was like I couldn't pay for the data plan but I wanted to be part of it That's amazing.

[221] So I was lucky I had just graduated from college when it came out that summer, literally.

[222] And this was the first cell phone I bought.

[223] Like I went off my parents' plan, got my own plan just so I could get an iPhone.

[224] That's right, because they launched special iPhone plans that didn't include family plans.

[225] Because it was, we'll get back to this, it was an exclusive with AT &T.

[226] And which becomes quite important later.

[227] So this happened.

[228] And, you know, consumers were dying to get this thing.

[229] I think people were calling.

[230] calling at the Godphone.

[231] But this is also the time Steve Bomber is saying, like, you know, literally laughing about it.

[232] Like a lot of corporate tech and big companies, you know, are really discounting the transformative power that the iPhone's about to have here.

[233] And meanwhile, there's a great story about a bunch of RIM employees that were sitting around that watched the keynote and said it was fake.

[234] They were like, there is literally no way to do this.

[235] That we've tried, you know, that this is not.

[236] You can't get scroll performance like that.

[237] You can't make a screen like that.

[238] And it's amazing how you can get Steve Balmer dismissing it while simultaneously the BlackBerry guys don't even believe it's possible to do that stuff.

[239] It's interesting to look at the spectrum of reactions here.

[240] You've got Steve Bomber who just dismisses it.

[241] The BlackBerry guys are in denial.

[242] And the Google reaction, so there's an interview later with Google engineer, Chris, Salvo, who was working on Android at the time.

[243] And he said, he says, quote, what we had suddenly looked just so 90s.

[244] It's one of those things that are, it's one of those things that is so obvious when you see it.

[245] And they realized that they had to go back to the drawing board immediately, that this was game changing.

[246] Wow.

[247] So this was January 2007, and they had these prototypes that were pretty far along with HTC.

[248] And had they started the Open Handset Alliance?

[249] That comes in a minute.

[250] it.

[251] But they scrap everything.

[252] They realize, hey, the world has changed.

[253] We now need to compete with the iPhone.

[254] So later that year in November, Google, and it's interesting, the timing here, we don't know when they were originally planning to do this, but they ended up doing it in November.

[255] So after the iPhone had launched, they have a big event, and they announce the Android operating system.

[256] And they also announce, equally importantly, the Open Handset Alliance.

[257] And so the open handset alliance, they have HTC, Sony, Samsung, Sprint, T -Mobile, and Qualcomm.

[258] So, like, the whole phone ecosystem, the whole stack.

[259] Manufacturer, they're the operating system.

[260] They have the carriers.

[261] Yep.

[262] And this is, this is for all of these players in the ecosystem, you know, if they don't realize already, this comes to be, this is the only way they're going to stand up to Apple is they all need to work together and there needs to be this open operating system tying it all together, which becomes Android.

[263] So they announce both at the same time.

[264] And what's super interesting is as part of the announcement, they also have the $10 million dollar Android challenge.

[265] So they make it super clear Google does that Android is an open operating system.

[266] And that means two things.

[267] One, it's open source.

[268] So anybody can use it.

[269] And later on, this leads to forks of Android like cyanogen, like the Kindle Fire.

[270] Xiaomi as an entire company.

[271] Become super important later.

[272] But it's completely free.

[273] Anybody can take the Android software and do whatever they want with it.

[274] The other part of Open that Google really focuses on is developers can develop for the platform.

[275] So this was before the iPhone, iOS was not yet open to developers.

[276] That's right.

[277] WWDC in June of 2008 is when Apple walked back there.

[278] You can make web apps and announce the app store.

[279] Yep.

[280] And Steve Jobs initially was, you know, his posturing was we don't want developers.

[281] We want to control everything of the software stack.

[282] And hard to imagine what the iPhone would be like today.

[283] if there were not third -party developers.

[284] Not successful.

[285] Well, it's interesting.

[286] I mean, Google kind of pushes them towards this when they make Android open and developers start to realize the massive reach with, you know, there are however many computers there are, PCs there are in the world, and web browsers, but there's a lot more phones.

[287] Yeah.

[288] And they can reach this huge consumer base.

[289] So this really is sort of like Google's kind of putting a flag in the ground.

[290] and saying, hey, we're open.

[291] That means two things.

[292] We're open to the entire hardware and supply chain ecosystem, but much more importantly in the long term, we're open to developers.

[293] So that was November 2007.

[294] But remember, they realized, like, they couldn't compete with the iPhone.

[295] So they end up not shipping the first Android phone until almost a year later in October 2008.

[296] And that's when the HTC Dream slash in the U .S., the T -Mobile G. D -1 is the first Android phone, the much vaunted, anticipated Google phone, finally comes out.

[297] That's still at a keyboard, right?

[298] Still at a keyboard, so it was a touchscreen, and it had a scroll wheel on it.

[299] That's right.

[300] And physical hardware buttons, which were part of Android for a long time.

[301] And then it had a slide -out, full cordy keyboard, much like the sidekick that slid out horizontally from the device.

[302] huh super interesting so it doesn't really look anything like the iPhone it's kind of its own thing but this is this is the first uh the first android phone that finally comes to market so with t -mobile made by htc um and it comes out sort of just in time for the holidays of 2008 doesn't really make much of a splash you know at this point the iPhone um you know the growth in iPhone shipments by today's standards or slow but at the time it was like completely taking off clear that this was a hit and i remember steve jobs on stage saying that their goal for the i think it was their goal for the first year of the iphone was to capture one percent of phones i i don't think he said smartphones that he intentionally i think he i believe it was intentionally because they they didn't want to acknowledge that smartphones were a category much like they never acknowledge netbooks or right and i think like it's amazing looking back Like their hope was to get 1%.

[303] And I think that's kind of what they tracked, actually, that first year.

[304] But then the explosion after that, never could have predicted.

[305] And then the market just completely exploded.

[306] So it wasn't actually then until around the holiday season of 2009 that Google, you know, who knows how much Google drove this, but essentially the rest of the wireless phone industry ecosystem, except for Apple, realized they have a big problem.

[307] A big, big problem because the iPhone is on its way.

[308] At this point, 3G has been launched.

[309] So that was one of the big things with the original iPhone.

[310] Oh, like, it's great, but like it's slow.

[311] And 3G was out, but Apple, it was one of those things where Apple had been working on the iPhone for so long that the only thing they could get to the market by July of 2007 was an edge phone.

[312] And then what, 08 was the 3G?

[313] Quote, 2 .5G, if you remember, Ben.

[314] That's right.

[315] Right.

[316] And by 2009, Apple then opened up iOS to developers, so that wasn't even an advantage anymore.

[317] And the amount of, so remember, iPhone was still exclusive to AT &T at this point in the U .S. And AT &T is just raking in subscribers at this point becoming, it was already, I believe it was already the largest phone network before the iPhone.

[318] this point, you know, Verizon, Sprint, T -Mobile have huge, huge issues.

[319] Yeah, that's got to be one of the best partnership or exclusivity agreements in the history of the American corporation is AT &T strapping itself to the iPhone as a rocket.

[320] Yep.

[321] I mean, the thing that paints it in my mind for, like, how big a deal that was is how big a deal the opposite was.

[322] Like, how widely anticipated the Verizon iPhone was.

[323] And when the Verizon iPhone came out, how, crazy.

[324] All my friends went that were non -AT &T with all this incredible pent -up demand for it.

[325] Which is interesting that by holiday 2009, there's finally been enough time in the product cycle that Verizon, Google, everybody else, all the handset makers realize they got to do something.

[326] And so Verizon launches the droid in 2009.

[327] And they paid Lucasfilm every single time the word droid was mentioned.

[328] Isn't that amazing?

[329] It's at the bottom of every magazine ad.

[330] It's so awesome.

[331] something that they were like, yeah, screw it.

[332] It's worth it.

[333] And I mean, this was, in a lot of ways, this was a phone ahead of its time.

[334] But the whole positioning was against the iPhone here.

[335] It was the campaign was called droid does.

[336] And this was like the old Mac and PC campaign's been in reverse.

[337] It was like, well, your iPhone doesn't do X, but droid does.

[338] That's right.

[339] And this is like the full swing of the smartphone wars heating up where now we sort of settled into this place where, you know, Android's got about 80 % of the people, iPhone's got about 20 % of the people, but iPhone people pay, you know, for apps and much more so than Android people.

[340] And it's interesting how it's reached this almost like, like, not a peace treaty, but like it's, it's like, we thought there was going to be one winner in this smartphone wars, and it was going to be a crazy five -year thing and one person.

[341] We thought it was going to be Microsoft and Apple all over again.

[342] Right, right.

[343] And it's interesting how we've reached this equilibrium where like the world exists in a multi -platform way kind of sustainably for at least this set of year.

[344] This moment in time, yep.

[345] And then the, in that initial droid does thing, they, they intentionally, like, it was confusing to people that you could get an Android, but it wasn't from Google and it wasn't called an Android.

[346] And so I think it was like an intentional move to say, you know what?

[347] We're just going to like, just like lean into that.

[348] The phone's going to be called a droid.

[349] It's the main one we're going to market.

[350] We're not going to have Android.

[351] be a consumer brand.

[352] Yep.

[353] And it was amazing how many people...

[354] And important to remember, too, who made the droid?

[355] It was Motorola, which we'll get to in a sec. Oh, yeah, yeah.

[356] But I guess my point is, like, it's amazing how it was in most people's lexicon to ask, do you have an iPhone or a droid?

[357] Yeah.

[358] It wasn't Android.

[359] It was a droid.

[360] Yeah.

[361] So, yeah, everything you're saying, Ben, I mean, this was like, these were the holy wars of mobile that got kicked off with the droid.

[362] And so basically from 2010 to kind of 2012 -ish, there's just this race where everybody who's not Apple in the ecosystem is racing to copy Apple and then try and surpass if they can, but even just get to parity.

[363] And that's, you know, towards the end of that time, that's when you see Samsung really emerging.

[364] I mean, they were the most shameless, just literally ripped wholesale everything from the iPhone, but it worked.

[365] And so fast, like two months after Apple would announce something, like some team at Samsung would get to work all night, and then they'd rush it to market, and then they'd announce that it exists, and then, like, you know, there'd be, maybe you could get them from a supply chain, maybe you couldn't, but, like, they put a stake in the ground that, like, yes, Samsung has this, too.

[366] And you see it all the way through, like, touch ID.

[367] Like, they had to slide to unlock, like, there was a big fight about that.

[368] And to the bitterness involved here.

[369] So Steve Jobs is towards the end of his life at this point.

[370] And the Walter Isaacson, you know, biography that comes out, which is this incredible book.

[371] He has this quote in there.

[372] He says, I will spend my last dying breath if I need to.

[373] And I will spend every penny of Apple's $40 billion in the bank.

[374] Funny that at the time, Apple only had $40 billion in the bank.

[375] Like, that's cute, right?

[376] To write this wrong, I'm going to destroy Android because it's a stolen product.

[377] I'm willing to go thermonuclear war on this.

[378] This is incredible.

[379] But this was this was the height.

[380] And so that comes out and then and then Vic Gunther.

[381] I miss that guy.

[382] Incredible.

[383] It's amazing like how much the world has changed though from his vision, you know, when he was alive and how different things are in it.

[384] You know, like Like, the famous quote, like, if you see that Steve said, if you see a stylus, we blew it.

[385] Did you hear the interview with Tim Cook a couple weeks ago that they asked, they, I forget who did it, but in Apple's recent little PR rush, they asked Tim Cook about that exact thing.

[386] And they're trying to push them on the point that like, are you guys blowing it?

[387] And, and Tim starts with, well, first of all, it's a pencil, not a stylist.

[388] I love Apple marketing.

[389] What would Steve have said?

[390] but Tim isn't Steve, which is the point.

[391] And Apple is not...

[392] Tim did recently, you know, the last couple of years, refer to the Android ecosystem as a toxic hell stew.

[393] I think you pointed out, it was like a quote rip from a writer that they put up on the stage at Apple.

[394] So, you know, Google doesn't just like take this lying down.

[395] No. They strike back.

[396] And so Vic Gundotra, who was a longtime exec at Google, and I believe founder of or in charge of Google Plus at one point.

[397] That was a low mark on his time there.

[398] But at I .O., Google's big conference in 2010, Vicks, you know, asked about this.

[399] And Steve's, you know, quote in Apple's feelings about it.

[400] And he says, if Google did act, this is a quote, if Google did act, we faced a draconian future, a future where one man, one company, one device, one carrier would be our only choice.

[401] That's a future we don't want.

[402] Yeah, it's a very, like, noble way to approach why they're getting into this business.

[403] The famous Apple 1984 commercial.

[404] It's like Apple is now the, you know, the man talking on the screen and, you know, Google and Android is throwing the hammer at it.

[405] Yeah, if you can find a way to position yourself as an underdog, even if you have a monopoly in search and one of the largest technology companies in the world, by God, you should do it.

[406] Absolutely.

[407] I mean, they're literally outappling Apple at Apple's own game here.

[408] And, and so, you know, it, it was.

[409] was a war.

[410] And at the time, you know, so many, everybody in the press, everybody in the tech world was, you know, is it Android going to win?

[411] Is iOS going to win?

[412] What's going to happen?

[413] What should I, and startups, you know, at the time, our portfolio companies and as we were talking to new investments, it's like, well, what are you going to develop for?

[414] Like, it was a big question then because it was really hard to develop for both.

[415] Right.

[416] I guess it's probably a good time to say for new listeners.

[417] David's a VC here at Madrona Venture Group.

[418] We're recording out of their offices this weekend.

[419] And I'm over at Pioneer Square Labs just down the street and we're a startup studio.

[420] So it's probably helpful to have some contacts on, like, who we are and what we do.

[421] And a couple other side notes that, one that is more a quirk of history, but is just too fun not to talk about here.

[422] In August of 2010, HTC acquires a majority stake in beats, beats audio.

[423] And as a result of that from kind of, you know, 2011 to 2012, 2013 -ish, you can still go buy these things on Amazon, which is amazing.

[424] We will link to this in the show notes.

[425] There are Beets -branded Android phones out there on the market, H -T -C phones.

[426] I kind of want to buy one and, like, bring it to my next meeting at Apple, like pretending it's like my phone and see what happens.

[427] That would be amazing.

[428] Total, like, quirk of history.

[429] I mean, there were, HTC was bundling beats headphones with their Android phones for a while when they were selling them.

[430] Hard to imagine that in today's world of, you know, beats being part of Apple.

[431] I know.

[432] Also makes me realize just like just how small the technology world is.

[433] I feel like we talk about this a lot on the show, but like whether it's, you know, Mark Lorry, you know, had worked at Amazon and Amazon had acquired his last company and then he's vowing to destroy them or, you know, all the companies that came out of PayPal or Photoshop and Pixar that came out of Lucasfilm.

[434] film like it's really a it's a small world in this um in this corner of the economy here it is and and the other um it's funny these are like not i guess they're sort of tech themes like themes of the show it it's funny how um long things seem in our mind and how short they were in number of years like when apple launched the iPhone in 2007 android had not been announced yet and they were not at war or they were so friendly that like Eric Schmidt was on Apple's board.

[435] Yeah, came on stage at the launch of the iPhone and talked about how Google was going to be an integral part of the iPhone.

[436] And it was.

[437] I mean, Google Maps was a huge, like that was a tent pole feature of...

[438] Not to mention Google Search, which we will get into in a minute.

[439] Indeed.

[440] But it's incredible how fast these companies became at each other's throats and completely separated.

[441] I mean, if you, the way that companies are direct competitors, like if you go back 20 years, Apple and Microsoft are direct competitors and hate each other and Google's like, like this benevolent, you know, hands off, we serve all group.

[442] And in very short order from 2007 to 2009, it became Apple and Google at each other's throats.

[443] And fast forward to today where like Microsoft services are all over all these platforms.

[444] And like Apple is partnering with Microsoft.

[445] not a lot of things.

[446] And another crazy example, like Apple launching this big enterprise partnership with IBM, like how fast the world changes.

[447] And you were in the middle of this.

[448] I mean, you were one of the original folks on Office for iPad.

[449] It was.

[450] Yeah, that was a heck of a project.

[451] So we'll get more into this.

[452] But I think it was, I mean, this is a little flash forward to tech themes for me. But I think the reason this was happening was like all these big tech companies realized all of a sudden that this was the opening of a new frontier and of a new market, the mobile market that was going to be literally the biggest market that technology, and maybe the world had ever seen.

[453] Yeah.

[454] I mean, because Apple becomes the world's most valuable company during this time period.

[455] So all these companies are realizing that you're going to have, you know, first a couple hundred million people in the United States and then a billion people around the world and then and then multiple billions of people.

[456] And ultimately, every person in the world, when we get to the end state, you know, still a couple of years hence from now, is going to be coming online, buying a smartphone, having access to technology for the first time.

[457] And, you know, as friendly as Apple and Google were before this, all of a sudden it's a race to go capture this market.

[458] But I think the mistake that they made is, or at least that, I don't know that it was a mistake, but the fight that they were fighting at first wasn't the right fight.

[459] They were fighting for the, like, hardware layer.

[460] Right.

[461] And, well, was, the question is, was Google doing that at first?

[462] First?

[463] Why did Google, so this is sort of as we transition from the history and facts into more of like our analysis portion, where we are today, it's very clear that the reason that Android needs to exist is to prevent Apple from being the front door for users to use Google services.

[464] Google can't afford to give up that control, number one, in case, you know, people are going to use other services instead of Google services, namely Google Search, where all their money comes from, or all their revenue comes from.

[465] And secondarily, there is an agreement that gets signed with people who are sending traffic to Google, and may as well just come out and start with this number right now.

[466] 34 % of Google search revenue from their AdSense, right?

[467] Well, it's Edwards.

[468] So what Ben's referring to, one of the, for our new listeners, one of the things that we love on this show is lawsuits, not targeted at us, but between the, the companies that we cover because all sorts of really interesting things come out in lawsuits.

[469] And over the last few years, Oracle has been waging a lawsuit against Google for Google's and Android's use of Java and Java's APIs in creating Android.

[470] And one of the things that came out in that lawsuit is how much money Google pays Apple for having Google search as the default search on the iPhone.

[471] and it's pretty incredible.

[472] Yeah, the amazing thing, David and I were, like, pouring over the lawsuit and thinking about this, it's not a flat fee.

[473] Like, Apple gets 34 % of all the search revenue that comes from their platform.

[474] Yeah, somewhere in the neighborhood of 34%.

[475] It was at one time around that.

[476] It's a lot of this part of the lawsuit Google freaked out about and had sealed, but for a moment it was public how this worked.

[477] So in 2015, estimates from Goldman Sachs are that, Google did about $15 billion of revenue from their mobile search.

[478] And so Apple has about 18 % of the global market share.

[479] So if you kind of figure out what that comes to, it's about $918 million by that calculation or as released in these documents about a billion dollars that Google paid to Apple for Apple to be using or directing people to Google search.

[480] So then you start thinking about, okay, the strategy for Android, as a it is today is very clearly to basically get free customers.

[481] Basically, get people that are already Google's customers to directly interface with Google and search.

[482] And that way, Google doesn't have to pay that revenue split to anybody else for access to those users.

[483] And this is something I didn't really realize until we started doing the research for this episode, but is kind of mind -blowing if you think about it.

[484] Like, A, Apple is getting a percentage of Google AdWords revenue that happens on the iPhone like that's crazy one but two like it all makes sense for Google now like to the extent that people use Android phones or use the Chrome browser on the iPhone instead of Safari or any one of a number of ways that people are searching on platforms that are owned by Google versus or at least controlled by Google versus other platforms where they have pay out, you know, revenue shares?

[485] Like, it's just a, it's a no -brainer.

[486] Yeah, like, the case for, like, basically, Google is a company that makes money when people search and then click on ads.

[487] Like, that is, that is, that is, they do all these other things, but that's the red and butter.

[488] Properties that are not Google, even indirectly, like, they're searching on Google, but they're doing it in the Safari browser.

[489] Yep.

[490] Google has to pay a tax every time that happens.

[491] Yeah, and so their, Google basically is, is, uh, the entire reason that Android exists is so that Google doesn't need to pay for access to their own existing customers.

[492] And what mobile did was it inserted this new wedge into, you know, Google already had this relationship where everybody, you know, opened up their computer and Google was their homepage and they would search or it was built into browsers through all these agreements they had cut.

[493] Mobile opens this opportunity for all of a sudden there's this whole new platform with all these people that have switched over to it and all these people that are coming online for the first time.

[494] Yeah.

[495] And not only does Google have to make sure that those places don't use their competitors, smaller as they may be, but they actually have to pay to get the, you know, pay a cut of their revenue for the privilege of being the default search there.

[496] So when you kind of take a step back, like the strategy for Android, the strategy for the reason Chrome exists, these things are all the same.

[497] And it's to make sure that no one else is in asserted between the revenue generated by clicking on ads from search and their customers.

[498] And it's interesting, right?

[499] Like Wall Street and plenty of other analysts that are looking at Google, they always throw stones at Google and they say like, oh, come on.

[500] Like, this company can't succeed at anything except AdWords.

[501] Like, none of their products make any money.

[502] Android doesn't make any money.

[503] YouTube doesn't make any money, as we talked about, which I still feel good about it great on YouTube, but Chrome doesn't make any money.

[504] We get a C for the record.

[505] Yep.

[506] But the reality is things like Android, things like Chrome are huge economic value to Google.

[507] Yeah.

[508] Yeah.

[509] I mean, it's providing defensibility to Google's business.

[510] Yep.

[511] And so to carry out that calculation a little bit.

[512] So then if you run the flip side of that, since Google, has 80 % market share, so you look at the 80 % of people that are searching on phones and generating that $15 billion of Google search revenue a year right now, if you take that 34 % that they don't have to pay out to other people, Android is effectively saving them $4 billion a year, just on that, because Google doesn't have to pay for that traffic.

[513] Which is pretty incredible.

[514] Yeah.

[515] All right, two things real quick to wrap up history and facts, and then we'll move on to to acquisition category.

[516] One, I mentioned Motorola earlier.

[517] So Google makes this move that is in some ways completely brilliant and in other ways completely boneheaded where they buy Motorola in August of 2011 for $12 .5 billion.

[518] And they say at the time that, you know, the primary driver of this was Motorola's patent portfolio.

[519] And this is the brilliant part of it, you know, Apple, Oracle, as we've already talked about, Microsoft, many others, the phone companies, there starts to be a lot of litigation happening in this space and people are enforcing patents and defending patents.

[520] And Google being a much younger company than these other firms didn't have the kind of patent bench strength that they did.

[521] So Google buys Motorola, a very old company gets all of their patent portfolio, and that helps defend Google in things like the Oracle case.

[522] But the second part of the deal was, Oh, well, now we're going to have a unified, you know, stack within Google from, you know, operating system up through the hardware.

[523] We're going to make these incredible phones.

[524] Didn't happen.

[525] That didn't go so well.

[526] It didn't happen.

[527] So they end up selling the assets of Motorola to Lenovo for $2 .9 billion, a lot less than $12 .5.

[528] But to the extent they saved themselves from multiple billion dollar judgments against them may have been successful.

[529] The other interesting thing that's going to become very relevant as we do the analysis here, in 2010, a company in China is founded called Xiaomei, which I presume a lot of our listeners are familiar with, but for those who aren't, this is, you know, people refer to this as the quote -unquote Apple of China.

[530] And if you've seen that written, that's X, I, A, O, M. Yep.

[531] And so at this point, sitting here in September 2016, Uber, I believe, is the most highly valued private company, technology company in the world.

[532] Xiaomi, I believe, is the second valued it somewhere, I believe, between $40 and $50 billion in their last financing.

[533] And Shao May is interesting.

[534] Like they, much like Samsung and others, you know, have been accused of just copying the iPhone.

[535] But what Shao May did has done, Samsung was completely reliant on Google.

[536] You know, they just made the hardware and then they had some software, you know, skins, quote unquote, that they would put on top of Android.

[537] but it's running Google Android.

[538] Shaomay, as we talked about, completely forked Android, have taken over, have their own branch of Android that they fully control.

[539] There's a startup called cyanogen that has also done the same thing that only distributes the operating system.

[540] Kindle Fire does the same thing.

[541] Kindle Fire.

[542] Amazon does this with Kindle Fire.

[543] And ShaoMay basically leveraged open source Android to compete with Apple.

[544] And so they make beautiful relatively low -cost devices.

[545] Sell them in China.

[546] They're wildly popular.

[547] And they run a version of Android that Xiaomei is completely locked down and controls.

[548] And this is a good time to draw the line between what is the Android open source project and what is Android as licensed from Google.

[549] So you can get Android absolutely for free from Google.

[550] And it comes with all the services that Google does, Google Maps, Gmail, most importantly, access to the Play Store and all the apps in there.

[551] Or you can go get the source code yourself and you can fork it and you can just use Android source code.

[552] But the major disadvantage there is you don't have access on your platform to the Play Store and you don't have access to all these services.

[553] So you really have to not only go and build that yourself, all those, you know, a mail app.

[554] Or plug in other partners.

[555] Right, right.

[556] But you actually have to build an entire new developer ecosystem like amazon has to go around and convince everyone to submit to the amazon app store and the google play store and that you know requires a little bit of work from from each developer generally worth it but you kind of have this new cold start problem and so what what google sort of has an advantage here is for people who care about um for manufacturers that care about having access to all the apps in the play store and all those services they're just going to roll with stock android and then google gets to make sure that you don't change any of the search or services away from them.

[557] Yep.

[558] All right.

[559] Sorry that was a long one.

[560] There is so much to cover here with Android.

[561] Yeah, David, do you think that, so we've kind of talked about like what the point of Android is right now.

[562] Do you think that was the strategy when they acquired it and when they started getting into the mobile game?

[563] Like, why was mobile going to be important to Google in 2005?

[564] I don't, I don't know, but I don't think there was any way anyone could have foretold what was going to happen.

[565] you know in this market uh i think this was a uh great buy by google of a really talented team working on some really cool technology that had a lot of potential but i mean well google probably knew about the iphone because eric smit was on steve jobs's board at apple um but i don't think anybody really could have figured out exactly how this was going to play out but but major you know Google has done an amazing job with Android in terms of shepherding it through this wildly complex, you know, gyrations in the market that, by the way, completely killed BlackBerry.

[566] So, like, a company that was many multi -billion dollar company that was the leader in smartphones just decimated gone.

[567] Yeah.

[568] You know, and Microsoft in a lot of ways, too, you know, obviously Microsoft is having a resurgence now and didn't.

[569] wasn't destroyed, but they were one of the leading mobile operating system providers, and now that's gone.

[570] Google really has done a great job shepherding this.

[571] Yeah, it's a great point.

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[593] All right, do you want to move on to acquisition category?

[594] Absolutely.

[595] Awesome.

[596] I am going to go with technology here.

[597] Other choices, people, product, business line, asset, or other.

[598] I don't think, my initial inclination was product, but this was so early that what they were acquiring was not a complete product and not something they could go to market with and something that didn't have its own independent, fully fleshed out strategy.

[599] Yep.

[600] And what they were really buying was kind of this core technology that has actually, no one else really went out and tried to build that.

[601] Like, it clearly is a difficult piece of technology to build because.

[602] Surprising though, too, because like clearly it's difficult, but it was, it itself was based on Linux.

[603] Somebody else could have also taken Linux.

[604] And, you know, the Android team was a super small team when hadn't raised any VC when Google bought it.

[605] Yeah.

[606] And now there's no incentive to go out and build anything else because, like if you were going to build anything else, you'd have the cold start problem on all those services anyway.

[607] Well, everybody's already on iOS and Android.

[608] Right, right.

[609] But it is interesting how, you know, Google has this core technology and access to services that it licenses out and the, I guess, it's a free license, but at the very core of that is this technology that they acquired.

[610] Yep.

[611] I basically gave my answer to this earlier, which I won't repeat all of it, but I completely agree this was a technology acquisition when they bought it.

[612] And then Google has done just this incredible job of shepherding it through.

[613] You know, I actually wrote down that it was a technology acquisition with a little bit of some great talent when they bought it.

[614] But over time, this has gone from a technology to a product, to a business line, and now an asset at Google.

[615] And it's really been under the, under the stewardship of the whole company.

[616] And it's amazing how it's an asset of defensibility.

[617] I mean, really, the core thing they get from Android, in my opinion, is making sure they don't lose access to all of those people searching.

[618] And for as many of these interesting moonshots as Google is working on and self -driving cars truly could be a very different business for them and a very big and profitable one that actually rivals search, like Google makes money from having a marketplace of ads when you search.

[619] And, you know, sometimes on other websites.

[620] And I think that when you boil it down, they bought defensibility.

[621] And more importantly, like, it was a cheap buy.

[622] What they did was invest 10 years into building an entire, you know, arm of their business to provide defensibility.

[623] Totally agree.

[624] Should we move on to what would have happened otherwise?

[625] Yeah.

[626] Yeah.

[627] So I was thinking about this one earlier and my core question is, I guess it's two.

[628] Could and would Google have built themselves into the position that they're in today if they had not made the Android acquisition.

[629] Ah, interesting.

[630] We usually think about what would have happened otherwise from the startup's perspective.

[631] Where is that company going to land?

[632] Which here I think is an easy question to answer because there's no way the playing field was so massive here as this market evolved.

[633] There's no way a small independent company could have had this scale of impact.

[634] So I don't think Android, it probably would have been bought by somebody else or failed, uh, on its own.

[635] Um, but, uh, but yeah, for Google, could they have done this without buying Android?

[636] Like, did they, in, um, let's say hypothetically, they had the foresight to know that the world would be the way it is today.

[637] And they, again, they knew what Apple was up to.

[638] Yep.

[639] And, and they, they knew they would need, uh, a competitive mobile operating system or maybe even actual phones to make sure that they own that customer relationship to funnel people to search, then you have a build or buy decision.

[640] And 50 million is like, you know, let's say they were going to staff a team to go and build basically Android in -house.

[641] It feels like it's close.

[642] Yeah.

[643] Like it feels like this was not an outlandish.

[644] Well, and especially back then.

[645] I mean, Google was the darling of Silicon Valley.

[646] Like, everybody wanted to work there.

[647] They'd just gone public.

[648] Yeah.

[649] certainly they could have done it the question i think is would they have you know they they bought android um at least part of it was you know larry and sergey were sidekick fans right uh and they knew andy um and google's m &A strategy has always been about acquiring really talented teams and having those people come into google and see what they do um and in this case they hit it out of the park would would anyone at google have been enough of a champion and visionary about what was going to happen to do this otherwise did you need an andy reuben to kind of be at the helm of that and you know like we said in the beginning i mean andy was born to start this company i mean his whole career to this point you know i mean as steve job says you know you can only connect the dots dots looking backwards not forwards but looking backwards i mean it's hard to imagine anyone more qualified or who had been thinking about this problem about how do you create a really compelling mobile computer and operating system and experience than Andy.

[650] Yeah, you're right.

[651] And the thing that keeps tugging at me is you could see a very classic Microsoft way to go about this, where Google says, okay, we got to have phones, we're not going to make the phones, we're going to make the operating system, we're going to charge for the operating system.

[652] But Android already, had this whole open source thing going on and they said you know we're going to be completely open source we uh they hadn't figured out the like you know license package with google services built on linux but like what was that yeah built on linux was that a forcing function to make google go into this business strategy of give it away for free or would google have arrived at this give it away for free business strategy on their own if they hadn't acquired android and one thing that just popped to my head is you could make the case that well compared to the an insane business that searches, they shouldn't be in the business of selling individual software licenses, right?

[653] But they're doing it with Google apps.

[654] Like if you're a, it's this like tiny portion of their revenue, but they, they haven't like totally shied away from the traditional business model of like a. Yeah.

[655] And it's interesting.

[656] I mean, if you think about the grade that we gave Google Docs, which is a big part of Google Apps, I can't remember exactly what it was, but it was, it was not an A. Yeah.

[657] We haven't graded Android yet.

[658] more to discuss, but I'm pretty confident I'm going to be higher than I was on Google Docs.

[659] Yeah.

[660] Yeah, I guess the question in my mind that I don't think we can really answer is, yeah, would Google have done this very unique open source approach to grow insanely quickly and get on everyone's or get on, you know, 80 % of the world smartphones without acquiring Android?

[661] Yeah.

[662] Well, listeners, if any of you were at Google at this time, let us know.

[663] We'd love to, we'd love to know.

[664] Okay.

[665] Tech themes?

[666] We can't go an episode without bringing up Ben Thompson and Strateree, but you have to own the front door to the customer in this day and age.

[667] And the reason, Ben and I were talking about this before the show, too, I mean, I think the reason why that's important in the current, you know, internet information.

[668] economy that we live in is what the internet has done is it has made distribution free and in the old world this is not taking credit for this is ben thompson's insight here um you know in the old industrial world distribution was really hard and so you had to aggregate distribution and if you controlled distribution the customer was your your surf basically in your kingdom but now distribution's free and anybody can build anything like we were saying anybody could have built something on top of linux uh a mobile operating system.

[669] So in that world, you need to win the customer and you need to have the best customer experience.

[670] Yep.

[671] That is one of mine too.

[672] And I think the spin that I had on that was if you think about what Microsoft was trying to do at that point in time with Windows mobile, you know, the Microsoft way of thinking, which is evolving now, but certainly still at that point in time.

[673] was like we control everything you need to distribute a computing experience to a customer.

[674] You know, we have a deep relationship with Intel.

[675] We have all the software developers that can make our own proprietary operating system.

[676] We don't use open source.

[677] And we have relationships with all the carriers, the phone carriers, and we can push this stuff out into market.

[678] And that's great.

[679] And people will use it, you know, especially corporate customers because they need it, but like Windows Mobile, especially in that day and age, sucked.

[680] I believe I had one of those devices at one point in time, and it was very frustrating.

[681] And they didn't approach it from this way that, you know, Ben, you're talking about, that we're talking about now of like, oh, hey, like, we can just take Linux and build this, you know, and let's build something awesome on top of it.

[682] So that's one.

[683] The other one that I wanted to talk about that I referenced earlier was thinking about how the mobile market has played out.

[684] It's interesting to see, like, you kind of see this in technology that, like, the area of competition and, like, what's interesting kind of moves up the stack.

[685] So in, you know, in the old PC world, it was like the hardware, you know?

[686] Was it you going to buy a Mac or you're going to buy a PC?

[687] Right.

[688] And then in the beginning of the phone world, as we talked about, it wasn't really so much about the hardware, whether you're going to buy it, because Google wasn't, an Android wasn't competing in hardware.

[689] but it was the services, you know, are you going to buy an Android phone that has Google services baked into it?

[690] Are you going to buy an Apple phone that has Apple services and that Google can still participate in that but they're paying the Apple tax?

[691] What's interesting is I think now that the great mobile holy wars are pretty much over as far as we think.

[692] I mean, who knows what will happen in the future, the level of competition has kind of further elevated up the stack to the application layer.

[693] You know, and like now it's like, services and and well services some services right but like not core level services not like operating system level stuff you know it's like are you going to use uber or lift um are you going to spend your attention uh in snapchat or in facebook or in instagram you know these are the these are where money is being made today and this is where the the playing field exists you know it's not at the level of the operating system anymore.

[694] And it's interesting, you know, people talk, I think this is kind of a red herring, at least in not in China.

[695] But people talked about like moving even further up into being on top of the messenger ecosystem.

[696] And maybe we'll see that happen.

[697] You know, people are talking about bots and Slack bots.

[698] Right.

[699] We're on the early stage of the hype cycle on those.

[700] Early stage of the hype cycle.

[701] But it is definitely a theme that you see in technology that like this level of play keeps getting further pushed up the stack.

[702] Yep.

[703] Okay.

[704] Totally agreed.

[705] Well, I think it's time to grade the acquisition.

[706] Before I throw out my grade, a couple of, here's my reasoning and logic.

[707] So Android makes money for Google in two ways.

[708] One is advertisements supplied by Google and shown on Android phones, and the other is revenue Google takes from its mobile app store, Google Play.

[709] And we haven't talked much about that yet.

[710] That's a non -trivial amount of money.

[711] Yep.

[712] Um, if, uh, since we're, we're going off of the, the data that Oracle opened up in this lawsuit, it's, uh, reported that they had $31 billion of, uh, of revenue per year from Android.

[713] And so we, we've seen the estimate that 15 % of that, or 15 billion dollars of that is from mobile search revenue between, um, iOS and Android largely on, uh, I guess.

[714] So it'd be about 12, 12 billion dollars of that, because it's all, all from Android.

[715] And then you have like, The rest of that is, you know, there's some amount from the actual phones that they're selling because Google sells the Nexus phones.

[716] But then a lot of that, that top line, you know, $10 to $15 billion of it is from the Google Play Store.

[717] And Google keeps 30 % of that.

[718] So let's say $3 to $4 billion a year is made from the actual Play Store.

[719] So that in itself, much like how the App Store for Apple, is a great business.

[720] compared to their other businesses, it's not, you know, it's not insane, but that in itself would, you know, on a $50 million acquisition would be great.

[721] But the thing that I think Android really did is ensure that Google was safe for the next decade or two as the world changed out from under them.

[722] And they were at great risk of losing access to their customers.

[723] And they engineered a strategy here where they not only, you know, went and got a lot of those customers kind of back and made sure that as they transitioned to mobile, they stayed with direct access to Google, and actually even tighter since they never owned the operating system on desktop, but really were the primary place to go for the developing world as people came online for the first time.

[724] And so I think Google's core asset and March is on and is well protected, and this is an A -plus.

[725] Yeah.

[726] For me, the question about grading this is a question of whether this is an A or an A -plus.

[727] No doubt this was, you know, $50 million for something that is achieved, even though it didn't start this way, but over time achieved everything that we've talked about in this episode for Google, absolutely fantastic.

[728] You know, as David Lowy said, you know, perhaps Google's best deal ever.

[729] Yeah, the Goldman number says $22 billion of profit last year from the Android Division.

[730] Yeah, incredible.

[731] The thing that I'm wrestling with a little bit is in trying to determine whether to give the plus or not, is this was in many ways, again, I don't think they saw it this way at the time, but this was a defensive acquisition.

[732] This was not an offensive acquisition.

[733] And I'm comparing it with Instagram, which is kind of our gold standard here.

[734] Instagram is so much simpler than Android.

[735] I would still say defensive, though.

[736] Well, it's interesting, right?

[737] Like defensive, yes, existentially, as I guess Android was in some ways too, but not really because people are still going to keep using Google services, whether it was on a Google property or not.

[738] This was just like preventing them from paying the 30 whatever percent tax.

[739] and lots of other things, too.

[740] But Instagram was much more about, like, oh, we're going to up -level the playing field now.

[741] Like I was talking about in tech themes, like, we're going to move up the stack.

[742] I don't know.

[743] I'm struggling with that.

[744] Like, part of me feels like I want to, just the, you know, the, like, bold part of me wants to, like, reward offensive acquisitions and forward -thinking acquisitions.

[745] Not that Android wasn't, you know, more than defensive.

[746] Wait, wait, wait, wait, I would still say that that Instagram was not a, uh, uh, uh, a bold offensive forward thinking like ultimately that they sell attention to advertisers and they were at risk of losing yep which is the same thing that advertise that facebook sells yeah facebook and instagram and google all do the same thing they all sell attention to advertisers yep and uh i think they it was interesting like facebook's move was defensive in that they wanted to make sure that they captured instagram's attention and could sell that to advertisers too google knew that they were going to keep getting the attention but basically wanted to save their margin.

[747] A new, yep, and platform on which to do it.

[748] Yeah, I'm struggling.

[749] I think it's an A plus.

[750] He says in a very defeated tone.

[751] I'm defeated.

[752] I'm limping into the A plus here, Ben.

[753] But which makes me think, I don't want to be limping into the A plus.

[754] I want to be charging into the A plus, you know?

[755] Okay, what acquisition ever is an A plus?

[756] Instagram.

[757] I mean, Android has already made a lot more money for.

[758] for Google than Instagram has for Facebook.

[759] But I think this is what I'm having a hard time with, and maybe it's just semantics.

[760] But, like, Android has saved Google a lot of money.

[761] Instagram has made Facebook a lot of money.

[762] Yeah, I'll buy it on that.

[763] Yeah.

[764] Yeah, Android is effectively a margin saver.

[765] Yeah.

[766] Whereas Instagram is like, this is a new revenue engine for, for Facebook.

[767] Yeah, presuming that Google would have gotten the queries from all the new people that were lighting up and basically like new people coming online for the first time.

[768] All right, here's what I'm going to say.

[769] Android is my new gold standard for defensive acquisitions and is an A -plus in that regard.

[770] I still like to play offense more than defense.

[771] Yeah.

[772] All right.

[773] It's interesting because at the time, we just keep going back to this.

[774] I don't think it was defensive when they bought it.

[775] No. What it ends up turning out to be is one of the most incredible defensive plays of all time.

[776] all right on that note on that note um let's move quickly into follow -ups yeah yeah so sticking with google a couple episodes we covered ways uh this is one of those quirks of history on our show that i think we i think we spoke too soon here uh we are going to have to do a full follow -up episode on on this maybe maybe on automotive technology generally at some point um but within the last couple weeks, Google and Ways announced that they are now doing ride sharing within Ways competing.

[777] The product is slightly different, but competing with Uber and Lyft, too, but competing with Uber.

[778] Interestingly, of which Google is a major shareholder in Uber, and David Drummond, Google's head of and chief legal officer was on Uber's board and resigned after this happened.

[779] What do you think?

[780] Yeah, I mean, it shows that, I mean, our assertion with the Ways episode was that mostly they were using Ways data, but not like doing massive reinvestments in that product to make Google Maps better and potentially provide data for their self -driving car stuff.

[781] And what they're showing now is that they're actually using Ways...

[782] They're playing offense.

[783] just defense here.

[784] Yeah, to introduce new products and try new things.

[785] And, you know, not only is it a new thing that is interesting, it's, it's probably the most interesting new thing that they're doing that they're rolling out through, and they've chosen ways.

[786] And they've chosen ways.

[787] Yeah, super interesting.

[788] Not Google Maps.

[789] Yeah.

[790] The question is like, so when they, so they're going to do their car sharing through ways, right now their self -driving cars are much more of an independent thing.

[791] Does that mean that they do a self -driving car service rolled out through ways instead of Well, I wonder here, too, how much the fact that Google is a huge shareholder in Uber and David Drummond was on Uber's board played into the decision to do this through Ways here.

[792] They're like, oh, you know, this is this company that, you know, is still standalone.

[793] They're based in Israel.

[794] And Ways had rolled out ride sharing in Israel long ago.

[795] The news was that they brought it to San Francisco.

[796] Right.

[797] You know, so this is sort of like our independent division doing this, you know, not related to Google corporate, you know, it's sort of like a head fake here.

[798] Had, if Google were not an investor in Uber, would they have rolled this out through Google Maps?

[799] Huh.

[800] I don't know.

[801] And really the question is, is it actually that much different than what already existed in their Israeli product?

[802] And they just decided like, yeah, we'll try it here too.

[803] Because is it actually as big a deal as the press and we are now making it out to be?

[804] Well, Uber thinks it's a big deal for sure.

[805] Yeah.

[806] Yeah, it's true.

[807] Yeah, to continue our mention from earlier about how fast things change, like friends become enemies very quickly when things like this happen.

[808] As we saw with Apple and Google, yep.

[809] Yep.

[810] So who does - New markets create a lot of competition.

[811] In five years, who is Uber using as their Maps provider on Android?

[812] 100 % Uber.

[813] Yeah.

[814] I mean, actually a lot of Uber drivers that I take now, the drivers are using the native Uber navigation.

[815] and not switching over to Ways or Google Maps.

[816] But isn't it still, like, you still need the core Maps product underneath, even if their navigation is.

[817] Yeah, but Uber bought, oh, I'm blanking on who they bought, but they bought some assets from Nokia, I believe.

[818] I believe they brought.

[819] The Hear Maps?

[820] They were part of that conglomerate, yeah.

[821] Huh.

[822] All right.

[823] Quick hot take, not an acquisition, but we thought it would be fun to talk about, especially given the content of this episode.

[824] Apple's big event, launching the iPhone 7.

[825] and uh and air pods or no air pod uh air pods yeah i mean we're just seeing like the full maturation of mobile like it's interesting to see phones are where laptops were 10 years ago and um you know it starts to open the question for what's next like i got excited i bought one that of course that was going to happen um it's it's going to be an incredible product all the changes that are made are are largely incremental, except for their continued breakthrough advancements with the cameras, which I'm super excited about.

[826] I heard another interesting point that this could be Apple's soft foray into VR capture.

[827] Because of the dual camera system on the plus.

[828] Yeah, yeah.

[829] That's something that's kind of going unsaid a little bit is, you know, Apple just launched a phone that'll be in, you know, hundreds of millions of people's hands that has two cameras, and they can kind of do some interesting things with software, with that later.

[830] Who knows?

[831] So here's what's really interesting to me about the Apple event last week, and I'm really surprised that people aren't talking about this, or maybe just not people I'm following are talking about this.

[832] You know, Apple is super secretive about their roadmap, what they do, they don't talk about anything, but they do drop these hints, you know, and if you look, if you listen closely to what they're saying, it's usually not a surprise what they end up doing.

[833] And I was really struck when they were talking about AirPods and talking about the removal of the headphone jack and everybody's focusing on, you know, the courage, right?

[834] And like, yeah, that was probably a poor choice of words.

[835] But here's what I think they're saying.

[836] I think they're saying like we are moving with our maybe it's the next iPhone maybe it's two down the road or maybe this happens incrementally we're moving to a world where there are no wires um you know there's there's no cord to your earphones uh there's no power cord um there's nothing tethering you and that means that the device is actually kind of secondary and if you look at the AirPods you know double tap to activate Siri like we're moving to a world where computing is just on you part of you around you all the time.

[837] People have been talking about this, you know, this is part of what Amazon is doing with Alexa.

[838] But that to me was a really strong message from Apple that coming soon, Siri, which we've done our episode on Siri, and we are Ben and I are very skeptical of Apple on this.

[839] Like, Siri is going to control your computing experience.

[840] It may or may not be through a screen.

[841] Yeah.

[842] Expect more chips in AirPods 2 and AirPods 3 and an AirPods 7.

[843] Get excited because you won't need a phone.

[844] Yep.

[845] And we'll go from there.

[846] We'll go from there.

[847] All right.

[848] That's our hot take.

[849] Carve Out.

[850] Yeah, mine's quick.

[851] Reading a really cool book right now.

[852] It's called Business Adventures by John Brooks.

[853] Oh, so good.

[854] It's short vignettes, maybe like 20 to 30 pages each that are stories of incredible things that happened in business over the last 100 years.

[855] The first couple are awesome.

[856] The 1962 stock market crash talking about the impact of the fact that trades were happening at a higher velocity than could.

[857] be printed out so no one knew what price they were buying things for when they put in a buy order and a sell order on some of these crazy crash days.

[858] And the second chapter that I'm on right now is the colossal failure of the Ford Edsel.

[859] And the kind of history and how that came to be.

[860] And just super great.

[861] And really nice if you're doing a lot of short flights or something like that where you can go knock out 30 pages, but then you won't pick it up again for, you know, month or something and don't want to forget.

[862] They're very kind of bite -sized.

[863] This is a great book recommended to me a while back by my buddy Matt Nierlinger who's at AVP, which is a growth VC firm in San Francisco.

[864] This, I believe, is one of Bill Gates' favorite books and I think his favorite business book.

[865] Yeah, he's endorsed it on the cover.

[866] It's a pretty killer endorsement.

[867] Hard to beat that.

[868] Mine is also quick.

[869] It is the ESPN OJ documentary.

[870] It is so good.

[871] It is so good.

[872] good.

[873] Have you seen this, Ben?

[874] No, but you were telling me that.

[875] You got to, everybody's got to watch this.

[876] It is five -part documentary series.

[877] Jenny, my wife, and I are in the midst of watching it now.

[878] We're through the first three parts.

[879] So good.

[880] I'd say it's like, it's like 30 to 40 % about OJ and the rest, the majority of about, like, what was going on in America, you know, from the civil rights movement in the 60s up through the 90s.

[881] and, you know, and then specifically, like, in L .A., race relations in L .A., you know, I mean, this is where NWA was, you know, there's so much deep history here that's not people know about, but, like, this is just such a fantastic job covering it.

[882] Also, I didn't realize, like, for people who kind of been in my age, OJ, just like, it's the trial, right?

[883] Like, that's all we think about him.

[884] But he was an incredible football player.

[885] Like, wait, like, hey, head and shoulders above everybody else.

[886] So really great to watch.

[887] Highly recommend to everybody.

[888] Our sponsor for this episode is a brand new one for us.

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[915] You can click the link in the show notes or go on over to stat sig .com to get started.

[916] And when you do, just tell them that you heard about them from Ben and David here on Acquired.

[917] All right, that's what we got for you.

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[922] Thanks so much.

[923] Thanks to you, everybody.

[924] We'll see you next time.

[925] See you next time.