Ken Auletta - Googled - The End of the World as We Know It

Rubin likened the current mobile market to what happened in the early eighties to PCs. Original hardware makers, such as Wang or DEC, were supplanted by IBM, which in turn was supplanted by the manufacturers of clones. As the hardware became commoditized, the price of the PC dropped. At the same time, the cost of the software rose, because a single company, Microsoft, controlled it. “Unless there is a vendor-independent software solution,” said Rubin, expressing the ethos not just of Google but of the Valley culture at large, “the consumer isn’t going to be well served. What I mean by ‘vendor-independent’ is you can’t have a single source. Microsoft was a single source. What Android is doing is trying to avoid what happened in the PC business, which was to create a monopoly.” That is why, he said, Android is an open-source system that “no single entity can own.” He is openly disdainful of phone companies like Verizon and AT amp;T, though he doesn’t name them, and obviously feels the same way about Apple’s closed iPhone system. “The thing I carry around in my pocket every day,” he said, gripping his yet to be released Android phone manufactured by T-Mobile, “is as powerful as the PC was five years ago. So how can I take advantage of that and make it do what I want it to? I’m the one who paid for it! Just because I have a service plan with some whacky wireless carrier doesn’t mean they get to dictate what I do with my product that I paid for. Another thing: It shouldn’t cost four hundred dollars. That’s absurd. If you add up all the components, somebody is making a lot of money.”

For Google, Android represented a perfect storm-its idealistic desire to promote an open, more democratic system meshed with its business interests. The more people who had access to the Internet, the more Google searches or Google Maps would be used, and the more data collected. And those using the Android operating system for mobile phones might also use it for their laptops, allowing Google to charge for this software or share in the mobile ad revenues.

There was another issue to be addressed with mobile phones: spectrum space. All radio frequencies-whether for cell phone calls, broadcast television or radio signals, or other wireless devices-travel over spectrum space that is assigned and regulated by the Federal Communications Commission. Google lobbied to ensure that the new wireless space would be open and not controlled by just a few telephone giants. Ivan Seidenberg, the CEO of Verizon, disputed Google’s contention that his was a closed system: “Since we think we have the most reliable network, we’ll publish standards and let people connect to any device they want to.” The FCC sided with Google, and in July 2007 ruled that the telephone companies could not control what applications were used on this new spectrum. Soon after the FCC announcement, Google raised the stakes by threatening to bid in the January 2008 spectrum auction, establishing itself as a telephone company.

Google had no intention of providing telephone service or producing hardware for a Google phone. They would not say this publicly, however, because by fanning speculation-and the speculation was incendiary-they kept people guessing and increased their leverage over the wireless telephone companies. They also brought themselves closer to achieving three objectives: to make Google programs, including such new features as voice search, work on wireless devices; to reduce the cost of mobile phone service and Internet connections by allowing advertisers to subsidize them; and to extend to mobile devices the company’s dominance in online advertising. Google believes that ads on mobile devices could fetch premium prices. With GPS positioning married to Google’s immense database, an advertiser could know who purchased cashmere sweaters or golf clubs and if a consumer was outside a store that had a special sale on, an alert could appear on the mobile screen informing her. Because this would be what advertisers and Google excitedly describe as “a service” or “information” rather than a traditional ad, the hope was that consumers wouldn’t be annoyed by these intrusions. In November 2007, Google announced that it was working with thirty-three corporate partners, including T-Mobile, Samsung, Intel, and eBay, to launch Android as a free operating system.

In the auction, few companies could match the financial bids made by the giant telephone companies. Google could, though, and to enter the mobile phone business and ensure that Android would work seamlessly, they needed to. But Google didn’t want to become a telephone company. So it made a let‘s-hope-we-lose floor bid of $4.6 billion for a block of wireless spectrum, conditioned on the FCC’s agreement to guarantee that the winner of the auction open its hardware and services to third parties.

Of course, Google’s mobile phone ambitions would collide with powerful telephone companies and with Nokia, the world’s number one mobile phone manufacturer. They were allied in fear that their business model was under assault. They worried that their dominance would be diminished. Who would receive the advertising revenues? Who would claim ownership of the valuable data generated? Would their own hardware be cloned, like PCs? “Now that they want to dominate the planet on phone calls,” Seidenberg said of Google, “they’ve provoked the bear.”

Neither Seidenberg nor representatives from AT amp;T or Nokia joined in Google’s November announcement of the first truly open mobile operating system. A traditional Google corporate ally, Steve Jobs, also did not join because Apple’s iPhone provides a mobile operating system, one less open than Google’s. This was a little clumsy, because half of Apple’s eight directors serve as Google directors or advisers, among them Eric Schmidt, Bill Campbell, and Al Gore. At Apple board meetings, Schmidt told me he now recused himself from mobile phone discussions.

In the auction, that commenced in January, all bidders were instructed not to reveal their bids. When it was over, Verizon and AT amp;T had won, paying a total of $16.2 billion for two wide swatches of spectrum. In an April “all hands” meeting with Google employees, either attending or on a video hookup, Schmidt confessed, “We had the very good fortune of entering the spectrum auction for $4.6 billion, and not winning. We sweated it out!” Both Verizon and AT amp;T would pledge to open their networks. AT amp;T announced that it would sell phones with Google’s Android system, and Verizon announced that it was open to consider any Android prototype. (By the summer of 2009, Verizon had yet to submit an Android application; nor had any phone company, save T-Mobile.) One former federal official was cynical about what he called Google’s “fake bid.” He believed Google had a sweetheart deal with Verizon, that the telephone company knew all along Google would not make escalating bids and that all Google really wanted was assurance that Verizon would open its system to Android. He was dubious that Verizon’s system would be open for anyone but Google.

BY THE SPRING OF 2008, Google was buoyant. Rejecting the one-trick pony charge, Schmidt said that with mobile phones, plus search, plus its array of software products, and YouTube, he explained why it was conceivable that Google could become the first media company to generate one hundred billion dollars in revenues. He described to me “a planning process where we said, is it mathematically possible for Google to become a hundred-billion-dollar corporation? And not over any particular period of time, just, is it possible, are the markets big enough?” He estimated the annual worldwide advertising market as “somewhere between seven hundred billion and a trillion dollars. Is it possible for Google to become ten percent of that? And the answer is yes, over a long enough period of time.”