Speaking during a CNET-hosted panel discussion called The Next Big Thing, Schmidt described a future that others have called the Internet of Things, a world in which practically everything interfaces with the network, for better or worse. He spoke of walking into a family room and being recognized by the TV, with all that entails in terms of personal viewing preferences and data transfer between devices.
Schmidt believes Android, Google's open-source mobile operating system, can provide the software foundation of home automation. He characterized Google's thinking about Android as having shifted from working to make Android ubiquitous, to talking about how it solves problems.
That's a sign that Android has already won. Schmidt suggested the opposite, that "everyone is a winner" as ecosystems take shape. It's the rising-tide-lifts-all-boats metaphor. Tell that to Nokia and RIM, swamped by the rising tide. A rising tide makes you forget about the widening gap between the boats.
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Android hasn't won by knockout: Apple most likely will continue to report strong quarterly results for years to come, but its iOS empire will cease to be the focus of the mobile world. It will shift from being an expansive, imperialist power to a prosperous hermit kingdom, with too few allies and not enough openness to be a vehicle for rapid innovation.
Later in the session, Bill Gurley, general partner at Benchmark Capital, suggested that Apple's one mistake has been greed--insisting on a 30% commission that left no room for a potential partnership with Amazon and Facebook. Schmidt conceded Apple has prospered, despite the limitation of being the sole hardware provider for iOS devices. He suggested that Apple's success will be hard to sustain. Weighing both Google's more-open model and Apple's less-open model, he said both business models will do well for a while.
Microsoft will make some gains with Windows 8 and Windows Phone, but that won't be enough to slow the rise of Android. Schmidt doesn't think much of Microsoft's chances. "Microsoft is trapped in an architectural problem they may not get through," he quipped, referring to the schism between legacy x86 Windows and ARM-friendly Windows 8. "I'm so sorry." Wishful thinking, Microsoft would say.
There are arguably other competitors in the ecosystem battle: Amazon and Samsung were mentioned. But in terms of software, specifically the operating system upon which these ecosystems run, there are really only three that span the desktop and mobile devices and matter to consumers: Apple's iOS/Mac OS, Google's Android, and Microsoft Windows.
"All hardware involves a software strategy and vice versa," said Schmidt. And that's why Android has succeeded: Hardware makers need an operating system that spans both desktop and mobile scenarios, has an active developer community, and costs as little as possible. Apple won't license its operating systems and Microsoft is still racing to harmonize and modernize its mobile and desktop platforms. Android has won by default, which is all the more surprising given its lack of coherence until the release of version 4.0, Ice Cream Sandwich, in late 2011.
Google has been consistently improving Android and giving its work away. Small wonder that Android activations have reached 700,000 per day or that the installed base has surpassed 200 million phones (even if few of those run Android 4.0, upon which Google hopes manufacturers will standardize).
Despite a minor, but troubling insurrection--Amazon's decision to fork the Android code and cut Google out of the picture--Android has won by preventing the construction of dams that might block Google's search advertising revenue stream on mobile devices. It's a victory that has come at a cost: Gurley said that what Google has done with Android is destroying the value of competitors, pointing at RIM and Symbian as examples.
Android has won because it's open enough to allow third-party innovation and it's free. The alternatives--developing a proprietary operating system and building a developer community, awaiting the opening of Apple's gates, or waiting for Windows 8 and Windows Phone--haven't been competitive options for hardware makers like Samsung. Those outside the major software ecosystems can go it alone, but such companies have to outdo Apple, Google, and Microsoft in making their devices function on a network. As Schmidt observed, "Computing devices that are not on a network are lonely."
Everyone in the hardware business is now in the software business, and most of them don't have the software design vision to operate in the software business outside of one of the big three ecosystems.
Android won by saving Google's search business, and the revenue from that business will continue to subsidize an ecosystem that stymies Apple and Microsoft. To rise up against Android, Google's competitors need to best Google in search. Bing is proof of just how hard that can be. Perhaps Facebook is the friend they need. Trustbusters don't seem up to the challenge.
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