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Archive for September 9th, 2013

Some thoughts on the new anti-Google (Android) complaint (Post 3/3): Bundling allegations

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[This is the third post in a series; click here for Post 1 (on background + market definition), and here for Post 2 (on predatory pricing claims)]

Even though the allegations over the free distribution of Android have predominantly caught the public’s eye, the complaint also appears to argue that Android is a “Trojan Horse (a non-innovative yet effective metaphor…) used to pre-load Google apps.  According to FairSearch’s  press release, “Android phone makers who want to include must-have Google apps such as Maps, YouTube or Play are required to pre-load an entire suite of Google mobile services and to give them prominent default placement on the phone”.

This is, at least at first sight, more interesting than the allegations about predatory pricing. Tying/bundling issues in the smartphone industry have so far received some attention from enforcers -remember the investigation involving Apple and Flash?- and academics, but not so much. And yet they raise antitrust questions that take the discipline outside of its comfort zone.

One of the problems with this leg of the complaint is that publicly available info is scarce and that some issues are fairly technical. So don’t take what we say for granted. This is no more than an exercise for me to brag about Enrique’s industry/technical knowledge to discuss a case in detail on the basis of knowledge that not everybody has (at least I didn’t), and that I thought was worth publishing here. At the very least it has helped me learn about the industry (for some odd reason I only reflect properly about things when I write about them…). As always, happy to discuss. Btw, the post is again lenghty because I haven’t had time to write a shorter one.

1)      In search of the bundle

Our understanding is that Google does not preload its apps in Android (like Microsoft actually does, for instance, with Skype and SkyDrive in Windows). This means that OEMs are free to take the Android OS without having to pre-install any of Google’s Apps (for example, Amazon has done so with the Kindle, and so has Barnes&Noble with Nook; a number of other examples are mentioned here). Android’s code is publicly available here and all OEMs can do what they please with it.

If our understanding is correct, it’s only when OEMs wish to pre-load the Google Mobile Services suite (“GMS”) that they need to pre-install its “core-apps”. In sum, if OEMs want a non-Google Android experience they can have that. If they want a sort-of-Google experience on Android (i.e. if they want the GMS) then Google asks them to preload (on a non-exclusive basis: they can preload any others) a minimum set of apps. Accordingly, it’s difficult to argue that there is a bundle of Android+Apps; at most there could be only a bundle of apps.

[Intermission 1: It’s not easy to find out exactly what’s included in the GMS/ “core apps”. The references that we’ve found (page 12) seem outdated as, for instance, they refer to Android Market (now Google Play), Google Talk (now Hangouts) and call “apps” things that we understand are rather non-user facing services (like the service that synchronizes contacts or the calendar with the cloud)].

But is there really a bundle of apps? In order for “pure bundling” to exist it would be required that the components of the bundle are not also available outside of the bundle, but that doesn’t seem to be the case either. Most of the apps in the GMS can be obtained separately from the bundle and for free (that’s the case of Youtube or Google Maps).We may be wrong here, but we think that Google Play may be the only exception, or at least the only relevant one (on this, see our point number 2 below).

Finally, since OEMs’ decision will not be affected by any financial incentive on the part of Google (because the “core apps” in the GMS are all free of charge apps), there’s no mixed-bundling either.

[Intermission 2: in my view, and in contrast to this case, mixed bundling of proprietary non-free software by certain dominant firms can actually pose serious competition problems (due to the existence of market power, the ability to toy with monopoly prices, resale prohibitions, switching costs and higher barriers to entry) and nevertheless remains mostly unaddressed by enforcers, but that’s another story].

That said, the complainants may have a point in that most OEMs will in practice want to have the GMS (see below).

2)      It’s all about Play

If any of the complainants were to read the reasoning above, they would probably respond: “sure, the choice for OEMs is theoretically there, but OEMs that choose Android would always want to have the GMS, because otherwise they wouldn’t have Google Play, which means that they’d be renouncing to the very large number of apps written for Android (indirect network effects, etc)”

[A bit of background: Google Play is an application clearinghouse, an Appstore or app marketplace. These apps are a repository of other apps that you can download with a simple click. This avoids users having to obtain software from every developer; instead, there’s an intermediary that facilitates finding/acquiring/installing software. The intermediary (Google in the case of Play, Apple in the case of Appstore, etc) obtains a percentage of sales of non-free apps and facilitates the sale of free ones].

We don’t know whether the complainants have focused on that point of not. If not, they should hire us to give them more ideas 😉 .  If they have –as we’d assume- then that’s a fair point.

And so what? On the other hand, however:

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Written by Alfonso Lamadrid

9 September 2013 at 5:19 pm

New job

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One of us just got a new job (and a new car). More details tomorrow…

Written by Alfonso Lamadrid

9 September 2013 at 4:44 pm