Why Google Gave Android Away for Free: The Business Case for Open Source Software

In 2007, Google unveiled the Android mobile operating system under an open source license. This meant that Original Equipment Manufacturers (OEMs) such as LG, HTC and Dell could access the Android source code, and modify it to suit their specific needs, without paying a penny to Google. Why did Google choose this open source approach, when it could have made a decent chunk of money from selling Android?

While I don’t work for Google, I’ve spent some time researching and thinking about the business case for open source software. I believe that from a business perspective, an open source model might make sense for the following reasons:

  1. Monetization of Proprietary Add-Ons: Open source software is likely to gain market share faster than commercial software as its growth is not restricted by the friction of financial transactions. This rapid growth can then be monetized through the creation of proprietary add-ons. For example, Android now has about 65% market share in the US, and Google monetizes this growth through proprietary apps such as Google Search, Google Maps and the Google Play Store, which power its sprawling advertising business.
  2. Reducing Development Costs: Android’s open source license allows any developer around the globe to improve the Android source code for his/her benefit. These improvements are also available to Google for free, and while Google may not necessarily need the free development effort, it ultimately create a positive feedback loop where Android gets better faster, which leads to more users and growth which Google can then monetize.
  3. Attracting and Retaining Talent: Today’s software developers want to do more than write code that earns them a paycheck; they want to change the world. One way to do this is by contributing to cool open source projects that are used by millions of people around the world. Therefore, a company that releases and contributes to open source software projects is likely to be more attractive to talented developers.

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