How Google Bought Android -- According To Folks in the Room

Chet Haase, who worked at several Silicon Valley tech companies and in 2010 joined the Android engineering team at Google and watched Android rise from the bottom of the smartphone field to where it is today, writes in a new book:

The final part of the pitch (and the most important part, for the VCs they were pitching to) was how Android was going to make money. The open source platform described in the slides is essentially what the Android team eventually built and shipped. But if that was all there was, the company would not have been worth funding for VCs. Developing and giving away an open source platform sounds great from a save-the-world standpoint, but where’s the payoff? Where’s the upside for investors? That is, how did Android plan to make money off of a product that they planned to simply give away? Venture capitalists fund companies that they hope will make more (far more) than their investment back.

The path to revenue was clear for the other platform companies in the game. Microsoft made money by licensing its platform to Windows Phone partners; every phone sold contributed a per-device cost back to Microsoft. RIM made money both on the handsets they sold as well as the lucrative service contracts that their loyal enterprise customers signed up for. Nokia and the other Symbian adopters made money by selling the phones that they manufactured with variations of that operating system. Similarly, all of the other handset manufacturers funded their own software development through the revenue generated by the phones they sold.

So what was Android’s play that would fund the development of this awesome platform that they had yet to build and which they would give away free to other manufacturers to build their own devices? Carrier services.

Carriers would provide applications, contacts, and other cloud-based data services to their customers for Android-based handsets. The carriers would pay Android for providing these services. Swetland explained: “Rather than running and hosting the services [like Danger did for its Hiptop phones], we would build the services and sell them to the carriers.” (In fact, the system that the team eventually built and shipped stayed true to the vision laid out in the pitch deck, except for this part about revenue from carrier services, which went away entirely.)