Microsoft Tries to Derail the Barnes & Noble Juggernaut (!?)

In the legal morass that is Android comes the latest news that Microsoft is suing Barnes & Noble, alleging patent infringement.  Think about the surface absurdity of that one.  Microsoft suing Barnes & Noble.  Even The Onion hasn’t contemplated this scenario.  So, what’s really going on here.

At a macro level, here’s what’s happening:

  • These kinds of patent lawsuits are so common that I’ve almost stopped looking at them altogether.  Usually it goes like this:
    • Someone sues someone else.
    • The someone else counter-sues.
    • The two companies exchange patent cross-licensing agreements, usually with one side or the other having to kick in some cash.
  • There’s a slight twist to the whole Android scenario, again though one that’s not uncommon.  Most of these patent lawsuits have focused on Android licensees and not the deep-pocketed Google.  It only makes sense to go after the weaker players, albeit ones with sufficient funds to pony up.

What are all these people suing in the Android space trying to accomplish?  It’s real simple.  If you’re trying to sell an operating system into a market where Google is giving it away, you need to make the OS appear not to be free.  In other words, you may not pay for the OS but by the time you factor in legal costs, your free OS all of a sudden isn’t so free.  Somewhere along the line, Google is probably going to have to ante up to help its partners by resolving all of these patent infringement issues.  It probably means Google’s going to have to write a check.  The good news:  they’ve got $34.9 billion in cash on hand and are printing more each quarter.  So much for the chilling effect on Android licensees.

What’s particularly interesting about the Microsoft/Barnes & Noble case is that presages interesting competition in the tablet marketplace.  Why should anyone be worried about Barnes & Noble or, by extension, Amazon?  The Barnes & Noble Nook e-reader actually runs on Android.  In effect, they’re selling a specialized Android tablet for $249.  How can they do that when the rest of the Android tablet marketplace is horribly overpriced as I’ve recently blogged?  Welcome to the new world of ecosystems and razors and razor blades.  Amazon and Barnes & Noble can sell these devices at low (or no) margin because the economics of incremental margin on the razor blades (books and other digital content) is so compelling and predictable that it pays to seed the market with devices.  That’s another reason why Apple, asides from supply chain efficiencies, can sell the iPad so competitively.  It can count on a reasonable income stream from the AppStore while in the Android space, those margins go to Google.

Yes, I know that the Nook and the Kindle are not general-purpose tablets.  Today.  But the color Nook is pretty darn close.  The Wall Street Journal’s Brett Arends even recently told readers how to turn their Nooks into tablets.  He overstated his case to make a point:  Barnes & Noble can do this easily and likely will.  If not, they deserve to follow Borders into bankruptcy.

Netting it out:

  • Google is likely to have to share some of its profits with its ecosystem to cover legal exposures.
  • Google is likely to have to share some of its app store revenues with partners.  Otherwise, the situation with competing app stores (already a fracturing standard) is going to get (much) worse rather than better.  They need to do this one quickly.
  • In other words, Android tablets need to get cheaper and Google will have to share its app and advertising revenues to make that happen.
  • Players like Barnes & Noble and Amazon can become strong players in the tablet marketplace because they have the economic model and ecosystem to compete with Apple.  Selling hardware alone is not much fun these days, and is only going to get worse.

Why Do Android Tablets Cost More than the iPad?

You know me.  I don’t own any Apple products any more.  I have:

  • HP desktop
  • HP convertible tablet laptop
  • Android cell phone
  • Sansa MP3 player

I can see the utility of a pure tablet given how much I travel (which I think is its optimal use case:  on the train/plane/Starbucks).  I’d like to buy an Android tablet.  With yesterday’s introduction of the iPad2, I am however left scratching my head.  Even before this, I was wondering “how in the world can the Android tablets be priced 20-50% more than an iPad?”  Hence, my list of the top 10 reasons someone would buy/pay more for an Android tablet.

  1. What’s an iPad?
  2. I’d pay anything to avoid enriching Apple.
  3. I work at Google…although Google employees may hold out until the holidays to see if they’re getting one free.
  4. Google Maps.  Oh, you mean I can buy a third-party GPS solution that is every bit as good and works off
  5. I’m too unhip to be let into the Apple Store.  (There are those who actually posit the Apple Store as part of the reason.  Apple doesn’t have to worry about retail margins so they can price below those who must support those margins too.  I don’t think this is an excuse, though it is a factor.)
  6. I hate waiting in lines to get technology products.
  7. I drive a Lexus and have gotten used to paying premium pricing for the same products.
  8. There must be a TCO argument in favor of Android, right?
  9. XOOM sounds so much cooler than iPad.
  10. If I’m stupid enough to buy an Android tablet right now, I’m stupid enough to pay a premium for it.

Truthfully, I really don’t understand it.  I’d expect Android tablets to cost $100 less than an iPad.  At least.  At current price points, they’re going to kill the market.  So, what do I think the real reasons are?  I’m stretching here.

  • They know Android isn’t really ready yet for the tablet form factor so they’re pricing it so only the really committed will buy in now.  Purposely keep the market away even while you’re dipping your toe in.
  • The various parties to the ecosystem are really that clueless to think that their Smartphone success will translate to the tablet market and that they can support comparable/premium pricing.

Honestly, I’m baffled.  If they’ve got me ready to buy an iPad, they’ve really accomplished something very bad.

Follow

Get every new post delivered to your Inbox.

Join 31 other followers