by Steve Levy
That omission became particularly glaring when another competitor, Palm, implemented those gestures on its own phone. (Palm’s team was led by a former Apple executive, Jon Rubinstein, whose new job was regarded by Apple as a heinous defection.) Rubin later tried to shrug it off. “Everything’s a barter,” he says.
Google had already publicly announced its phone initiative in November 2007, in conjunction with the formation of the Open Handset Alliance, a group of device manufacturers and carriers committed to supporting Android. In a blog post, Rubin stipulated, “We’re not announcing a Gphone.” Instead, he promised something more significant: a “truly-open and comprehensive platform for mobile devices … without the proprietary obstacles that have hindered mobile innovation.” Skeptics noted that absent from the alliance were the two biggest U.S. cell phone networks, Verizon and AT&T. Both giants seemed satisfied to maintain control of the software of devices that ran on their networks.
But for the longer term Google had a broader plan to open them up—it would lobby the Federal Communications Commission to permit openness in mobile networks.
In 2007, Google had hired its first telecom lobbyist, a former Verizon lawyer named Richard Whitt. His job focused on fighting for net neutrality—regulation to assure that Internet providers could not slow down or block services or websites because of their content or competitive status. (He had support in this public campaign from Google’s Internet evangelist, Vinton Cerf, a renowned figure in the development of the net.) But Whitt also alerted the company to an opportunity: the FCC’s early 2008 auction of wireless spectrum. Up for bid were some valuable slices of the airwaves that would host the next generation of mobile communications, allowing faster Internet access, not just from handheld devices but from computers and TVs inside homes, since the waves on these frequencies could penetrate walls more easily. Various coalitions were pushing the FCC to declare that, unlike the current spectrum, this platform would be designated as “open.” That would mean that the winning bidders had to accommodate outside innovators. Requiring that the spectrum be open would reduce the value of the prize for the winning bidder, so it would stand to reason that the ultimate bid amount would be less than if the spectrum were unrestricted. Thus the Treasury would see fewer dollars from the auction. But presumably, the payback to consumers would far exceed the few billion dollars’ difference.
At Whitt’s suggestion, Google became an active proponent for open spectrum. His team wrote up four conditions that the FCC should impose on whoever won the spectrum in the most valuable block of frequencies up for auction. One demanded that a phone made by any manufacturer should be able to run on the network. A second would dictate that any software developer could write applications that ran on the network. That meant that if, say, Verizon won the auction, it could use that spectrum exclusively to serve its customers, who would still pay monthly bills to Verizon for the connectivity—but Verizon would have to let Google and others sell phones and write applications that worked on its network. (This was in contrast to current regulations, where Verizon could deny those companies access.) The other two conditions were more complicated restrictions on the network that Google never thought would be approved. “We didn’t want them,” says Whitt. “We figured if you asked for four, you might get two.”
During one conference call among Google’s wireless team, Whitt suggested a more emphatic means of making a point: what if Google actually participated in the auction? “It would be great,” he said, “if we could really shut up those [carriers] by sending a letter to the commission that said, ‘If you adopt those four openness conditions, we at Google will put our money where our mouth is. We will bid the amount necessary to trigger the conditions.’” That meant a minimum of $4.6 billion, the designated reserve price. But winning the auction would be a disaster. It would be like the dog who chased the car: what will he do if he catches it? Nonetheless, Google decided to go ahead. It really wasn’t that big a risk, since it was unlikely that the FCC would grant all four conditions. Indeed, when the FCC responded, it agreed to only two conditions. But they were the key ones, which would require the winners of the most valuable slice of spectrum, the piece in the 700-megahertz range, to open the airwaves to different device makers and software developers. That gave Google exactly what it wanted: some big telecom company would have to spend billions of dollars on a wireless network that Google would be able to exploit.
But there was one hitch. According to the rules of the auction, if no one bid the minimum $4.6 billion, the process would end. There would be another auction, almost certainly without the openness requirements that Google wanted. The only way to ensure that the airwaves would be friendly to Google would be for the company to participate.
So Google became a player in a telecom auction. It gathered consultants and experts—its chief economist, Hal Varian, headed a team of auction wizards—to help it negotiate the unfamiliar territory of an FCC spectrum sale. That put Google directly in the sights of a host of new competitors, virtually every big telecom company interested in spectrum, particularly Verizon and AT&T. Google had already aroused their pique by supporting free or very cheap municipal wireless broadband Internet service, a commodity those companies sold for high monthly fees. Google had actually attempted to provide the service for the entire city of San Francisco, but the experiment had flopped. Now Google was messing with the airwaves themselves.
Though Google’s presence in the auction put it on dangerous ground, the founders took to the task with relish, seeing it as a rare chance to experience video-game action blended with a multibillion-dollar gamble. It was like Maverick meets the electronic frontier. The company set up war rooms in Washington, D.C., and Mountain View, with computers hot-wired to the FCC auction site. As befit a multibillion-dollar risk, the room in Mountain View was a top secret facility, a windowless space with access severely limited. Larry and Sergey repeatedly dropped by as the auction progressed. At one point, Varian and Sergey wanted to visit, but Varian didn’t have a key that would open the room. Sergey tried his, and it worked. They entered the empty room and monitored the site for a while. Before they left, Sergey pulled a prank, writing on the whiteboard “AT&T WAS HERE!” “When people came back, they were totally freaked,” says Varian.
The auction process was complicated. It proceeded by a number of rounds, each requiring a bid exceeding the previous high by a certain minimum. If the bidding stopped before the top offer reached the $4.6 billion reserve, the auction would be invalid. Google’s strategy was to bid early each round, even if that meant that the bid it topped was its own. That way, it would have the option to drop out if someone else outbid it. “It’s a nerve-racking experience,” Whitt says. But Larry and Sergey were totally into it, even having a photo taken of them as they pressed the trigger on one of Google’s multibillion-dollar dice rolls from the Mountain View war room.
The bidding proceeded until the point was reached where the next round would require a bid over the reserve price, meaning that the spectrum would actually be awarded. If Google made the bid and no one else topped it, Google would become a telecom company, like it or not.
Page was gung ho on making the bid. But before presenting the issue to the board of directors, Eric Schmidt did a videoconference with the entire auction team. The key question was the likelihood of being stuck with the spectrum. What were the odds that Google’s bid would be topped? Everyone made a guess, and they ranged from 15 percent on up. Finally Schmidt asked Whitt.
“Eighty-seven percent,” he said.
Schmidt was taken aback. “Not 85? Not 90?”
Nope, said Whitt. He had learned that nothing swayed a Googler more than what looked like specific data, even if it had been somewhat concocted from the gut. “There’s an 87 percent chance that Verizon will top this.” (Later he explained his reasoning: “There was no way in hell that Verizon was going to let us walk away with spectrum that would destroy its business model.”) The board okayed the bid, and on Thursd
ay, January 24, 2008, Google’s $4.71 billion bid made the spectrum auction official.
At that moment Google owned the valuable C block licenses. It still owned them the next day and through the weekend, as no other bidder emerged. “The realization was growing that ‘My God, maybe we were all wrong,’” says Whitt, who was starting to regret his brash 87 percent prediction. The probable fallback within Google would be to lease out the spectrum to partners, but that would have been an unholy mess and a massive distraction from its business. In any case, says Whitt, “we had no clear definite plans what to do with it.”
Finally, on Tuesday, the Googlers in the war room were looking at the display when suddenly the screen lit up with a cluster of bids. Verizon had topped Google by about $200 million. Google was off the hook.
Or was it? “Larry was disappointed,” says Whitt. It seems that Google’s cofounder really wanted to keep going. The D.C. team hurriedly presented the alternatives to Schmidt. A higher bid would keep them in the game, but then Verizon (which hadn’t identified itself but was the obvious bidder) could up the ante. The bidding might not stop until $9 or $10 billion! Schmidt told the team to stand down.
Google would later insist that it had played a perfect bluff. “Google definitely wanted to lose,” says Hal Varian. But Page would later confirm that he had seriously been considering a higher bid, with the justification that auction theory demanded it. “It was an unusual auction,” he says. “Obviously, you wouldn’t have made the bid if you thought you were wasting your money, but if someone else bids, you know you’re probably not wasting your money. So that means you might be willing to pay more. And so you’ve really got to think about that.” He says that Google had begun thinking of what it might do with the spectrum: “We’d figured it out already, because we’d already committed to buying it.”
In any case, Google’s economics teams managed to keep Page from engaging in a bidding war that would instantly have made it a major telecommunications player. But the next time around, it would not be so surprising if Google were bidding to win.
2
“Apple didn’t enter the search business—so why did Google get into the phone business?”
With its successful bid in the FCC auction Google ensured that when Verizon developed the spectrum it had secured, any competitor could develop devices to exploit the new bandwidth. But in the shorter term, Google still had a lot rolling on Android. For much of 2008, the success of that investment was in doubt. Google kept saying that there would be no single Gphone but a whole array of different Android-powered phones from different companies. But the public didn’t seem to understand this and kept asking for a Gphone. The message became even more obscure when Google decided to launch the system with a single device running on a single network, instead of a small army of phones appealing to different constituencies running on separate networks. The first Android device would be called the G1, and everyone involved with Android winced when people called it the Google Phone. The carrier was T-Mobile, chosen mainly, says Rubin, because of his long-term relationship with the company. T-Mobile had been the first carrier to launch Sidekick. “There was a trust,” he says. Similarly, the first handset was made by the company Rubin trusted most, HTC.
Rubin later explained that one phone on one network was almost more than Google could handle. The team worked frantically for its release in October 2008. If it missed that window, even by a couple of weeks, retailers would not get the phone for the holiday season and the product would have to be killed. “I personally thought we weren’t going to make it,” says Rubin. “Three months before we were supposed to ship, nothing worked. Crashed all the time. Couldn’t receive an email. Superslow. And over time it got more and more unstable.”
Googlers were dogfooding the phone, constantly reporting elements that needed tweaks. Larry Page was all over the Android team about various problems, including a snag involving his massive list of contacts and schedules. “It was a big calendar sync that affected Larry only,” recalls engineer Brian Swetland. Sergey also had an idea he wouldn’t let go of—he liked the idea of scrolling down a list of contacts by tilting the phone, letting the accelerometer do the work. It would be as if the names were affected by gravity, sliding down a slope. How cool would that be? The engineers tried to explain that, in practice, it would be more likely to cause vertigo than be seen as a useful function. “We actually wound up having an engineer build it,” says Erick Tseng. “Then we showed Sergey that it wasn’t a good user experience.” Faced with the data, Brin agreed. (Generally, however, the Android team says that the founders were helpful with resources and guidance—and that they also knew when it was important to get out of the way.)
To the amazement of even the Android engineers, the team managed to make the deadline. “It was a happy mess, but it worked,” says Android engineer Omar Hamoui. Indeed, the G1 was a solid if not compelling entry into the phone market. Its most attractive features were the ease with which you could run Google products such as the Android browser, Gmail, and Google Maps. Unlike the iPhone, it offered multitasking, a way to run more than one application at a time. But the G1 lacked the slick comprehensiveness of an Apple product. Also, Google’s cloud bias showed—when an iPhone was connected to a computer, it automatically synchronized the phone with data on the computer, everything from contacts to music. Getting this information onto a G1 was an awkward process. Clearly, Google was impatient with those who still subscribed to the antique concept of having files on their computers, even though this category included nearly everyone.
The T-Mobile G1 phone, “powered by Google,” was unveiled in New York City on September 23. Compared to the Broadway sophistication of an Apple launch, this event was community theater. It was held in an obscure catering facility underneath the Queensboro Bridge on the eastern edge of Manhattan’s Midtown, rendered even harder to get to by a United Nations summit meeting of world leaders that day. Instead of a dramatic demonstration of the phone’s capabilities, the main presentation was a list of boring self-congratulatory speeches by representatives of the partners with shockingly little product information. Andy Rubin had a glazed grin throughout. “The last thing I wanted to do was talk about it,” he says. “The only thing I wanted to do was make sure it didn’t crash when it powered on.”
Halfway through the presentation, Larry and Sergey Rollerbladed into the building. They went straight to the stage. Standing awkwardly among the business-suited executives, they looked like gate-crashers at an awards ceremony. (Indeed, their appearance had not been rehearsed.) In the Q-and-A period after the formalities, reporters directed most of their queries to them. When asked for an example of a cool application, Sergey mentioned one he’d written himself, making use of the built-in accelerometer. “You throw your phone in the air, and it tells you how long it takes before you catch it.”
While the example nicely reflected Google’s obsession with milliseconds, the demo provoked near coronaries from the HTC people. The last thing you want to do with an expensive phone whose most fragile component was a large glass touch screen is throw it into the air.
“Ad hoc,” Andy Rubin later characterized the performance with a shrug. “That’s Larry and Sergey, and that’s pretty much how the company’s run.”
The G1 phone didn’t rack up huge sales, but it set the stage for subsequent Android models made by various hardware manufacturers, running on different networks. After a while, Android came to be seen by the telecoms as a poor man’s iPhone. Since only Apple made iPhones and only one U.S. carrier, AT&T, had the rights to sell it, this was an important market niche. And as Android kept improving, it became a genuine iPhone alternative. Google made frequent upgrades, and in some cases it introduced features the iPhone lacked. Android people felt strongly that because of Google’s aversion to marketing, few consumers understood an advantage you’d get from their phone: superior integration with Google’s cloud services. “Trying to chase Apple for pure glitz is kind of silly, because t
hey totally own that market,” says Brian Swetland. “But we’re much better placed to synchronize mail and calendar and other back-end things.”
Another potential Android advantage was the open nature of its system. A vibrant community of software developers had embraced the iPhone, creating hundreds of thousands of apps. Apple exercised tight control on those submitting applications to the store and rejected an app if, for instance, it felt the content was objectionable; Google welcomed almost everyone. The contrast reflected the differing philosophies of the companies and also the difference between the web-centric Chrome operating system and Apple’s hermetic operating system for its iPad tablet computer. Nonetheless, Apple raced to an early lead in the number of apps, while Android emerged as clear runner-up.
Developers even began to think of the Android operating system as a platform for bigger devices such as tablet computers or even small laptops. Barnes & Noble designed its Nook e-book reader around Android, and Asian manufacturers began making plans for Android-based netbooks. (This placed Android at odds with Google’s Chrome OS plans. When asked in 2010 how it had come about that a company founded to focus on search had wound up with two computer operating systems, Larry Page responded, with a smile, “Only two?”)
Perhaps the breakthrough Android device came about a year after the original, when Verizon introduced an Android handset made by Motorola called the Droid. (This was a significant partnership since Verizon had become a fierce opponent of Google on technology policy issues. The thaw in relations was probably attributable to Verizon’s need to market a competitor to AT&T’s iPhone.) The Droid took advantage of new Android features that Google had developed, most impressively the ability to convert dictation into text in various applications. The accuracy of the transcription resulted from the data Google had gathered from billions of callers to its 1-800-GOOG-411 directory assistance service. Some critics wondered whether Android was actually superior in some ways to the iPhone.