[ChuckMcM]

This is a company that just put $3.5 billion dollars of free cash flow into the bank for one quarter [1]. Lets say we pay each of these 40 people per architecture $250,000/year and we do it for 10 architectures. That is $100M in Salary. Lets say they each burn another $250,000 a year in benefits, extra 401K perqs, their own cafeteria with a chef that does special orders. Maybe that doubles the cost to $200M/year So let's buy them all a house as a sign on bonus if they get this done in 5 years or less, in the Valley that is 1 to 2M$ each for 400 people, call it 800M$. So 5 years of epic salary, a house free and clear, and 5 years of effort comes to about 1.8 billion dollars. One half of one fourth of the years annual free cash flow, so a bit more than 12% of the annual free cash flow.

In my opinion that is the difference between investing in something strategic and 'hoping it will be great.'

[1] http://investor.google.com/earnings/2012/Q2_google_earnings....

EDIT: Never do math when your typing quickly.

[tmurray]

Microsoft doesn't have its own team to write its own GPU drivers. They have conformance tests for third parties and meaningful penalties for drivers that don't conform (no automatic installing, etc). That's the model you should be thinking about, not iOS.

[DeepDuh]

Microsoft is (or at least used to be) pretty smart in how to partner. Reminds me of that Steve Jobs quote along the line of "I wish we were as good at partnering as Microsoft". I'm curious whether their new strategy (basically copying Apple and go vertical) will work out. If it does, we're definitely in a new computing era where commodity devices with highly compatible software is a thing of the past.

[StavrosK]

1.8 billion dollars in cost. And the better driver is going to return how much of that investment?

[ChuckMcM]

That is a great question. And I think the wrong one. But let me share my reasoning and you can tell me if you agree with that or not.

My reasoning goes like this, if you believe the smartphone and tablet is how people will be consuming the types of services Google would like to offer (Search, Social, Etc) then Google needs to be able to deliver and innovate in that market. If the market leader in devices is hostile to Google, then Google needs to either enable a new leader that they can control or be the new leader. Android's strategy of being open has been excellent at acquiring hardware partners but it has not been able to compete in terms of user experience. Apple has demonstrated for three generations (3G, 4, 4S) that user experience dominates the smartphone decision. And the user experience is dominated by graphics and graphics performance.

I don't think three years ago Google could have appreciated just how much the impact that solid graphics support would have in consumer's minds, but now it seems painfully clear to me (and other bloggers who do these types of articles and Anandtech Etc etc) that this part of the equation is key.

I claim that if Google's Android can nearly match Apple software feature for feature in Smartphone OSes, but they don't have a hardware partner that can deliver graphics performance. So by the same reasoning that said "we need to create an OS for smartphones that we're able to compete with" they should now know that "we need to create the complete platform that enables a competitive user experience." The biggest and most stubborn nail sticking up from that problem is effective, high performance, graphics drivers. What is perhaps more important, the emergence of the tablet as a viable platform makes that problem stick out more.

So Google spends 1.8 Billion dollars over 5 years, and as a result goes from having Android devices being 1/10th to 1/8th the market for tablets to being 1/2 or 2/3rds? If they achieve that objective then yes, the rate of the return for that investment will swamp any other use of that money.

The 'do nothing' strategy of having that 1.8B$ sit in cash and cash equivalents for the next 5 years looks to return less than 250 M$ (with at most a 5% annualized rate of return in the kinds of securities they would hold it in)

Makes it look like a simple call from the outside, I completely recognize that it is painfully hard for at least one member of the OC [1] to spend like that, and they've had way too much say on how money was spent for the last 5 years.

But the reason I think it is the wrong question, is that once you start thinking about it in rates of return your value system is dollars for dollars. I think the right question would be to ask "Is there anything holding back the growth of Android that only Google with its resources (cash, brainpower, etc) can fix?" And I think the answer to that is yes, this one.

[1] The "OC" or "Organizing Committee" is Google's equivalent of the 'executive staff' or the 'executive management group'

[StavrosK]

I think we half-agree on this one. I didn't mean what ROI Google will have strictly in terms of dollars, mindshare/market share/etc are all great to have. However, I don't think that great graphics drivers are as important as you think.

It seems to me that Google can (very cheaply) pick the low-hanging fruit in graphics performance and get 80% of the way there, and then see what they need to do. Also having a "Google" line of devices is very beneficial, as it can be the high end of the Android offerings. I'm typing this reply on a Galaxy Nexus, and I find the phone much better than an iPhone by far (in general, not just in performance, I haven't used an iPhone recently and don't remember how responsive my 3G was).

There's also a false dichotomy in your post that I need to point out. You say that the money will either go to a graphics driver or will sit in the bank, which is trivially false, as Google can invest it in many other ways.

[ChuckMcM]

Fair enough. To your last point, this is weak rhetoric but in this case its also a financial tool that is commonly employed to determine rates of return. The comparison is made between investment 'X', and keeping the money around during the time X would be implemented (the 'do nothing' option). It tries to capture the opportunity cost.

To the 80% question, my claim is that this is exactly what Google did, they got 80% of the way there and in phones that worked. In tablets however the additional screen real estate magnified this weakness in graphics below the 'good enough' threshold. It was great that the Nexus 7 made great strides in this area, the Nexus 7 is manufactured by Asus (which made the Transformer Prime, and now the Transformer Infinity) that the graphics did not improve until Google made it the 'Google Nexus 7' (which sounds like they drove more of the decisions) was a problem for the Android ecosystem in general.

My thesis is that 'fixing' it so that Asus and anyone else can build a fabulous graphics experience on Android is possibly the best investment they could make.

[FrankBooth]

> so a bit more than 12% of the annual free cash flow

You made it seem like such a reasonable thing to do.