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Alibaba (OTC:ALBCF) announced last Thursday (September 20) that it would invest $200 million to speed up the development of its smartphone OS. This announcement came exactly one week after the launch of Alibaba's newest smartphone was banned by Google (GOOG), indicating that the e-commerce giant is scrambling to build an OS independent of Android.

Alibaba announced that its Yun (Cloud) OS business will be independent of Aliyun software division and under the group's direct leadership. The group also appointed a new president and a new CTO for the business, in addition to injecting $200 million for long term development.

According to Sina Tech report, Alibaba vowed to provide the Yun OS "the strongest management team, the whole Group's R&D efforts, as well as market and financial resources" to accelerate the development and "to repair the defects found during the development process of Yun OS".

Alibaba did not elaborate what the defects were but it was Alibaba's first public announcement one week after it abruptly cancelled the launch of a smartphone loaded with Yun OS co-developed with Acer.

Alibaba told Tech.qq that Acer cancelled the launch because Google had ordered Acer, a new entrant in the smartphone manufacturing industry, to take sides--it could only make smartphones loaded with Yun OS or Android, but not both. Acer apparently had chosen the latter.

All three parties did not announce why the product launch was cancelled. However, tech.qq quoted an industrial source saying that Google's real sanction target was Alibaba. According to the source, the e-commerce giant had drastically changed the Android OS; not only carried too many its own programs but also even blocked some Google programs, thus violating the Android agreements signed between Google and major hardware makers. This explains why Acer had to stop the phone launch.

According to tech.qq, Alibaba has also launched advertisements to claim Yun OS's superiority over Android, with slogans like "Aliyun's goal is to defect Android" as well as "Android has not formed the right ecosystem". Such comments have been widely reported by media.

Google: Android Not Free Lunch

Google's sanction against Alibaba is in fact a warning to all Android OS users and hardware makers: Android is not free lunch and that they must behave according to rules set by Google!

The real problem for Alibaba is that it has been developing an smartphone OS based on Android and tries to compete with Android. It even tries to create an impression that its OS is independent, developed directly from Linux.

Chinese OS R&Ds Are 10 Years Behind

By boosting long-term development of Yun OS, Alibaba has apparently made up its mind to get rid of Android's control. This means it has to build a brand new OS right from the Linux kernel. But it is not an easy task--a Chinese internet observer quoted by tech.qq estimated that a handful of big Chinese internet companies have to work hard for five to ten years in order to develop from scratch an OS that can directly compete with Android.

Alibaba is not the only Chinese internet giant facing this challenge. Baidu (BIDU), Xiaomi (a fast emerging Chinese smartphone maker), as well as Shanda (SNDA) are developing OS based on Android. Just like Alibaba, they have enough of depending on a business competitor. Google's sanction against Alibaba might be the last straw that broke the camel's back.

Two other recent events have already forced them to rethink their strategic options. The first one is Beijing approved in May Google's acquisition of Motorola Mobility, on condition that the Android should remain free and open for five years. The second one is Samsung, the top Android phone maker, lost a major infringement lawsuit against Apple (AAPL). Other Android phone makers will be equally vulnerable to potential lawsuits by Apple. (Please see my related article)

These Chinese internet giants in theory can license smartphone OS from Microsoft (MSFT) or Research in Motion (RIMM). But ever more frightened of being controlled by Android, they are unwilling to make the same mistakes by licensing other OS.

They can also buy RIMM to get control of the latter's new BlackBerry 10 OS. But because of their Chinese nationality, any of their bids for RIMM doom to be rejected by Ottawa and Washington.

Hence, all Chinese internet companies who have their smartphone OS based on Android have only one way out-rebuild their smartphone OS from scratch based on Linux kernel, just like Alibaba is believed to be doing.

Judging from its past hand-on approach to develop new technologies, Beijing is expected to co-ordinate the companies to develop a common platform, in order to avoid repeated efforts, and more importantly to provide app developers a standard ecosystem.

As for Google, its sanction against Alibaba avoids further Android tampering by Chinese companies but it will also trigger the collapse of Android's market share five years later in China,which will become the largest smartphone market in the world this year.

Research Firm IDC recently forecast that China's share of the world's smartphone market will increase to 26.5% this year from 18.3% last year, aided by introduction of low-end Android phones under $100 while U.S. market share declines to 17.8% from 21.3%.

Android Phones In China Don't Carry Main Google Services

However, all of Google's actions and their consequences have little effect on its current revenues in China because its current mobile business revenue in China is insignificant. As Google retreated from China's search engine market in 2010, Android smartphones sold in China do not carry Google's main services-Google Search, Google Map, Gmail and YouTube.

Conclusion

One week after being sanctioned by Google, Alibaba upgraded the strategic importance of developing its Yun OS and strongly hinted to build the OS right from the Linux kernel. The e-commerce giant has to complete this task within the next five years before Google stops providing free updated versions of Android.

Source: Alibaba Rebuilding OS To Escape Android's Control