Why the FTC is likely to hit a dead end probing Google's Android

The Federal Trade Commission is reportedly eyeing Android in its investigation of Google business practices. On the surface, Android seems like a natural target for regulators, but the details are a bit trickier.

According to the Wall Street Journal, FTC lawyers are looking into whether Google prevents smartphone manufacturers from using competitors’ services. The FTC is also looking at whether Google favors its own properties in search results.

The Android argument is probably the most interesting. Here are the moving parts that would attract regulators like flies.

Android market share has surged to 39 percent of the smartphone operating system market from zilch. Apple is second with 28 percent of the market, according to Nielsen.
Google was partially able to get this share by giving away Android because it could make money off of search.
Mobile ads are the next frontier Google can leverage.
And Google can bundle its services and tightly integrate them into the operating system.

On the surface, Google's Android bundling rhymes with Microsoft's Windows-Internet Explorer bundle that killed Netscape.

Android's success could be an "ah-ha!" moment for regulators, but the reality is vastly different. Here's why:

When Google launched Android it filled a competitive vacuum in the smartphone industry and served as a counterweight to Apple's iOS.
The smartphone industry is highly competitive even among vendors on team Android. HTC, Motorola and Samsung are killing each other.
A user isn't forced into any Google service on Android. For instance, I use Firefox on my Android device over the included browser. Bing is there too. And so is Amazon's app market. Verizon has its navigation app and so does Google.
You could argue that Android wouldn't have been a runaway train if Microsoft would have had its Windows Phone 7 act together sooner. Android also would have been thwarted if RIM would have moved at a faster pace.

Add it up and the FTC doesn't have a ton to work with on Android. The legal types could argue that Google favors its own services, but network carriers can tweak Android as they see fit. Verizon has no problem plopping Microsoft's Bing on an Android device. AT&T also has its tweaks.

In the end, FTC can poke around Android to see if there's any wrongdoing, but it will be a tough case to make from a purely antitrust perspective.

Update: There have been a few folks that disagree with the argument above---actually more than a few. The best argument against my points come from Scott Cleland at the Precursor Group. His argument is that the FTC isn't just about antitrust. The FTC can investigate and put restrictions on companies based on deceptive practices. Cleland said that if the Department of Justice were investigating Google then my argument would hold up better.

Cleland on Forbes last month argued that Google has been deceptive about its business practices. His report on the subject goes into more detail, but the crux of the argument is that Google doesn't disclose its conflicts of interest and then uses search to enter new markets. Whether you buy Cleland's argument is your call, but his report is worth a read.

The money slide: