Contrary to
popular belief the Android operating system, which powers a variety of mobile
phones and tablets (in addition to a host of other hardware peripherals) is not
the cash cow for Google that many think that it is. In fact, in 2012 Android
accounted for paltry $550m of Google’s $5.5bn 2012 turnover. So why does Google
continue to invest in a product which in comparison to its core business seems
like a commercial failure? Furthermore, should Google be worried that a single
handset manufacturer continues to dominate the vast majority of all Android
handset sales?
One only needs to
look at the origins of Android in order to realize that it was never directly
meant to create a massive new revenue stream for the company; after all, it was
designed in order to be freely distributed. Google’s aim was to benefit financially
from the selling of advertising, which would become increasingly personalized,
based on the data that the company could obtain from users of its Android
operating systems. Therefore, if Google’s aim was to get Android in the hands
of as many consumers as possible in order to push its other services and
deliver more bespoke advertising then it would appear that they succeeded,
because by Q4 2012 Android accounted for 70% of the global mobile market. It is
unlikely however that Google would have anticipated that the growth of
Android’s market share would be to the potential detriment Android itself.
Until 2010 Google
was content with simply providing the software that was powering the growing mobile
handset market, after all the company remained an advertising business and
Android facilitated that. However, seeing that other companies were altering
the Android experience, and thus potentially Google’s source of data, the
company got into the hardware business and introduced its Nexus series. The
Nexus series are handsets that were designed by Google alongside 3rd
party handset manufacturers (HTC, Samsung and LG respectively), which run
Android without any software tweaks. This is important for Google as it gives
them control over what services and applications the end user engages with. The
problem that Google faced is that the Nexus brand has always been a sub-genre
of phones that never gained mainstream popularity. Whilst the Nexus phones have
failed to make a dent in the market, the success of Samsung’s Galaxy series has
propelled the company to the top manufacturer in the world with 30.3% of the
mobile market share. Samsung realized that it was not in their interest to be
too heavily reliant on Android (lest it be taken away from them) and therefore opted
to heavily skin their Android phones so that they don’t resemble a pure vanilla
Android experience. On top of that, in order to mitigate any further evidence
of Google’s influence, they add a plethora of ‘S’ services that look to replace
Google’s native applications. The effect Samsung’s self-branding is that people
don’t by a Samsung phone because it runs Android, they buy an Android because
it’s a Samsung. Samsung have been able to ride the success of the open source Android
operating system, offer an outstanding alternative to the iPhone, and are now
in a position where they are not beholden to Google’s Android, as Google want
it to be used. Google now finds itself in a situation where Android’s greatest
advocate has becomes its greatest commercial threat.
As it stands today
Google is in a bit of a pickle. At its inception, Android needed OEMs to push
the hardware side of the Android ecosystem. As the software became more
advanced and more popular it became a bit of a poison chalice for Google, as
manufacturers began to put their own spin on it to differentiate themselves within
an increasingly competitive market. This has left Google with two options. This
first would be to clamp down on how Android is implemented, but this is
unlikely as it is wholly against what he open source nature of the operating
system stands for. The second is to continue to invest in their Nexus branded
phones and ship to a broader market at prices that undercut their competitors;
a strategy that has worked well with the Nexus 4. Furthermore, with the
existing pipeline of phones that were already in place when Google acquired
Motorola in 2011 coming to an end, we can expect a Google influenced and
Motorola built phone come out market soon which will allow Android, in its
purest form, to stand out on its own in a very real and very compelling way.
With Google I/O around the corner, many of these uncertainties ought to be made
clear.
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