The Tricky Road Ahead For Android Gets Even Trickier

HughPickens.com writes: Farhad Manjoo writes in the NYT that with over one billion devices sold in 2014 Android is the most popular operating system in the world by far, but that doesn't mean it's a financial success for Google. Apple vacuumed up nearly 90 percent of the profits in the smartphone business which prompts a troubling question for Android and for Google: How will the search company — or anyone else, for that matter — ever make much money from Android. First the good news: The fact that Google does not charge for Android, and that few phone manufacturers are extracting much of a profit from Android devices, means that much of the globe now enjoys decent smartphones and online services for low prices. But while Google makes most of its revenue from advertising, Android has so far been an ad dud compared with Apple's iOS, whose users tend to have more money and spend a lot more time on their phones (and are, thus, more valuable to advertisers). Because Google pays billions to Apple to make its search engine the default search provider for iOS devices, the company collects much more from ads placed on Apple devices than from ads on Android devices.

The final threat for Google's Android may be the most pernicious: What if a significant number of the people who adopted Android as their first smartphone move on to something else as they become power users? In Apple's last two earnings calls, Tim Cook reported that the "majority" of those who switched to iPhone had owned a smartphone running Android. Apple has not specified the rate of switching, but a survey found that 16 percent of people who bought the latest iPhones previously owned Android devices; in China, that rate was 29 percent. For Google, this may not be terrible news in the short run. If Google already makes more from ads on iOS than Android, growth in iOS might actually be good for Google's bottom line. Still, in the long run, the rise of Android switching sets up a terrible path for Google — losing the high-end of the smartphone market to the iPhone, while the low end is under greater threat from noncooperative Android players like Cyanogen which has a chance to snag as many as 1 billion handsets. Android has always been a tricky strategy concludes Manjoo; now, after finding huge success, it seems only to be getting even trickier.

Comments

The actual battle is not Android vs iOS.

[wvmarle]

I don't think there is really a fight between iOS and Android. iOS is Apple, Android is the rest. OK, there's Windows Phone and Blackberry but they don't really count in this market. Windows Phone is almost exclusive to Nokia; Blackberry is just Blackberry.

The battle is between Apple, Samsung, LG, Huawei, etc. Not between the OSes. Samsung is targeting the high-end market about as much as Apple, though while Apple targets only the high end, Samsung targets also other segments of the market. The other manufacturers are targeting anything from rock bottom to the top.

We should really stop this "Android vs iOS" nonsense. I've never, ever heard someone choosing a phone based on it having iOS or Android. Instead they want an Apple iPhone (which happens to come with iOS). Or they want the latest Samsung (which happens to come with Android - Samsung's Android, a version of Android bastardised to an extent that it is hardly recognisable as the same OS that runs many other phones, from manufacturers that use something close to stock Android).

Now it may very well be that Apple users are the ones that are more susceptible to advertising (which in turn could explain why they chose Apple's offering; after all Apple's marketing is second to none), and hence more valuable to advertisers. But it's not just that "Apple/iOS has the high-end market". Samsung's top end is at least as high end as Apple's iPhones and they seem to compete quite strongly, taking a good share of that market.

That Apple makes a lot more profit on their phones than Samsung and other Android makers do... that's a whole different story. Maybe it simply is the case that Apple users are those that are swayed easiest by advertising, making them pay a massive premium for their phones. And people that already have shown to be happy to buy big in an advertising ploy should be valuable for other advertisers as well.

Understand how the companies make money!

[Aqualung812]

Google is an advertising company. They make money from getting the advertising targets (you) to use their services, and charge the advertisers for access to you.
They're not going to make money off Android directly, it is just a way to get people on their platform.
This is why Google still makes iOS and Windows Phone applications. They just care that you're using their platform, regardless of how.

Apple is a hardware company.They make money from selling phones, and increasingly off of their app stores, but obviously not enough to open their app store to Google.
This is why you DON'T see iTunes, Facetime, or iMessage for Android. Their goal is to sell devices.

Microsoft is a software company. They make money off selling software, so they will, like Google, try to make their software available on as many platforms as they can. They, also like Google, care less about the phone sales and more about getting you as a loyal user of their products.
Unlike Google, Microsoft users are their customers.

Whenever people compare these three companies, they need to look at the core of who these companies are.
I'm not claiming one is better than the other, and in fact I use all three daily.
They just have different motivations for playing on the same playground.

It is somewhat like 3 kids all playing baseball together, but one is playing to be a pro baseball player, another is playing to have fun, and another is playing to impress a girl.
You can't compare the 3 kids to each other and say one is doing better than another, because each is measuring their success a different way.