Google Android – Useless genius

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Another great service that is effectively useless. 

• Google has launched a new service that has the potential to deliver incredible value to Google but the limitations of Android render this stroke of genius effectively useless.
• Google has updated its search app on Android such that it can now search for and categorise content and data within apps and services that it does not own.
• This provides the user with a useful tool for searching his device and gives Google the ability to collect data from Digital Life services that it does not own.
• This is a variant of Google’s Now on Tap service which allows context based search from anywhere on the device (see here).
• I have long believed that this is a stroke of genius as Google currently only has 41% coverage of the Digital Life pie but this feature allows Google to collect data as if it owned 100%.
• The net result will be greater understanding of its users and better targeting of its advertisements meaning higher prices, driving revenues and better margins.
• Unfortunately, this service requires low level changes to be made in the Android Open Source Package (AOSP) meaning that the device has to have version 6.0 (Marshmallow)or later in order for this service to work.
• The “in App” search also requires Marshmallow meaning that it will effectively be useless for several years to come.
• This is because although there are 920m Google Android users, only a tiny fraction of them have a device that runs Marshmallow.
• Furthermore, RFM research indicates that the vast majority of Android handsets cannot be upgraded to the next major release of Android meaning that to get Marshmallow the user needs to replace his device.
• This gives competing ecosystems plenty of time to study the innovation, download the source code, improve it and get it to market years ahead of Google.
• This is why I have long been of the opinion that Google is effectively doing competition on behalf of its competitors.
• Furthermore, it means that it will be at least 2 years before any real benefits of this new feature make themselves felt on Alphabet’s bottom line.
• By contrast, Apple is able to update over 90% of all its iOS devices within 3 months of a new version of the software becoming available.
• This is how Apple was able to launch Apple Music to 400m users within 3 months with the touch of a button.
• I have long believed that this situation, combined with the endemic fragmentation of Android is largely responsible for Google’s low Average Revenue Per User (ARPUs) on Android as well as the lower loyalty demonstrated by Android users.
• I can see only one solution to this problem which is for Google to take complete control of the Android software effectively removing new versions of the code from open source.
• This will allow Google to offer both a good user experience and also to ensure that improvements in its ecosystem are delivered to users in a timely manner.
• This in turn should bolster revenues from Android but I think that the market is already discounting these revenues in the valuation of Alphabet’s shares.
• This is why I remain cautious on the performance of Alphabet going forward and why I prefer Samsung, Microsoft, Baidu and even Apple from an investment standpoint.