Google – Meaningless milestone

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Android’s success shows up Google’s deficiencies.

• Android has surpassed Windows as the No.1 platform for accessing the Internet globally, highlighting just how bad Google is at monetising Android as it remains only a small percentage of total revenues.
• I think that this could be a growth opportunity if Google can fix the many problems that exist within the system that it created and in many cases controls.
• According to StatCounter, Android devices now make up 37.93% of all Internet access devices very slightly ahead of Microsoft Windows at 37.91% with iOS a distant third at around 13%.
• Furthermore, with most users spending more time on smartphones and tablets than PCs, it is clear that the PC is rapidly becoming a device used in the enterprise and by content creators.
• This is a major reason why RFM does not consider PC usage as a contributor to Digital Life when assessing the addressable market for a digital consumer ecosystem.
• Consequently, it would be natural to assume that Android is a big part of Google’s revenues but in reality, it is not.
• RFM estimates that in 2016 just 19% of advertising revenues came from Android devices compared to PCs and Macs which generated 60% of advertising revenues.
• A further 19% of revenues came from iOS devices despite the fact that there are 2.9 Android devices for every 1 iOS device.
• This tells me that the PC is a much better platform for advertising monetisation but it is also a clear indication that Google is doing something very wrong when it comes to making money from Android.
• I have long argued that while demographics plays a role, the endemic fragmentation of Android and Google’s inability to update software on its own devices severely hinders the usage of and loyalty to, the Android platform (see here).
• I believe that this is a major reason why an Android device generates less than half the revenues that an iOS device does which is also meaningfully less than a PC or Mac.
• While this is a real black eye for Google, I also see it as an opportunity.
• RFM estimates that in Q4 16A each iOS user delivered $3.37 in revenues for Google compared to $1.47 on Android.
• If Google could fix the problems with Android, then I think that there could be meaningful upside to this number.
• For example, if Google was able to increase monetisation of its own Android devices to $2.00 per user per month, this would increase revenues by $6.4bn on an annualised basis.
• As smartphone user growth and usage both slows, Google will need to look for growth elsewhere and I see this as an obvious place to start.
• I am hoping to see signs of this at Google i/o (in May) but in the preview of Android O (see here), I was disappointed.
• Without these kinds of actions I think that Alphabet remains fully valued and would prefer the shares of Microsoft, Tencent and Baidu.