Android Q – Q is for Quiescent.

Google i/o shaping up to be a snooze.

• The next version of Android has leaked ahead of the usual developer preview and it looks to me like innovation in Android has ground to a halt, meaning that all the action will be found in Google’s own services.
• Android Q is the next version of Android and its main feature looks like it will be the ability to use dark mode right the way through the user experience extending dark mode’s reach from Android P.
• There will also be a needed re-vamp of app permissions but if the main feature is to be a simple user experience gimmick, it demonstrates that there is very little innovation left in Android.
• This makes complete sense as Google increasingly needs to earn a return from its R&D investments, and there is absolutely no point in making those investments in Android.
• This is because it now takes about 6 years from source code availability to update the entire pool of Google Ecosystem devices.
• This means that if Google invests millions of dollars in a great new innovation in Android, its competitors (Apple, BATmen etc.) will have years to copy that innovation and get it into the hands of their users long before Google can.
• By the time the innovation makes it into the majority of the Google Android population, it will be either widely available elsewhere or obsolete.
• Hence, Google can only make a return by investing in its own proprietary Google Mobile Services (GMS) which it rolls out to its users on top of Android.
• Because Google has complete control of this software layer, it can update whenever it wants through the Google Play store and does not suffer from the endemic fragmentation that continues to hamper the Android user experience.
• This is not an existential problem for Google in its own right but I have long believed that Google’s inability or unwillingness to address either the software distribution or the fragmentation problem is what prevents it from properly competing with Apple.
• RFM research indicates that Google is forgoing a $30bn+ opportunity in not competing properly with Apple as its devices generate far lower revenues for Google as a result of the inferior user experience.
• Demographics have a hand in the difference between Android and iOS, but RFM finds that the biggest part of the discrepancy is explained by the user experience.
• This situation looks set to continue in 2019 with very little, if anything, changing in Android which is going to make for a very boring Google i/o developer conference.
• Hence the place to look for innovation is going to be in Google’s own services which are largely underpinned by its AI.
• This is also running into difficulties as it looks like progress in AI is rapidly slowing down due to the fundamental limitations of the techniques still in use today.
• Slow and steady looks to be the theme of 2019 which does not bode well for stocks with very high valuations.
• Against this backdrop, Google is not too highly priced could end up being quite defensive compared to competitors like Facebook which still has further to fall in my opinion.