Google – One armed bandit

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I see no reason for China to fall for Google’s charms.

• It looks like Google is about to mount another assault on the Chinese market but even if it gets in, it is almost certain to end up competing with one arm tied behind its back.
• After leaving the market in 2010, Google looks like it is returning with a Chinese version of Google Play as well as with Android Wear on wearable devices.
• China is a massive market of 605m smartphone users from which Google earns virtually no revenues.
• In contrast RFM estimates that Google will generate $10.4bn in revenues from an average of 790m Google Android smartphones users in 2015.
• It is obvious that there is a huge revenue opportunity being missed and now that growth elsewhere is beginning to slow up, Google is attempting to cast its net back into Chinese waters.
• The problem here is that these 605m users in China are already using Digital Life services and apps that have been developed specifically for them by home based players.
• Furthermore, Google will need to convince the Chinese Government to let it back into a market it famously left in 2010.
• I suspect that the memory of this falling out remains alive and well.
• Even if the Chinese authorities let Google back in, they are very likely to place limitations upon Google such that the home grown crowd, Baidu, Tencent, Alibaba, Xiaomi and China Mobile have the advantage.
• This, combined with the fact that these companies are solely focused upon ensuring that their Chinese ecosystems appeal most to Chinese users makes it easy to believe that Google is going to flounder.
• Its angles of attack are likely to be through offering developers a bigger cut of the revenue than they get from the existing players and in convincing hardware makers to push Android wear.
• The problem here is that Google Play in China will be coming from zero making it a very tough proposition for developers who tend to follow the money.
• After all, a bigger cut of a small number is almost certain to be lower than a small cut of a much larger number.
• I suspect that in China, Google will have the same problem as Microsoft elsewhere and will end up having to pay developers to write apps for its Chinese store.
• The net result is that Google is already so far behind when it comes to Chinese specific Digital Life services, that its competitors are very likely to have a meaningful home court advantage.
• Consequently, I see this as a gamble for Google and one that is unlikely to pay off.
• Google’s shares remain slightly below where I think they should trade but not nearly far enough below to get me interested.
• I continue to prefer Microsoft for the ecosystem.