Google – Turn of the screw

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  • Google is the only winner in the Android ecosystem.
  • June is becoming one of the most important months of the year for the mobile ecosystem with both Apple and Google holding developer events.
  • Hardware is pretty much commoditised meaning that the features which are increasingly going to make the difference for users are being revealed at these sorts of events.
  • Microsoft’s BUILD conference (see here) last month was exactly the same.
  • Apple is likely to launch iOS 8 with a range of new features (see here) while it looks like Google will be taking more and more control of Android.
  • Hence I suspect that Google I/O will showcase substantial improvements being made to Google applications and services.
  • Tw in particular that I am looking for are a substantial improvement in the Google Calendar application and functionality enhancements to the Google Camera App.
  • While these improvements are good for users, it is turning the screw even tighter on the long suffering handset makers.
  • Google is slowly but surely taking control of Android by moving functionality out of the open source Android Open Source Platform (AOSP) and into Google Mobile Services (GMS).
  • AOSP is open source but GMS is not, meaning that handset makers must comply with Google’s standards or be cut-off from all of its applications.
  • In emerging markets this is less important but in the West, Google Play is critical to the user experience meaning that neither operators nor handset makers can afford to be cut off.
  • This effectively means that Google is taking over the user experience in Android and any hope that the operators vendors may have had in differentiating their offerings has now evaporated.
  • This will ensure that brutal competition continues in Android devices meaning cheaper devices with better hardware specification in the hands of users.
  • Better devices with Google services will mean higher usage and more traffic for Google to monetise.
  • It also means commodity margins (if any) for the Android vendors and a bit pipe future for the operators.
  • Samsung is the only Android vendor making any money at the moment but its recent decision to back off from developing its own services looks set to push its margins towards those of its peers.
  • There is only one company in the Android ecosystem worth taking a serious look at the moment and that is Google.
  • Yahoo! and Microsoft are the other two ecosystem players which I think have potential that everyone is currently ignoring.

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.

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