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Farhad Manjoo writes in the NYT that with over one billion devices sold in 2014 Android is the most popular operating system in the world by far, but that doesn't mean it's a financial success for Google. Apple vacuumed up nearly 90 percent of the profits in the smartphone business which prompts a troubling question for Android and for Google: How will the search company — or anyone else, for that matter — ever make much money from Android. First the good news: The fact that Google does not charge for Android, and that few phone manufacturers are extracting much of a profit from Android devices, means that much of the globe now enjoys decent smartphones and online services for low prices. But while Google makes most of its revenue from advertising, Android has so far been an ad dud compared with Apple's iOS, whose users tend to have more money and spend a lot more time on their phones (and are, thus, more valuable to advertisers). Because Google pays billions to Apple to make its search engine the default search provider for iOS devices, the company collects much more from ads placed on Apple devices than from ads on Android devices.
The final threat for Google's Android may be the most pernicious: What if a significant number of the people who adopted Android as their first smartphone move on to something else as they become power users? In Apple's last two earnings calls, Tim Cook reported that the "majority" of those who switched to iPhone had owned a smartphone running Android. Apple has not specified the rate of switching, but a survey found that 16 percent of people who bought the latest iPhones previously owned Android devices; in China, that rate was 29 percent. For Google, this may not be terrible news in the short run. If Google already makes more from ads on iOS than Android, growth in iOS might actually be good for Google's bottom line. Still, in the long run, the rise of Android switching sets up a terrible path for Google — losing the high-end of the smartphone market to the iPhone, while the low end is under greater threat from noncooperative Android players like Cyanogen which has a chance to snag as many as 1 billion handsets. Android has always been a tricky strategy concludes Manjoo; now, after finding huge success, it seems only to be getting even trickier.
[Editor's Comment: Original Submission]
(Score: 5, Insightful) by jmorris on Friday May 29 2015, @12:41AM
So much wrong, hard to see where to start.
First off, Google didn't care about making money off of Android when they bought it out and probably still don't. Their motivation was survival. They saw the mobile revolution becoming an Apple walled garden where they would have zero control of their destiny and Apple (like Google and Microsoft, etc) has a habit of destroying any competitor they can, and had Apple monopolized the smartphone/tablet space they would have been in such a position. Keeping the market open means the web standards stay open. And with the majority of traffic being not-Apple, Apple pretty much has to be willing to play ball with Google so long as all that not-Apple traffic keeps Google's mindshare where it is.
Second, it is the financial health of the handset makers that count, they are obviously making plenty of money or they wouldn't be competing so frantically to bring out ever more features, new players wouldn't be entering, etc. No they aren't, and never will, make Apple style insanely great profits since they aren't selling high end luxury goods. They are instead in the high volume, low margin consumer electronics business. But Samsung, LG, Sony, etc. know how to survive on that model in all of their other product lines so it isn't anything new for them.
Third, of course the high end will go to Apple, always been that way. Do you think rich people will use normal products vs instantly identifiable luxury brands? Do they drive GM cars and buy handbags at J.C. Penny? I'm just amazed they still consider Apple elite enough considering the subsidized phones even 'normals' can readily afford. See next point.
Fourth is the whole carrier subsidy model. So long as you can get a iPhone for $99 the Apple premium isn't hurting adoption of phones nearly as much as it used to retard Mac sales. Haven't done it but I suspect a market share by area vs whether they do lease/subsidy phones vs outright sales + SIM would be instructive.
Fifth, the observation that wealthier people who can afford Apple products tend to be wealthier people who buy lots of other overpriced crap isn't exactly a groundbreaking discovery. If success is going to be defined as finding a way to get people who don't have that kind of disposable income to start spending like U.S> coastal elite Apple users the game has been rigged to assure a preselected result. The only goals Android must meet is selling lots of handsets at a profit to the vendors, making sure the owners use enough airtime that the carriers are getting sacks of cash and that they view enough ads for Google to see the value in paying the developers. Unless of course another handset platform were to be offered to the handset makers or carriers that offered more revenue -for them-.
Sixth, even if Cyanagen/MIcrosoft get traction with their swapout of Google Services for Microsoft ones, it isn't all bad. If Microsoft essentially becomes downstream from Google and adopts an Android based system over Windows 10 as their mobile solution (like Amazon's mutant Android) then it is still hard to see how Google is badly hurt.