Google Takes a Cue From Apple

April 18th, 2012

It looks like Google (Nasdaq: GOOG) followed my advice to keep Motorola Mobility’s (NYSE: MMI) smartphone business.

Business Insider says, “According to a person briefed on Google’s plans for the merger: While Google may have originally wanted to buy Motorola for its patents only, it has come to realize that it wants to follow Apple’s lead when it comes to smartphone and tablet computer development.”
You see, currently, Google simply designs the Android software and depends on other companies like  

Samsung and HTC (TPE: 2498) to integrate the operating system into a smartphone.
And while some amazing devices have been developed under this model, the Android experience isn’t as unified as what you’d find on Apple’s (Nasdaq: AAPL) iPhone. By designing the phone from the bottom up, however, Google could finally bring an Android phone to the market that’s just as intuitive as Apple’s smartphone on every level.

But people aren’t exactly jumping for joy over the prospects of such a move, as it runs the risk of alienating Google’s Android partners.

However, I’m still convinced that the popularity of a vertically designed Android device would light a fire under other manufacturers to develop killer smartphones to compete.
And this shouldn’t be a problem, considering CEO, Larry Page, made it clear that Google has no intention of leaving its loyal Android allies in the dark.
With the Motorola acquisition close to final approval, though, here’s why Google needs to stick to that promise…

Google’s Walking a Dangerous But Profitable Line
Some reports indicate that device makers are put off by the purchase of Motorola. And if Google ends up designing its own device, it would lead the manufacturers to overhaul the Android operating system to make it their own.

The idea is that this process, known as “forking,” would allow a hardware manufacturer to create an entirely unique experience (because it barely resembles the original Android operating system). And this differentiation could help its devices stand out from the crowd. The problem, however, is that going rogue means that the company won’t be able to implement key Google applications, like Gmail, Maps and the Google Play app market. So it creates more work for the hardware maker.

But that problem would be even worse for Google. You see, Google cashes in on applications through mobile advertising and in-app purchases. If hardware makers design their own app store alternatives, this would cut deep into Google’s bottom line. Like Bloomberg says, “Mobile advertising is one of Google’s fastest-growing markets, with industry-wide revenue projected to rise to $20.6 billion in 2015 from $3.3 billion in 2010, according to Gartner Inc. With online traffic increasingly coming through apps instead of mobile browsers, Google’s push to wring mobile ad revenue from Android could be impeded.”

Amazon’s (Nasdaq: AMZN) already shown that such a model can hurt Google with the Kindle Fire tablet. Fire owners must purchase applications through the Amazon Appstore, instead of the Google Play Store.
And a study last month by Flurry shows that developers are making more money through in-app purchases with Amazon’s marketplace than with Google’s. In January and February, for every dollar of revenue a developer made through Apple’s App Store, for instance, he made $0.89 through Amazon and $0.23 through Google. (We’re not exactly surprised, by the way, given that we pointed out a few reasons why Amazon’s app marketplace is superior to Google’s.)

Problematically for Google, Amazon’s success with forking could entice current Android partners to follow in its footsteps. Meaning Google better tread carefully as it continues along this path of exploring hardware options, keeping its Android partners in the loop the whole way.
Bottom line: Although mirroring Apple’s vertical integration strategy should boost Android’s popularity enough to where losing a smaller phone maker shouldn’t be a huge deal, losing a partner like Samsung, on the other hand, could punch a huge whole in Google’s mobile revenue.

Good investing,
Justin Fritz for the Wall Street Daily
www.wallstreetdaily.com
Source: http://www.wallstreetdaily.com/2012/04/18/google-takes-a-cue-from-apple-goog-aapl/