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/

Why Google Android Can't Compete With Apple's iPhone

April 4, 2012

By David Zeiler, Associate Editor, Money Morning

http://moneymorning.com/2012/04/04/why-google-android-cant-compete-with-apples-iphone/

There's an inherent flaw in Google Inc.'s (Nasdaq: GOOG) Android operating system. The flaw isn't a technical glitch. In fact, most agree that Google's Android is a first-rate mobile operating system that has gotten better with each update. Some even prefer it to Apple's iOS. It's not adoption either. According to recent data from Nielsen, Android's U.S. market share among smartphones has reached 48%, compared to 32.1% for Apple's iPhone. And Google says it has activated more than 300 million Android devices.

The problem is partly the result of Google Android's overall success. The biggest flaw is fragmentation and it will be what prevents Google from defeating Apple Inc.'s (Nasdaq: AAPL) iPhone in the mobile computing wars. There are simply too many versions of Android running on too many (over 1,400) different pieces of hardware. And the issue gets worse with each new version of Android, as older devices are rarely updated.

That's a huge problem for Android developers, who need to write apps that will work on a bewildering array of possible configurations. And it's starting to have an impact. According to Appcelerator's most recent quarterly survey of developers, interest in writing apps for Android phones fell 4.7 percentage points to 78.6%, and interest in writing apps for Android tablets fell 2.2 percentage points to 65.9%.

By comparison, 89% of developers were interested in writing apps for Apple's iOS, a number that has remained steady. "Massive platform fragmentation is a big reason that we're seeing this decline in interest," Mike King, Appcelerator's principal mobile strategist, told Network World. "If you look at all the other numbers such as Android smartphone market share it's on the upswing, but for app developers it's a real challenge."

It's a headache iOS developers don't share. Most Apple customers stay current with the latest version of iOS. And because Apple makes all the hardware, limited to just a handful of models, it's much easier to write an app that runs on nearly all of the millions of iPhones, iPod Touches and iPads in use.

Google Android Users Not Big Spenders

Making matters worse for developers is that Android users tend to spend less money on apps than owners of Apple devices. According to a report last year by Piper Jaffray's Gene Munster, the Google Android Market (recently renamed Google Play) generated just 7% of the revenue of Apple's iTunes App Store.
Munster estimated that in terms of dollars spent on mobile computing apps, Apple has an 85%-90% share. He expects Apple's dominance of app revenue to remain over 70% for the next three to four years.

Some defenders of the Android market claim Munster's methodology is flawed. They point out that Android apps, unlike iOS apps, are sold in multiple online stores. But that, too, creates issues for developers, who need to make sure they cover all their distribution bases with each release. Put it all together and it means Android developers need to put in more effort while making less money than iOS developers. And it's driven at least one developer to throw in the towel.

"Our Android apps aren't making money," wrote Mika Mobile, creator of such games as Zombieville USA and Battleheart, in a March 9 blog post. "Android sales amounted to around 5% of our revenue for the year, and continues to shrink. Needless to say, this ratio is unsustainable." Much of the money Mika Mobile's Android sales did generate got swallowed up by extra development costs - time spent tweaking apps to work properly on the proliferating combinations of new hardware and versions of Android.

One more thing: The lower Android app sales have pushed prices in the Android Market higher. A recent survey by Canalys showed the average cost per app for the top 100 offerings in the Android Market was $3.74, but just $1.47 for the top 100 in the iTunes App Store. The higher prices tend to further discourage buying, which in turn helps keep the prices high.

Hitting Google Android in the Apps

Despite is successes, Google needs to do something about Android's fragmentation to keep its developers from jumping ship. Google needs to make sure the developers can make money. Disenchantment on the part of many Android developers could result in a falling number of quality apps and increasing compatibility issues as older apps are no longer updated.

"Developers go where the money is. End users go where the apps are. Developers create apps where users are," writes veteran tech pundit Joe Wilcox in an article called "iPhone is Unstoppable."

Wilcox theorizes that Apple's ecosystem will be difficult to disrupt. Google will need to fix its fragmentation issues quickly to avoid the fate that Apple's Mac platform suffered in an earlier OS War. "In the 1990s, Microsoft sought to achieve a "standard' platform for developers and succeeded with Windows. Apple is quickly doing the same around iOS, iPhone and iPad," Wilcox said.

The Windows Wild Card

Speaking of Microsoft Corp. (Nasdaq: MSFT), its plans for Windows 8 gives Google something else to worry about in the mobile computing space. Microsoft, until now left on the mobile computing sidelines, will aggressively market Windows 8. And it will likely do a better job of preventing the sort of fragmentation that's stinging Android.

A wave of Windows 8 tablets and smartphones arriving in the fall no doubt will end up competing for the same cost-conscious customers that have been buying Android-powered devices. With only about 70,000 apps, the Windows Phone Marketplace is far behind the leaders, (which have over 500,000 apps each) but Microsoft plans to woo developers in an effort to catch up.

Microsoft and hardware partner Nokia Corporation (NYSE ADR: NOK) announced just last week they'd jointly invest in a $23.9 million mobile app development program over the next three years. Should Windows 8 get traction in the mobile computing market - and history shows that Microsoft is nothing if not persistent - it could further undermine Android. Still, Android isn't going anywhere. It's certainly not in danger of disappearing. But neither is it going to race to dominance, as some predicted last year.  Ultimately, Android's status in the mobile computing market largely depends on how seriously Google and its hardware partners take the fragmentation problem.

"Android is not facing an imminent crisis amongst developers," writes Jeff Duncan for Digital Trends.com. "But, looking out over the next two years, Android (and Google) are clearly going to have to move application development and revenue generation to the same priority level as [hardware] adoption and device activations, or face a stagnating software and content ecosystem."