Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22
Crypto Investors Stable Coins TERROR as Terra USD COLLAPSEs towards ZERO, Tether Next! - 11th May 22
The Dominant Investing Theme of the Decade - 11th May 22
Is Bitcoin Headed to Zero? - 11th May 22
RECESSION RISKS 2023 - 10th May 22
The Future of the Dollar Seems So Bright It’s Blinding Gold - 10th May 22
Take Advantage When Markets Succumb to Fear - 10th May 22
How to Recognize a Less\ Than Obvious Opportunity (In focus: Corn) - 10th May 22
How to Ensure Financial Stability for Your Family - 10th May 22
The Stocks Stealth BEAR Market - 9th May 22
A Strengthening US Dollar Is A Double-Edged Sword - 9th May 22
Making Wise Investment Decisions - 9th May 22
Ways to legalize a Moving Company - 9th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is Android The Next Gold Mine For Google?

Companies / Google Oct 11, 2010 - 07:27 AM GMT

By: Dian_L_Chu


Best Financial Markets Analysis ArticleAfter years of searching, developing, acquiring, plus a few flops along the way, Google seems to have finally found the next big revenue stream--in addition to its web search. Eric Schmidt, Google CEO, claims that Android is making money and that android-based phones already generate enough new advertising revenue already covered the cost of its development. And according to Newsweek:

“Schmidt envisions a day when there are 1 billion Android phones in the world and notes that if Google could get just $10 from each user per year, it would be a $10 billion business.”

Google’s Android is currently trailing behind RIM and Apple in the global smart phone platform market share. But according to research firm IDC, Android will have 25 percent world market share in smart phones, more than double Apple’s 11 percent share, while Piper Jaffray and Gartner also issue similarly bullish projections on Android’s eventual world domination. A CNNMoney article even concluded that “….with Android, it looks like Google is sitting on a gold mine.”

It is true that free open-source model gives Google an advantage enabling handset makers like Motorola and Samsung to develop rival units to iPhone, RIM and Nokia’s Symbian, and Google is rumored to have been cutting in Android carriers, manufacturers on ad revenue. All this, of course, has helped boost the number of Android handsets.

However, despite the impressive Android number, keep in mind that the free open source means zero revenue for Google. So in order to evaluate if Android will be the next big revenue stream for Google, one needs to get past the initial excitement arising out of the handsets growth projection.

According to Schmidt’s vision, Google will make money with ads displayed on Android handsets, and possibly with Android Market (Google’s answer to Apple’s online store). However, his one billion users and $10 billion market remark sounds overly “optimistic”, if not somewhat arrogant.

First of all, the number of Android handsets/users worldwide is currently estimated at around 8.5 million. So, to reach one billion users, we are talking about a compounded annual growth rate (CAGR) of 61.09% for the next ten years, or a CAGR of 37.42% for the next fifteen years. Both numbers seem lofty (although Schimdt might disagree) considering the fierce competition (name brands as well as “gray market”) in the handset market.

As for the mobile ad and search revenue, it is certainly an incremental income for Google, but I’m not quite sure about the “gold mine” status due to the small screen space and possible cannibalization from desktop, which is also dwindling.

Ok, let’s say Schimidt’s statement is just a figurative speech to highlight the rapid growth and adaptation of Android. But I’d imagine China has to be factored into Schimidt’s equation… somewhere, somehow, despite Google’s de facto exit of China. After all, China was the world’s second largest smart phone market in Q2 2010 for the sixth consecutive quarter, according to Canalys, and In-Stat projects Smartphone shipments in China is to triple by 2013.

Some (I suspect Google as well) might think Android would provide a “back door” into China, as Android is the “behind the scene” operating system on many different handset brands ranging from HTC, Motorola to China Mobile, just to name a few examples. And China did say Google's Android operating system will not be blocked if it follows local regulations.

Well, unfortunately there’s new confirmation that access to the Android Market has been blocked, and many Google mobile services--including GTalk and Gmail—are also unavailable to China consumers. This most likely will greatly diminish the ad revenue potential despite Android’s growing market share, unless Google and Beijing somehow manage to kiss and make up (Well, let’s just say it will be a long and winding road for Google).

Contrasting with Google’s predicament in China, Apple seems to be at a much better place. iPhone 4 has been selling like hot cakes after the Sept. 25 release in China. More than 200,000 phones have been snapped up within just a few days, and AFP reported that iphone 4 now has a waiting list until the end of October.

Meanwhile, quite interestingly, Apple’s new prosperity in China apparently has come with a compromise--the Google map that comes along with the new iPhone is censored to comply with the official stance of the Chinese government on border divisions. Given the ongoing tiff between Apple and Google, I guess it is an easy decision for Steve Jobs to rig Google’s map on his flagship iphone 4 for a smooth sailing in China.

And according to Shanghaiist, this is not the first time Apple has changed its products to please Beijing, and the company has also done similar modifications to phones sold in Egypt and the United Arab Emirates to fit in with each government’s restrictions.

This not only highlights the contrasting styles of the two companies when it comes to “Doing Business in China”, but also Google will increasingly feel China’s wrath far beyond just the web search portal.  I think Google’s little spat with Beijing would prove to be a lot more costly than expected, even if just temporary (a big if), setting the company back considerably against its rivals.

For now, my suspicion is that for Schmidt to make such a big splash about Android, Google most likely does not have other good prospect in the pipeline. On that note, Google could be on its way moving from “Growth” into the “Mature” phase of its business cycle—i.e., a stagnant Microsoft in the making--whereas Apple might be able to stretch out its Growth phase just a bit longer. 

And the stock price comparison chart of Google (GOOG), Apple (AAPL) and Baidu (BIDU) seems to tell a similar story as well.  

Disclosure: No Positions

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at Economic Forecasts & Opinions.

© 2010 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in