What's the point of Android?

[vvswarup]

And I know what all of you are going to say: Keep Apple on their toes. While I think that's debatable, it's immaterial. I referring to Android's business model. Look at from that perspective, not as a consumer.

Google made hardly any mention of Android in their quarterly earnings release. I fail to understand what Android does for Google financially. What does Android add to their bottom line?

 

[soco]

I fail to understand what Android does for Google financially.

Clearly.

I don't even know where to begin... I guess start with boat loads of money and Google search exposure.

Analogously, what's the point of iOS? I guess Apple, instead of licencing something, decided to make money by developing their own system. Who'da thunk it?

 

[Hellhammer]

I'm pretty sure there is some royalty fee involved, which brings Google money when an Android device is sold. Now that they bought Motorola Mobile, they will have some hardware too.

In the end, it's hard to imagine that Google became a multi-billion dollar company by providing a free search engine. It's not like Google has ever really sold any physical items.

 

[roadbloc]

Whats the point in phones? Or computers? I'm off back to my typewriter. In fact, what is the point in that? God gave me hands and invented pencils for me.

 

[mkrishnan]

^^^ In the OP's defense, they're really not asking that (admittedly trollish) question.

Analogously, what's the point of iOS? I guess Apple, instead of licencing something, decided to make money by developing their own system. Who'da thunk it?

Well, the thing is they're clearly not analogous.

In Apple's case, they're making tons of money on hardware sales that result from iOS, and they're also making an increasingly large amount of money from app sales and now ad revenues with iAd.

As I understand it, Google doesn't get the handset revenues, and their app store doesn't have a high sales volume, so they're also not making money on apps. They obviously do understand advertising, and ad revenues are clearly what make Google tick. So I guess the question is: does Android help Google by generating ad revenues directly, is it an indirect ploy by increasing users' integration into the Google ecosystem (making their users more likely to use Google services, which generate ads, on computers, etc), or do they have something else up their sleeve that we haven't seen yet (e.g. continued growth of the Google Docs / corporate / enterprise services)?

Or the cynical side could say that there is something malevolent about the extent to which Google's data centers own data at this point, and it's getting worse and worse. You ask, how does Google make money doing what they're doing? The scarier question is, suppose they can't... with how integrated they are into life today (and moreso tomorrow), will they become "too big to fail" anyways?

 

[MacNut]

Google makes money off of the location ads that they can push to every phone. They don't make anything off of the hardware but selling data is where the cash is. They need to branch away from search because that alone is not enough to sustain growth and revenue.

 

[interrobang]

To encourage people who buy smartphones to manage them using Google's services.

That way, your mail, contacts, calendar, media etc. will all be tied to your Google account. Which means you'll always be coming back to Google, even when you buy your next phone (or PC, or tablet.)

 

[Rodimus Prime]

It make sure Google has a say in mobile web. They knew ms would try to keep google off their OS and they know they can not trust Apple and sure as hell not let MS and Apple control the growth of mobile web.

It also pushes Google services like gmail and maps. Adds more data so they can sell targeted ads. Apple cut them off from that info with the launch of iAds. Apple was not going to share info it can use to sell ads.

 

[soco]

Well, the thing is they're clearly not analogous.

In Apple's case, they're making tons of money on hardware sales that result from iOS, and they're also making an increasingly large amount of money from app sales and now ad revenues with iAd.

I don't completely agree. Yes, Apple makes obvious profit in these areas, but the question was about the "point" of Android and not "why isn't Android doing the same thing iOS does to profit Google?"

I just think the point is to make money. I know that's an over-simplified response, but it's business 101. Apple happens to use their OS to make money in a different manner than Google, but the point of both OSes is to garner profit.

As I understand it, Google doesn't get the handset revenues, and their app store doesn't have a high sales volume, so they're also not making money on apps.

Right, but reflecting on my previous statement, their app store doesn't have high sales volume because they decided to design it in such a way that isn't working for their bottom line. As far as the handset revenues, and it's pure speculation, we still have to see if that changes with the acquisition of Motorola.

They obviously do understand advertising, and ad revenues are clearly what make Google tick. So I guess the question is: does Android help Google by generating ad revenues directly, is it an indirect ploy by increasing users' integration into the Google ecosystem (making their users more likely to use Google services, which generate ads, on computers, etc)...

I cut it off here because: Yes! I remember every time I've given Android another go, I was pure Google. I'm an ecosystem junkie and I think many others are. When you use an Android phone, it's just so much easier and better to use all of Google's services. It's the same on iOS except Apples services that would hope to be equal to Google's are a little disjointed. That's a whole separate discussion though.

...or do they have something else up their sleeve that we haven't seen yet (e.g. continued growth of the Google Docs / corporate / enterprise services)?

Could be. My issue with this is, if they do have something else up their sleeve, it's getting a little late in the game to still not show it.

Or the cynical side could say that there is something malevolent about the extent to which Google's data centers own data at this point, and it's getting worse and worse. You ask, how does Google make money doing what they're doing? The scarier question is, suppose they can't... with how integrated they are into life today (and moreso tomorrow), will they become "too big to fail" anyways?

You hit another great nail on the head here. Of course Google is too big to fail, but not in each of it's products individually. I think if they stay on the same road and maintain, their search product will continue to be too big to fail due to the support it gains from other products like Android. However, if enough smaller products like Android fail and go away, the legs that Google's search stood on will break, and I don't know what they'll do to stand back up agian.

 

[noisycats]

What does Android add to their bottom line?

A platform to both collect an assload of data and deliver targeted ads.

That, in simplest terms, is google's reason for living.

 

[mkrishnan]

I don't completely agree. Yes, Apple makes obvious profit in these areas, but the question was about the "point" of Android and not "why isn't Android doing the same thing iOS does to profit Google?"

Yes, I'm not taking on the holistic "why is there air?" question of why Google has a mobile OS -- just how it figures into their profit strategy.

Could be. My issue with this is, if they do have something else up their sleeve, it's getting a little late in the game to still not show it.

They were actually around, IIRC, for a long time as a dominant force in search before they became a dominant force in advertising, weren't they?

Anyways, I did do some more researching...

http://venturebeat.com/2011/10/13/google-190m-android-devices-activated-mobile-revenue-hits-2-5b/

Here they claim that in the next fiscal year, they should make $2.5B on mobile advertising, mostly via mobile search-related ads. This is up from $1B which if I understand the convoluted language correctly, is this year's actual revenue (and not the projection thereof that was made a year ago, which would seem silly to talk about now). This would be a respectable 25% of their current revenues of about $10B.

What the article doesn't say is how Android is affecting that, since users on iPhones and a wide variety of other devices generate mobile ad revenue for Google.

 

[*LTD*]

Ad revenue for Google. That's about it.

 

[benzslrpee]

to expand their customer base.

on a really high level: Google's direct customers are business who want their ads to find specific demographics. that business will grow as long as more businesses sign up for that service... which hinge on a growing base of targeted demographics.

i think for first world countries, computer sales have reached a peak. basically everyone who wants one, can more or less obtain one through various means. In order to capture another revenue stream Google had to figure out way create another "service" through their existing end users (consumers). going mobile was the logical solution. people spent X amount of time at home with their desktop/laptop but a cell phone can be carried everywhere.

one problem: smartphones were expensive because they weren't a commodity like dumb phones that Samsung and LG were busy pumping out every month. prior to the iPhone you had Palm, Blackberry and Windows Mobile that were never going to reach any meaningful volume for Google to direct their ads. the iPhone's price + service plan easily placed itself out of a lot of people's reach.

solution? commoditize smartphones. let's not mince words here, for all the following that Samsung and HTC have developed over the years, none of that would have been possible without Google. another bonus was that the two companies tend to operate like traditional PC manufacturers in that they had to release large quantities of products every quarter at low prices in order to make sales. a short product life cycle + free OS software all but guaranteed commoditization. look who joined the fray: Samsung, LG, HTC, SonyEricsson, Huawei, ZTE, Motorola. how many actually made money as the competition intensified? Samsung and HTC*.

now most carriers low-end phones are Android phones and not feature phones. that price point puts it in reach of a lot more consumers than the iPhone. all Google had to do was to wait for a couple of contract renewals, during which carriers transitioned to a smartphone dominated product line up.

in the US, the phone mix is roughly 30% smartphones. 30% of 300M is a good amount of people. a whole new "indirect" revenue stream was created.


however, that's just my own theory.

And I know what all of you are going to say: Keep Apple on their toes. While I think that's debatable, it's immaterial. I referring to Android's business model. Look at from that perspective, not as a consumer.

Google made hardly any mention of Android in their quarterly earnings release. I fail to understand what Android does for Google financially. What does Android add to their bottom line?

 

[Bernard SG]

Ad revenue for Google. That's about it.

More precisely that was the goal. Whether it is achieved like Google would want is another story: according to Google itself, 2/3 of their mobile search activity is generated by iOS devices.
Anyhow, the huge footprint Android has gained is at least a boost for Google's image, which is not nothing. But, economically, OP's question is totally legitimate and even more so when you factor in the billion dollar acquisition of Motorola Mobility and the *huge* financial exposure resulting from Oracle's lawsuit.

 

[vvswarup]

It make sure Google has a say in mobile web. They knew ms would try to keep google off their OS and they know they can not trust Apple and sure as hell not let MS and Apple control the growth of mobile web.

It also pushes Google services like gmail and maps. Adds more data so they can sell targeted ads. Apple cut them off from that info with the launch of iAds. Apple was not going to share info it can use to sell ads.

Apple started iAd after Google came out with an Android device. The deal to buy Quattro Wireless was completed in 2010. If Google hadn't come out with an Android device, Apple probably wouldn't have done it. Apple was not about to line a competitor's pockets with cash.

 

[KnightWRX]

deliver targeted ads.

Do people really think there are ads on Android devices, moreso than on iOS ?

Android is a draw for people to go to Google for services. That's it. That's what it's always been. Unless you've been living in a cave, you must know that Google is an Internet services company. That's how they draw in eyes to gather their analytics data (search, mail, documents, maps). You must also know that mobile is the hot new space and more and more people are going mobile for their Internet needs. With Android, Google is assuring itself that people's eyes remain fixed on them.

 

[JoeG4]

I recall a Google employee saying that half the reason Google does what they do is "we have all that money sitting around and want to do stuff with it"

It hasn't really been a money sink. Overall, I think Android is awesome. You can nitpick it to pieces and prove that it's a piece of junk that will destroy Google (which it probably won't).. it won't.. it's awesome xD

 

[kdarling]

More precisely that was the goal. Whether it is achieved like Google would want is another story: according to Google itself, 2/3 of their mobile search activity is generated by iOS devices.

The "2/3" came from a cut-off comment in Congress, so we're not sure exactly what it referred to.

However, there's no doubt that yes, Google is making a good amount of money off Apple's iOS users, which is a great setup for Google. Nothing like making money from both your own and others' devices.

Anyhow, the huge footprint Android has gained is at least a boost for Google's image, which is not nothing.

Agreed.

But, economically, OP's question is totally legitimate and even more so when you factor in the billion dollar acquisition of Motorola Mobility and the *huge* financial exposure resulting from Oracle's lawsuit.

Motorola Mobility was a good deal. Patents, manufacturing, all for what, about $12 billion?

MM is close to being back in the black, and it doesn't matter if they're not right away...

...because what most people have missed is that MM still has $3 billion in cash reserves and at their last rate of loss per quarter, they could continue for many years on that, without Google paying a cent to keep them alive.

 

[macquariumguy]

I recall a Google employee saying that half the reason Google does what they do is "we have all that money sitting around and want to do stuff with it"

I'll bet their board of directors does not endorse that attitude.

 

[Drunken Master]

Money.

Right?

It's obvious they're not really passionate about this stuff and as mentioned, it's all to drive people back to their Internet properties.

 

[maflynn]

Ad revenue for Google. That's about it.

Licensing for the google apps and services as well, another revenue source is always something a business wants to cultivate.