All Eyes on Android

Few topics come up more in my work with the major technology industry players than Android. From the outside looking in, everything may look rosy in Android Land. But get inside the heart of the industry where long term business decisions about Android are being made, you’ll see a different picture.

The Promise of Android

When Android first hit the market, there was a great deal of excitement because it offered an alternative to Microsoft many hardware companies were dying for. It wasn’t just the lure of a platform other than Microsoft’s but the idea of differentiation. The PC era was not, and is still not, kind to many PC OEMs revenue wise. Windows provides very little sustainable differentiation for hardware OEMs. This is the curse of being a modular company. When you ship someone else’s software, inevitably, the biggest point of differentiation one can offer is price. Shipping Windows creates what I like to call “the sea of sameness”. Other than some moderate hardware differences, which few care about, everything looks mostly identical. When everything looks the same, price becomes the driving factor in decision making for the mass market.

Android was to provide a different environment for hardware companies. One where they had some hope to avoid the sea of sameness. And this is exactly what HTC, Samsung, LG, Sony, Xiaomi, and others have done. By not shipping stock Android, they looked to create layers of value on top of Android to differentiate. However, we observed a tried and true reality in this environment — hardware companies are not great at software. The attempt to add value on top of Android often made it more bloated and lessened the experience. This is why we see a shift back from OEMs, not entirely, but closer to the Android experience Google intends. The designs and UI paradigms OEMs were adding onto Android are starting to look and feel closer to stock Android without completely allowing their software to look exactly the same to everyone shopping for a smartphone.

This is the Android world as it sits today for Google’s version of Android. Google’s version of Android has somewhere between ~1.3-~1.5 billion users today (hopefully this number gets update at I/O). 70-80% of customers using Google’s version of Android are not necessarily just looking for bottom-of-the-barrel cheap hardware and OEMs looking for some margins still have an opportunity to make money in hardware with this customer base. What happens next is where more uncertainty exists.

Myself and others have made the point that the next two billion consumers to come online via their first computer, a smartphone, are going to be nothing like the existing two billion. This creates both new opportunities and new challenges. How these will be met is a key question. More central to this is the role Google itself will play with Android as these new challenges and opportunities present itself. I’ve made the point that something like Cyanogen seems to be attractive to OEMs looking for a packaged non-Google Android solution. The vast majority of OEMs who are now starting to use China as contract manufacturing aren’t even going to try to build software, so they need someone else to do it while, at the same time, offering ways to customize their services, where their real revenue will come from.

Interestingly, Google’s weakness in China and among the China tech manufacturing ecosystem is posing quite a challenge for them with the next billion plus. Companies are looking to China to get into tablet or smartphone hardware and Google’s version of Android is not an option. There are way too many hoops for an aspiring brand looking to get into hardware to jump through that many have no intention of doing it. They would prefer to simply go to China, pick the hardware off the menu of options, slap their brand on it, and go to market. Because of this, over 30% of smartphones sold in India last quarter were not Google certified (GMS compliant) but did have Google services installed after purchase. Brands sold the phones, flashed with AOSP in China and consumers installed the Play store and maps on their own once they got the devices. This is not a tight integration of Google services and their value is minimal compared to something like Android One, which Google would prefer service the next billion.

The headroom to grow in this space is extraordinary. I created this chart of smartphone installed base by many major countries compared to their population.

Screen Shot 2015-04-21 at 8.25.11 AM

As you can see China, India, and the whole of the African continent are where the bulk of the next two billion new internet users will come from. What Android is and looks like for these groups is where all eyes are focused. Is this a Google company play or a non-Google company play? Is Facebook via WhatsApp and other assets better positioned to connect the next several billion or will it be something else? These markets will look very different than developed ones so will incumbents succeed or will it be new companies who rise to power? I see little reason at this point that some flavor, or even many flavors of Android, play a major role in this next phase. But the uncertainty around the details is fascinating considering we are on the cusp of a new global push to bring the internet to previously unconnected people.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

10 thoughts on “All Eyes on Android”

  1. Just a nitpick: Your graph of the major countries doesn’t include the sixth most populous nation – Pakistan.

    Pakistan is projected to become the fourth most populous nation in a decade or two…

    1. Hard to get data on Pakistan at this point. If I see or come across it I’ll try to add to my models where I can.

  2. How Is Android One doing ? It purports to do exactly as you prescribe for the low end: “pick the hardware off the menu of options, slap their brand on it, and go to market” with the promise of OS updates.
    I fear it might be aiming a little high because it still requires the full complement of sensors/radios for PlayStore compatibility, phones are $80+
    Google have a mighty China problem. I think them going back there isn’t an option… could they find a partner or consortium of partners to provide government-approved GMS-compatible services over there ? That would stink to high heaven, but is probably no different to what everybody else is doing ?

    1. All reports are it is not doing well. Also with Android One, I don’t believe they are offering much in the way of services layer differentiation on top which is an issue give what I highlighted.

      1. Not offering, or not allowing ?
        Asking Google to “offer differentiation” would be a contradiction in terms, because by definition whatever Google offers becomes baseline… that’s where OEMs, and others are supposed to add value ?
        As for “allowing”, are there any extra restrictions apart from providing the extra value as apps and not OS mods ? Is it *that* onerous ?

        1. Not allowing from what I’ve heard. Android one must remain stock, and I’m not sure if any thing via software or services can be added but it didn’t sound like it.

          1. If that gets confirmed, it’s both expected and surprising.
            Expected because Google themselves have been paring down and modularizing (ouch !) Android: beyond the Android/GMS dichotomy, they have been moving ever more apps & tools into the PlayStore instead of the base OS. The reasoning is that more loosely coupled base OS and tools makes the OS and its apps/tools easier to update.
            Surprising because as long as OEM/value-adder stuff *is* apps, pre-loading or even pre-installing them does not hurt anything ?

  3. One question regarding how China as a nation could approach the next billion.

    In the global politics arena, China is strengthening ties with the emerging countries, increasing financial aids and investment. I would imagine that these investments, behind the doors, are often tied to contracts with Chinese companies. At least this was often the complaint when the Japanese were providing aid.

    It would make sense for the Chinese to tie their aid and investments in emerging countries to contracts with telecom equipment providers like Huawei. This would allow emerging countries to quickly strengthen their wireless networks, and it would also boost the Chinese economy. Contracts with handset manufacturers might also be a part of this. Also given the importance of communications for national security, it makes huge sense for China to want to dominate communications in emerging nations.

    My question is, do you see any signs that the Chinese nation as a whole, backed by the government, is working to expand their presence in telecoms and handsets in emerging countries? If so, it could be difficult for a lowly OS and service provider, no matter how large, to compete. Which might of course, spark some fair trade issues between the US and China in the future.

  4. What if Google unbundled the Play Store and and all the location APIs from the rest of their offerings and licences it the same way Microsoft do with windows to the OEM’s including those in china?

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