Being a resident of India, I have come to understand the immense potential that this country holds for smartphone makers because of its humungous untapped population. Additionally, the improving economic scenario of the country is accelerating the growth of the rural and low-tier chunk of population. As such, Google (GOOG, Financial) (GOOGL, Financial) made a highly strategic movie in launching its Android One platform in India with countries such as Indonesia, the Philippines, Bangladesh, Nepal, Pakistan and Sri Lanka lined up in the coming months. Let us do a detailed roundup on the implications that the launch of Android One will have for the internet behemoth.
Here comes the big One!
Before we dive into studying the implications that this latest platform that is aimed at making computer technology available to masses, let us gain some context in this regard. On the launch of Android One, this was one of the statements made by Senior VP at Google Sundar Pichai, “Access for access's sake is not enough. With Android One, we not only want to help people get online, we want to make sure that when they get there, they can tap into the wealth of information and knowledge the web holds for everyone”.
Going by Mr. Pichai’s words, it is amply clear that the company has realized the extreme significance of emerging markets like India for its Android business and consequently, for its advertising business. Getting more and more people on board is definitely going to add remarkable muscle power to Google’s marketable data and thus rake in more advertising dollars.
The market is huge
Google launched its Android One platform for smartphones earlier this week, working with three Indian smartphone manufacturers viz. Micromax, Karbonn and Spice and MediaTek – a Taiwan-based chip designer – to offer smartphones that cost a little over $100. As I mentioned in the paragraph above, the smartphone penetration in developing economies is less than even 50 percent and hence, power-packed but affordable phones are the need of the hour. According to IDC, global smartphone shipments are on the rise and set to surpass the 1.2 billion unit mark this year. In Q2 2014, smartphone sales edged past the 300 million mark with substantial growth in the sub-$200 smartphone category. Additionally, smartphone shipments are forecast to grow to nearly 4 billion by 2018.
Now that it is established that the market size is huge, the Google powered smartphones has pressed the apt button by taking the first mover advantage in feature-heavy and ultra-cheap smartphones. By partnering with local smartphone players (more than one), it has also ensured that the hardware quality does not become an issue in its long-drawn shot at the Indian market. Interestingly, IDC has reported that smartphones priced below $200 account for 81% of the Indian smartphone market. Therefore, it is not tough to say that Google is aiming for the bull’s eye.
Samsung: The One to take the hit?
One of the biggest smartphone makers that will have to bear the heat of this decision made by Google is surely Samsung (SSNLF, Financial). The Korean electronics giant has been struggling with retaining its market share in the emerging markets due to the entry of players like Xiaomi and Lenovo in the low-priced phone segment. In fact, Samsung lost its top title in China to Xiaomi as reported by the research group Canalys. As per the report, Xiaomi led China’s second-quarter smartphone shipment rankings with 14% market share, followed by Samsung, Lenovo and Yulong each with 12%. One of the reasons that Samsung’s market share has been hit massively is the fact that people have found the solid alternatives that boast of a consistent software experience and functionalities that come in high-end Samsung phones.
Now, the launch of a whole new set of Android-powered smartphones is definitely not going to bode well for Samsung. Android has always delivered on its promises of a flawless software experience and overall better performance and therefore, this new collection of devices from local manufacturers could further encroach Samsung’s share unless the Korean giant decides to join the league of Android One phone makers or comes up with a startling innovation on its own.
And finally, it is the best for business
Well, I have adequately covered the significant points like market size, technical prowess, competitors and the one single point of discussion pending is: How it affects Google’s business of advertising. At the very onset, I mentioned that the increased penetration of Android-powered smartphones will boost the marketable data available to Google and this will eventually translate into more advertising dollars.
Google's business is heavily dependent on the number of users using its search engine. The company leverages its popularity across PCs (65% market share) and mobile devices (over 90% market share) to sell ads. As a result, its PC search ad division makes up 35% of its value whereas its mobile search ad division makes up around 29% of the value. Increasingly, people are now browsing the Internet and accessing information through their smartphones and Google intends to leverage the trend by making the mobile technology accessible. If Google were to succeed with the launch and increase users on its Android platform by 20%, not only would that potentially increase search queries, but the sale of apps through its Play Store would also grow. Therefore, it will be a two-fold advantage for the company and compensate for the slack in growth of advertising revenue.
