Android operating system from Google (GOOG, Financial) may have been the largest in its industry till last year. It is indeed great news that till last year close to 81% of the smartphones in the world had used Android operating system. While this would have been music to Google’s ears, there is also the harsh reality right in front of its eyes. As per a shocking report from ABI Research, the future is indeed looking bleak for Google’s Android operating system as it has many challenges to overcome. Brakes were applied on its growth momentum towards the latter part of 2014 and now analysts doubt if Android will ever be able to accelerate growth once again. Here are the challenges that it has to face during this year.
Dominance of Apple
The first and foremost challenge for Android is in the form of iOS, the operating system of Apple (AAPL, Financial). During the last quarter of 2014, the number of Android shipments had come down to 206 million units as against 217 million units (-16%) during Q4 2013. On the contrary, iOS shipments recorded a huge jump (46%) for the same period. During Q4 2014, iOS shipments climbed up to 74.5million units from a mere 39.3million units during Q4 2013. This is a huge cause of worry for Google, because Android is one of its biggest sources of revenue. It also makes money from Android (30%) when purchases are made through its app store, Google Play.
Apple on the other hand is doing all what it can to bring down the penetration of Android. Its deal to use Google as the default search engine will expire during 2015. Apple would then use Bing, the search engine of Microsoft (MSFT) as its iOS default search engine, a move that could hurt Android enormously. The following chart sums up this situation very well:
In-house operating system from Samsung
Samsung (SSNLF, Financial) is currently the biggest maker of Android Phones. However, Samsung has launched a few initiatives recently, which will impact Google badly. The smartphone maker is currently in a fix because it is sandwiched between competition from Apple (high end market) and the likes of Xiaomi (low end market). It has been going through a tough time as sales dipped to close to 64% during Q4 2014. In order to move out of the Android market, Samsung is involved in a couple of efforts now. It is planning to launch its own operating system TIZEN, which will be compatible with smart watches and televisions and Samsung Z1, which will be compatible with low- end mobile phones from the company. It is also planning to cut down Google’s efforts to make money from Android, by developing an in-house ecosystem as well. Through these initiatives, Samsung will distance itself from Android, Google Play Store and Google Drive. It is a sure fact that when TIZEN is installed on smartphones, Android market shares will further plummet by 25%.
Minimizing monetization efforts
Manufacturers of Android smartphones are well-aware of the fact that Google mints lots of money from its mobile operating system. Hence, they try to modify or fork their operating systems and customise them in such a way that Google will not be able to make any money from them. A classic example of this android based operating system is the one used by Amazon (AMZN, Financial). Amazon’s Fire Operating System is basically dependent on Android; however Google will not earn a dime from it.
Chinese smartphone OS makers like Tencent (TCTZF, Financial), Baidu (BIDU, Financial) and Qihoo (QIHU, Financial) are experts in this process. They will launch their own forked Android-based app stores this year and the sad part is that Google will not be able to make money from any of them, thereby, resulting in reduced margins.
Conclusion
Google is indeed looking at a weak mobile market for this year as its Android operating system is all set to go for a toss. With increased competition from Apple and lack of proper monetization processes in place, it could be difficult for Android to bounce back to its original glory this year.
