“We would request that our shareholders take the long term view.”
Google Letter to Shareholders, 2004
10 years on from their IPO and this well-signalled advice to stick with them for the long haul, Google revealed its Android One platform on Monday, addressing the low-end smartphone segment in emerging global markets. Only currently available in India, Google plans launches in Indonesia, the Philippines, Bangladesh, Nepal, Pakistan and Sri Lanka in the near future. This strategy heralds the acceleration of competition in the smartphone markets of emerging economies, with segmentation based on affordability.
Android One enables smartphone sales to canny yet price-sensitive customers in emerging markets. Smartphone penetration is above 50% in the ‘developed world’ but below 25% in many ‘developing countries’. The striking rise of the smartphone in the former ignited the first significant phase of growth, but strengthening demand in these emerging markets will characterise the next with sales of sub-$200 devices expected to drive it.
According to IDC’s latest numbers, global smartphone shipments will pass 1.2 billion units this year. In Q2 2014, sales exceeded 300 million with a major contribution from sub-$200 smartphones. Consequent forecasts suggest growth towards 4 billion by 2018. With a family of smartphones that cost $100, Google opens the market to previously untapped lower-income consumers desiring their app fix.
The Android One launch is a great example of Google’s long termism, representing a landmark opportunity to build market share and proliferate the Android ecosystem of devices in fast-growing markets (and populations). While Android One smartphones differentiate from entry-level phones, they also employ lower-cost componentry with a front (5MP) and rear-facing camera (2MP), dual SIM card slots, a swappable battery, 1GB of RAM and a 1.3GHz quad processor.
You’d think that package at that price point alone would be enough to bolster their sense of self-worth, but in that all important long term Google relies on ever increasing numbers of people using its search engine. In a nutshell, Google parlays its general recognition as the default search engine of choice on the desktop (with 65% market share) and mobiles (with over 90% market share) to sell advertising.
No surprise then that its desktop search ad group makes up around 35% of its value, according to most estimates, while mobile search accounts for 29%. The rise of mobile search and commerce via smartphones is already notable and accelerating amongst the 1.8 billion global consumers who already pack a smartphone, while until now the disenfranchised five billion who do do not continue to use feature phones or simply go without. Some would say no tragedy there…..
Just recently, Google’s astounding revenue growth has lost pace. Obviously some of this is linked to price competition on ads and a plateau in search, but Android One is squarely and intelligently aimed at this challenge. If it succeeds, most observers estimate it could increase user adoption of Android globally by around 20%, driving increased search and sales of apps via Play Store.
Coming back to the long view, Google now have an effective and highly competitive product line that they could selectively introduce to additional markets and categories of user in response to local market pressures. The long term is very hard to predict, but not always to prepare for in a strategic sense and Google continue to prove their intellectual (and potentially financial) worth in that respect.