Will Google Make the Most of Android in Emerging Markets?

Smartphones based on the Android operating system will take 80% of Asian, African markets by 2015, NPD says

   

In the smartphone market, Apple (NASDAQ:AAPL) is starting 2012 from a position of dominance. Research firm Gartner released its quarterly report on the global mobile phone market on Wednesday and found Apple leading the pack. The iPhone accounted for 19% of all smartphones sold last year, more than 89 million out of the 472 million smartphones sold around the world. It has beaten back Research in Motion (NASDAQ:RIMM), dominated Nokia (NYSE:NOK), and has even unseated a surging Samsung (PINK:SSNLF), which led the global smartphone market in shipments in the third quarter of 2011.

Apple’s got the biggest number of handsets in people’s hands, but Samsung’s second-place spot handily illustrates one truth: Across many manufacturers that use it, Google (NASDAQ:GOOG) and its Android operating system are the controlling force in the global smartphone market. Considering projections of Android phone penetration into emerging markets like China, India, and the entire African continent, Android’s grip is only going to tighten.

To clarify, the NPD Group-backed research group In-Stat published a study on Wednesday predicting that, by 2015, Android phones will account for 80% of the entire Indian, African, and Chinese markets combined. Android will achieve this level of ubiquity through the proliferation of cheap handsets that cost $150 or less and run on cheap chipsets that cost less than $10.

Older versions of Android, plenty of market penetration

It’s the same strategy that Nokia used last decade to become the world’s leading mobile phone maker with its Nokia 1100 cell. Phones running older versions of Android (namely versions 2.2 and 2.3) and made by bigger companies like Motorola (NYSE:MMI) and the aforementioned Samsung will drive Android growth. Smaller manufacturers like Micromax and Spice in India as well as Huawei and ZTE (PINK:ZTCOY) in China will also drive the market.

Good for Google. Gartner’s report said that Android phones already account for more than 50% of the global market, and given the premium price of Apple’s iPhones and the decline of Nokia as a player in the low-cost market, Android’s penetration in those markets seems logical. Good also for app developers on the Android platform. Research group Canalys projected last year that app markets will generate $37 billion in revenue by 2015, so Google’s penetration in India and China, and in African nations should net those businesses working on the platform a tidy chunk of change.

The mysteries of Android revenue

How this market control will help Google monetarily, though, is unclear. Google makes money from Android through advertising in apps, Android’s Web browser, and Google’s Maps application. (It’s worth noting that Android Maps runs only in later versions of Android, meaning that Maps might not be included on some of the cheap phones dominating emerging markets.) Google is less than forthcoming about the revenue Android generates. CEO Larry Page said during Google’s third-quarter earnings call that mobile revenue totaled $2.5 billion for the period, but didn’t provide market-by-market details. During its most recent earnings call, Google declined to mention mobile revenues specifically.

During the third quarter of 2011, Google’s total revenue came to $9.7 billion. Google’s mobile business, including Android, generated about 26% of total revenue. That’s great and all, but if Android phones blanket 80% of multiple continental markets in 2015, the company needs to increase the flow of revenue from the platform.

How could it achieve that goal? At the moment, Google also gets revenue from Android through proprietary apps. It doesn’t charge a licensing fee for most Android phone makers to use those apps, meaning apps like Gmail and Android Maps come free with the operating system. For Google to take best advantage of the Android boom across Asia and Africa, app licensing fees would be one way to go. The danger to that approach, however, is that those fees might diminish budget-smartphone manufacturers’ participation in the Android boom.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


Article printed from InvestorPlace Media, http://investorplace.com/2012/02/will-google-make-the-most-of-android-in-emerging-markets-goog-ssnlf-nok/.

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