January 21, 2012 | In: Technology
Does Google Charge for Android?
Now that Android has the lion’s share in the smartphone market, I think a very valid question for any investor would be “Does Google charge for Android?”, “And if it does, how much?”
Clearly, the reason why an investor would want to know if Google charges for Android (and how much) is to know what can Android do to Google’s revenue. The answer to this question is zero, zilch, nothing… Google doesn’t charge a penny for the use of its Android on smartphones. Google gets no money whatsoever, whether direct or indirect, from anyone buying a smartphone.
But Google is a business, and all businesses do something for a reason, am I wrong?
No you’re not wrong. Google is there for the money. But let me tell you something before answering how Google expects to make money. Google’s original idea with Android was to create Android phones and give them for free to people, like literally for free – without them paying any dime and without them subscribing to a blood sucking plan. It might’ve been some investor backlash (or the fact that mobile operators – that Google really needed back then – did not like the idea of a free smartphone while they were offering garbage phones at exorbitant prices and that are tied to overpriced plans) but Google then tamed its enthusiasm and then wanted to offer the phone for a nominal (below cost) price, which was something like a $100. Again, the market was against it (including mobile operators), and then Google dropped this philanthropic concept altogether… So, not only Google was accepting the fact that it will not directly make money with Android, but it was also literally eager to lose a lot of money for Android. But why is that? Well, there are many reasons:
- Google wants to assume control of the smartphone market: Google was aware several years ago of what everyone else knows now, the future is mobile! Google knows that in order to remain competitive in the Internet market, it needs to control or at least have a substantial market share in the mobile sector. By offering a free OS (and free phones, according to the original idea) Google is able to attract a lot of customers, including some of its competitors. These “competitors” are now only Apple, since Blackberry is dead.
Google wants to kill Microsoft: Microsoft is an aging company, but it’s not a dead cow yet, and it was already eying the smartphone market before Google even joined the game. By making the OS free, Google ensured that Microsoft would not be able to make serious cash from the smartphone business (as it currently does with laptops – laptops would be at least a $100 cheaper if it weren’t for Microsoft), which will make this whole endeavor not worth it for Microsoft, which will mean the death of Microsoft on the long term. Now Microsoft was passive in its response to Google’s aggressive marketing strategies for a long time, although lately, it seems that Microsoft, through its recent alliances (with Nokia, for example) is now rethinking its smartphone strategy, and wants its place in this competitive, claiming that now it’s a three horse race (Android, iOS, and Windows).
Google wants to make up for the potential loss in web traffic: At one point, Facebook posed a real threat to Google as a business. Facebook had everything: The loyal userbase, the real information about each and every user, the love of the media – literally everything a social website can dream of. The problem is, Facebook’s search engine sucks, since it relies on Bing, a search engine that welcomes spam, and that uses the same Google algorithm that was used almost 10 years ago. Now Google was really afraid that Bing’s search will get better with time, which will make Google obsolete. Thankfully for all of us, Bing’s search still sucks, and it will suck probably forever. So that shouldn’t be a major worry for Google, as people using Facebook will still have to use Google.
Now, of course, the above reasons are all valid to sustain Google as a business for a long term, but how will it make extra revenue from Android? Is such a thing even possible?
Well, by controlling Android, Google will control the Internet traffic from mobile devices (all Android devices default their searches to Google) – and guess what traffic means for Google? Revenue, advertising revenue. Additionally, Google makes other revenue from the use of applications that are sponsored by advertisements – Facebook is still light years away from being able to use apps as an advertising platform. This is like a cat and mouse game between Facebook and Google: Facebook was on the way to dethrone Google in becoming a better medium for advertising, but the latter was very dynamic and proactive, and expanded into another market (the mobile market) while strengthening its PC based search (and traffic). Add to that that Google is now very, very aggressively pushing the Google+, which directly competes with Facebook.
So, the short answer to this question, Google does not and will not charge for Android, neither directly nor indirectly. But that doesn’t mean that it won’t make money from this free OS. In fact, Android will probably be Google’s best cash cow for the long term.
Now, how does this relate to the stock market? Imagine Google increasing its revenue by 50%, what will that mean to its stock? I’ll tell you what it mean, it’ll mean a stock that is worth at least $1,000. GOOG is not doing well now (in fact today it performed horribly as it missed estimates), but that won’t be the case forever. Google has a great potential especially when the iPhone dies, and it will die! Apple simple cannot keep up with the unrealistic expectations that both the investors and the users have from it as a company.
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