Few would have predicted the meteoric rise of the Android platform. If you cast your mind back to 2008 Google looked to be suffering from the economic crash just as badly as the next company. The first Android smartphone, the HTC Dream (T-Mobile G1), was fairly well received, but widely written off as “no iPhone killer”. Many people were denigrating Chrome because it took four months to secure 1% of the browser market. Google’s share price took a hit and didn’t start picking up again until the beginning of 2009.
Fast forward five years and according to the latest research from IDC Android claimed an 84.7% global market share in the second quarter of 2014. Chrome has around a 45% share, in case you’re wondering. Google looks stronger and richer than ever, but the future for Android isn’t entirely bright.
How profitable is the Android scene?[aa_image src="https://cdn57.androidauthority.net/wp-content/uploads/2014/09/Global-Smartphone-Data.jpg" alt="Global Smartphone Data" width="1496" height="868" class="aligncenter size-full wp-image-527310"]
No OEM has benefited more from the rise of Android than Samsung, but there are signs that its dominance is under threat. Looking at the Q2 2014 earnings report we can see that the mobile division’s profit is declining. It’s hardly panic stations, Samsung still made more than $6 billion profit and the bulk of it came from the sale of smartphones, but the mobile division profit is falling faster and it’s a big drop of almost 30% compared to the same quarter last year.
HTC was the early star of the Android pack, but it has had a rough couple of years. The HTC One line has returned the company to profitability, it made $75 million profit last quarter, but sales are still falling.
LG looks like one of the few familiar OEMs going the other way, with a profit of $83.4 million in the mobile division for the second quarter, the first profit in a while, but more importantly based on a 16% bump in sales.
It’s still early days for Nokia’s old phone hardware division, now part of Microsoft, but the company did report sales of 5.8 million phones in the partial quarter since it took over, which looks like it might be a modest increase over the same quarter last year. That’s very much based on the budget and mid-range end of the market, though.
It’s a new dawn
All of the major smartphone players are facing the same threats. We’ve looked at how commoditization is driving prices down and OEMs are left with a choice between low prices and brand power if they want to stand out and compete. The vast majority of the growth in smartphones is in developing markets. China and India are by far the biggest.
The Chinese question
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Perhaps it shouldn’t come as a surprise that we’re seeing so many Chinese manufacturers coming into play. Lenovo has acquired Motorola after a dive into the budget end of the market under Google saw it start to turn things around. Xiaomi claimed the top spot in Chinese smartphone shipments last quarter with a 14% share. ZTE, Huawei, Alcatel, and even newcomers like Oppo and OnePlus are significantly undercutting the competition.
The big question is how profitable are these Chinese companies? It can be a little difficult to tell because they don’t always break down by division or report on profits. We know that worldwide shipments of smartphones for Huawei and Lenovo are rising fast, placing them third and fourth on the chart for Q2 2014. Alcatel shipped a record number of handsets in Q2 2014 claiming almost 40% growth and a 4% share of the global market. ZTE made more than $100 million profit last quarter, but we don’t know how much of that can be attributed to smartphone sales.
Xiaomi is selling a huge number of handsets and it claimed $5.31 billion revenue in the first half of 2014, but it is keeping quiet on the subject of profits. Some people are speculating that margins are very tight and maybe Xiaomi isn’t turning much of a profit at all. It’s not clear if Oppo or OnePlus are making any real cash either.
One company we know isn’t making cash in China is Google. It refused to continue censoring search engine results after a Chinese hacking attack and that led to a lengthy dispute that has seen some Google services banned in mainland China. Android may be the dominant platform, but Google doesn’t provide search on those phones or sell content on them like it does in much of the rest of the world.
Never again[aa_image src="https://cdn57.androidauthority.net/wp-content/uploads/2014/09/Android-One-001621.jpg" alt="Android One 001621" width="1043" height="515" class="aligncenter size-full wp-image-525320"]
Google doesn’t want to be cut out of another market the way it was in China and that’s what the Android One program is really all about. Indian OEMs like Micromax, Karbonn, and Lava claim a huge share of the market in India. Now Google is starting to drive sales of Android One handsets through partnerships with these OEMs because it wants to make sure that they carry Google services. The Android One program also allows it to reduce fragmentation.
Are interests diverging?[aa_image src="https://cdn57.androidauthority.net/wp-content/uploads/2014/09/iphone-6-plus-vs-samsung-galaxy-note-3-quick-look-aa-14-of-20.jpg" alt="iphone 6 plus vs samsung galaxy note 3 quick look aa (14 of 20)" width="1600" height="900" class="aligncenter size-full wp-image-528382"]
There’s always been a weird dichotomy at the heart of Android. Google and the OEMs don’t really want the same thing. OEMs want to sell handsets and make as much profit as possible from the hardware. Google just wants its services on as many devices as possible because it is geared up to make money from advertising. Google can only retain its position at the top of the search tree by continuing to suck in big data from us to gain insights that everyone else desperately wants.
As Internet usage is rapidly becoming all about mobile devices, Android was a very clever way for Google to maintain its dominance. Instead of having to pay a company like Apple a huge sum of money in order to be the default search provider, it gave OEMs a platform to use. It actually presented them with the same proposition that it presents us – you can have this great, free software, but you have to use our services and let us collect information from you.
Google has walked a tightrope in terms of pushing hardware prices down, with the Nexus line and Motorola, without alienating the OEMs. We’ve wondered about Samsung jumping ship before, but it can’t match Google in terms of services, and even with the decline in profits it is still making money.[aa_image src="https://cdn57.androidauthority.net/wp-content/uploads/2014/09/new-moto-g-first-look-aa-26-of-46.jpg" alt="new moto g first look aa (26 of 46)" width="1600" height="900" class="aligncenter size-full wp-image-521878"]
There may come a time when the OEMs realize their interests are diverging and Android can’t deliver what they need anymore, just as there may come a time when people prize privacy over the quality of Google’s services.
Maybe it’s simply too late for OEMs like HTC, LG, and Sony to break away from Android. Dabbling with Windows Phone has highlighted the lack of a back door. Their mobile fates are tied to the Android platform, so how strong is their bargaining position with Google now? But the OEMs in China and India could throw a giant spanner in the works. They can undercut on hardware and they don’t necessarily need Google’s involvement in the software space.
Android won’t be toppled by another OS anytime soon, but the fight for control of the platform is set to rage on. Google has to continue to be smart and inventive, it has to continue to add real value for end users, and it had better keep looking over its shoulder.