The big stories this week all seem to revolve around numbers. Apple sold a whopping 74.5 million iPhones sold last quarter, for example. Qualcomm shipped 270 million mobile processors for devices in the last three months of 2014. And an estimated one billion Android phones shipped last year. That latter figure is indeed huge and while you’d think Google is the beneficiary of all of those phones and tablets, it’s not.
When Android first arrived in 2007, it was (and still is) a key part of the OHA, or Open-Handset Alliance. OHA partners — which include Samsung, LG, Dell, HTC, Huawei and ZTE, to name a few — all loosely work together to help improve Android, while competing against one another by using Android on their respective hardware products. Android is the commonality between all of the OHA partners. And then there’s [company]Google[/company].
While Google makes Android free as open source software, the company’s own services and apps are licensed items. Borrowing a term from the intelligent Benedict Evans, a VC at Andreessen Horowitz, consider this version to be “closed Android.” The free, open source version could then be dubbed “open Android.”
Why is that important? Google only gets valuable information and potential revenue from the closed version. So how many of the Android devices are open versus closed in this context? Evans offers his guess from among the number of total devices in use last year:
Devices in use, end of 2014:
7-800m consumer PCs
1.2-1.3bn closed Android
4-500m open Android
80m Macs, ~75m Linux
— Benedict Evans (@benedictevans) January 24, 2015
Take a look at the estimated breakdown between open and closed Android. For every three Android devices sold, Google only benefits from two of them if the numbers are accurate. That may not sound bad, but I expect the ratio to get worse for Google, and sooner rather than later.
In countries where smartphone adoption is high, many of the Android devices are Google’s version. That’s good, of course, but future growth isn’t strong; most of the phone purchases have already been made. Sure, folks will upgrade their phones over time, but even if they choose a Google Android device, it doesn’t add any more value to Google than it already has from those people. The real growth opportunity is in countries where the smartphone market is young: China, India and other emerging markets.
In these regions, cost is a huge driver. And the quickest way to cut costs for an Android device is to use the free software version. That means no Google searching, no Gmail, no other Google services. It’s not just small device makers that will take or are taking this approach, either. Look at Xiaomi, which uses the open source version of Android and adds its own services to phones and tablets: The China-based company has quickly become the No. 3 smartphone seller in the world. And it’s really just getting started.
Google knows this, which is one of the primary reasons it unveiled its Android One program last year. The idea is to work with hardware partners to build sub-$100 phones that run Google’s version of Android, or the closed Android model where Google reaps information and revenue benefits.
Yes, one billion Android phones shipping around the world last year is a big deal. It’s just not as big a deal for Google as you might think.