Analyst Report: 4 takeaways from Google I/O


Google’s I/O conference in San Francisco last week was one of those rare mobile industry events that actually matched — and perhaps even exceeded — its hype. And I’m not just talking about the guys jumping out of an airplane or rappelling down Moscone Center. The company trotted out Android 4.1 (dubbed Jelly Bean), showcased a new tablet and offered an eye-catching demonstration of its Project Glass, among other things. As Om Malik wrote, Google is engaged on many fronts: It’s stepping up its content game by adding content like music and video to Google Play, and it’s joining the tablet space that the iPad currently dominates. And it hopes to be a pioneer in the coming world of connected devices for consumers.

Google used its high-profile I/O event to promote an ever-broadening agenda that includes everything from hardware and software to social networks and the all-important cloud. All of that news left me with some thoughts about Google’s direction in mobile over the next few years. It’s already a huge player in mobile, of course, but this is a world where a company’s fate can change very quickly. (Just look at Research In Motion or Nokia.) With that in mind, here are four of my biggest questions as well as a bottom-line takeaway regarding Google’s strategy in mobile.

Is Google aiming to be the Wal-Mart of mobile?

Google’s strategy with Android seems as though it’s pulled straight from the playbook of Arkansas-based retailer Wal-Mart: Gain dominance in the market by selling as much product as possible at razor-thin margins. That certainly appears to be the case with the Nexus 7 tablet, which offers an entry-level price point of $199 and will appeal to users eyeing Amazon’s Kindle Fire. Similarly, unlocked (read: unsubsidized) versions of the GSM Galaxy Nexus are now selling at $349 in the Play Store, while an iPhone without a contract sells in the neighborhood of $600. Meanwhile, Google’s manufacturing partners are churning out all sorts of Android handsets that can be had for a song.

That’s in line with Google’s overall strategy with Android, which manufacturers can build on cheaply because of its open-source nature. It also helps to explain why 100 million Android handsets are being activated every day. But while the strategy is undoubtedly successful, it will keep Google from ever generating the kinds of profits Apple does in mobile hardware and content.

Is fragmentation is getting worse?

While Android has ascended to dominance in the world of mobile operating systems, one recent study found that developer interest in the OS has fallen by 5 percentage points over the past quarter, to 79 percent. Android 4.1 was built to be a kind of unifying platform for Google, creating a similar user experience across tablets and smartphones. That’s a worthy goal, because earlier versions of Android didn’t prove to be as tablet-friendly as Apple’s iOS. And Google is now giving handset and chipset manufacturers access to Android code in advance of the release of Nexus hardware, in an effort to help them deploy new gadgets and software updates in a more timely fashion.

But as Sascha Segan points out, many device makers have yet to catch up to Android 4.0, so the chances of them getting on board with Jelly Bean anytime soon aren’t good. The problem remains the open-source platform, which enables carriers and manufacturers to put their stamp on the OS but at the same time requires them to deploy upgrades to those handsets. Unlike Apple with its closed iOS, Google simply can’t take control of its mobile ecosystem, and fragmentation appears to be getting worse. That is why I have argued Google should ditch the Android brand and create its own ecosystem atop the operating system.

What about augmented reality?

No demonstration at Google I/O last week captured the imagination of developers and gadget geeks the way Google Glass did. The high-tech specs will eventually sport all sorts of futuristic features, from basic augmented reality to facial-recognition software.

But there are plenty of reasons to keep your enthusiasm in check over Google Glass and the entire world of augmented reality, though, at least for the next few years. The specs won’t ship until next year, and those gadgets will be available only to developers for the sky-high price of $1,500. Consumer versions won’t be available until 2014 at the earliest, and those are sure to be pricey as well. And it will take some time for Google to build a developer community around Google Glass similar to the one that has made Android so successful.

Google Glass is cool, to be sure, and the overall world of augmented reality promises to change the way we live and think on a day-to-day basis. And we have already seen some rudimentary apps that bring web-based information to our everyday lives. AR apps are still in their infancy, though, and we are still years away from seeing any consumer-focused AR gadgets gain any real traction. Developers interested in AR should absolutely find ways they can embrace the technology to add new dimensions to their offerings when those devices come to market. But consumers shouldn’t have high expectations for the near future.

Is advertising still number one?

Google didn’t build Android as a moneymaker in and of itself; it adopted an open-source strategy because it wanted to boost usage of mobile data as a way to generate ad revenues, just as it did online with its search engine. That data usage creates ways for marketers to place their ads through mobile applications and on sites on the mobile web.

That advertising-first strategy is still at the heart of Google’s game plan in mobile, which is why the company continues to develop the open-source operating system despite its fragmentation woes. It is also why Google opts to produce highly affordable hardware rather than the relatively high-end devices Apple offers. Google isn’t exactly like Wal-Mart, of course, because it produces products and services designed to serve as a platform for advertising. That’s why Google will never match Apple’s revenues in mobile hardware or software. But as Android’s immense market share demonstrates, it is keenly positioned to generate ad revenues as the world of mobile marketing gets legs.

Google faces many challenges as it tries to build on its dominance in the world of mobile operating systems and become a provider of multiple devices and services for on-the-go users. The company still struggles in areas like social networking and mapping, and it must move more aggressively to address the fragmentation concerns surrounding Android. But Android’s audience will continue to expand substantially over the next several years, at least, thanks largely to its low-end smartphones and growth in emerging markets. So as it pursues cutting-edge technologies (such as augmented reality) as well as growth markets, it will build on its already massive consumer base. And that will further its ultimate goal of monetizing advertising in the mobile world.


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