Although Android is Number One, Google Says It Still Makes Meager Money

Although Android is Number One, Google Says It Still Makes Meager Money

 

Although Android is Number One, Google Says It Still Makes Meager Money

In three short years, Android has managed to become king of the hill and is number one in operating systems (among many other things!). But it’s only just recently started to make some money for Google, is what Larry Page, Google’s chief executive says.

Mr. Page talked of Android as a young product with so much growing room and lots of potential, during the company’s quarterly earnings call recently. How much more modestly could you put that? What with the fact that Android is installed on pretty much half the worlds’ smartphones? 
“We are in the early stages of monetization for a number of our new products, and Android is one of those,” said Mr. Page, when an analyst prompted him for the earnings of Android to date. 
The key focus of his speech revolved around Android having a strong advertising business and that 11 billion apps have been downloaded from the Android Market – most of which don’t cost a penny – by smartphone customers.

“But we see a lot of potential for us to make money on Android, and you’ll see us increase that a lot over time,” he added, slipping in a happy note. “It’s hard to give you details about that right now, but I’m very, very optimistic.”
Any manufacture can use Google’s free, open-source software Android technology. The main reason that there isn’t enough revenue to meet expectations is because that many of the 250 million Android devices that Mr. Page had said to have been activated, are not actually phones or tablets but rather gadgets like low-end GPS NAV Systems. Why are these revenue downers?  Because they don’t get Ads sold by Google as seen on phones and tablets.

 

 “Due to the fact that it is an inexpensive, somewhat open environment, Android has become the structure, the backbone of a whole host of devices that people wouldn’t have thought to put the Android system to use on, most of these are definitely not phones” said Jordan Rohan, an analyst at Stifel Nicolaus. 
“At C.E.S., it became obvious that almost everything was an Android device — it was like introducing the new Android toilet, now with Pandora.”
Although Google is the top advertising revenue generating company on mobile devices, this area of the digital advertising business is still small, said Jan Dawson, an analyst at Ovum, a research firm. This year we will see Google generate $3 billion in mobile advertising revenue this year, he claimed. But that’s still only a slice of the cake when you compare it to the stacks of money that Apples walking away with from selling iPhone hardware. 
 “It’ll take quite a few years before Google generates the sort of revenue from Android that Apple or other device vendors generate from selling devices,” he claimed. 
What is weird is that it might actually be good for Google if they didn’t produce as much revenue since the patent litigation hanging over is still continuing.

“There are revenues, but Google is careful not to point to them directly, or else that would open up the door to lawsuits that claim damages or claim that some of that revenue should have gone for the patent infringement that Android may be found to cause,” Mr. Rohan said.

Depending on the outcome of litigation and the Motorola Mobility acquisition, Google could eventually be forced to pay license fees for Android devices, or to subsidize handset makers other than Motorola, Mr. Rohan said, which could add several billion dollars in costs.
Despite unknowns about Android’s contribution to Google’s revenue, its strategic value probably accounts for $30 billion to $50 billion of Google’s $190 billion market capitalization, Mr. Rohan estimated. “But people haven’t figured out the actual costs yet, because it’s winding its way through the legal system,” he said. “I think 2012 is the year we’re going to get a better idea of both the revenue model and the cost of Android.”