Why The Apple-IBM Deal Should Not Be Underestimated By Google

The news about Apple and IBM coming together is a big one and should they make this partnership work, it could be catastrophic for Google. Original Equipment Manufacturers of Android phones will also start feeling the heat of this partnership.

ANDROID IS ZOOMING AHEAD

There is a lot for Google to feel proud about. They hold a stranglehold 85% market share in the smart phone Android market and even if 20% of that is due to their AOSP initiative, it is still a huge success. They have been able to keep both Windows and Apple at bay.

However, the very reasons for the success of Android have also had a negative spin off effect on other aspects of Google’s business. There are other aspects to this smart phone business that impact profitability which they would surely like to address and they are as under:

• Usage of the many apps on Android phones has impacted internet browsing of users. Consequently, Google has lost out on ad monetization due to reduced searches on the net.
• Those using Apple devices on the other hand still do a lot of browsing and thankfully for Google contribute to their ad revenues.
• Developers find the iOS revenue and reward model to be more lucrative though the number of apps downloaded on Google Android is significant. The engagement of iOS users is more rewarding to developers.
• Android is by far the market leader in selling smart phones but profit share of Apple remains high. Apple by virtue of owning two-thirds of the profit share gets a lot of revenue even as many of the Android OEMs have reported losses. Samsung owns a third as well.

GOOGLE HAS A CHALLENGE

Now that close to 2 billion people already own smart phones, it is a challenge to find buyers of these phones in developed markets. Google has to look for them in developing markets where the buying power is much lesser and price sensitivity ranks high. That by itself is a major issue that Google has to contend with. After all, if the first billion or two have not produced the profits for OEMs and the developers at significantly higher price points, what is the guarantee, this new set of customers will do so.

Google also has to face the launch of the Apple iPhone in September with a bigger screen. The iOS 8 is supposed to be doing away with widgets and custom keyboards. This will mean that users who had moved towards Android due to these issues will see Apple in fresh light and may not shift to the Android platform. That will also put additional pressure on the margins for Google.

GOOGLE WILL HAVE TO TURN TO ENTERPRISE

Since the consumer smart phone segment is becoming fragmented and extremely price sensitive, Google may have to seek more of enterprise customers to boost margins. Typically, this market is not that price sensitive and the market as of now is still relatively untapped.