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Google’s Android Expectations: Hope vs. Reality

A 2010 quarterly earnings report reveals how Android has both exceeded and disappointed Google's expectations

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Google’s Android Expectations: Hope vs. Reality
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The court case between Google and Oracle has become a goldmine for those wanting a peek inside the world of Android as a business. The Verge has published a slide presentation for a quarterly review of Android that was entered into the trial as evidence. The review was presented on July 12, 2010. The slides reveal much about Google’s expectations for Android, showing that the platform has been a success in some areas, but fallen short in others.

The slides highlight where Android was in 2010, and it doesn’t seem that far off from where they are now. Back then, 20 million Android devices had already been sold, and 160,000 Android devices were being activated every day. All major service providers around the world were committed to Android and manufacturers were jumping on board as well. However, this explosive growth in Android sales hadn’t slowed Apple much, if at all. Looking back, these sales were indicative of the growth of the smartphone market as a whole, and companies such as Nokia and RIM were the ones that lost out in the sea change.

Though there were already 70,000 apps in Google’s Android app market, purchases of apps were very low. This is a situation that has persisted, and many apps that sell on Apple’s App Store are free on Google Play and use in-app ads. Even with all of those in-app ads, though, Android in 2010 still came in a distant second as a contributor to Google’s total mobile revenues. Apple provided more than double the revenue from Android phones, with $281 million. The free-app culture is one that Google helped to encourage with free, high-quality apps of their own and an open-source platform.

Google's mobile revenue in 2010, by platfrom

Google was already worried about competing app stores showing up on Android devices. This is another consequence of Google’s open-platform philosophy. Also, without the strict controls that Apple uses for its devices, manufacturers and carriers were free to create “walled gardens,” as Google calls them, forcing customers to use their own modified Android versions. This is a trend that continues today, and has actually gotten worse. One thing Google didn’t anticipate in 2010 is that those “walled gardens” would create a problem when updates to Android are released. Carriers and manufacturers must update their “walled gardens” along with Android, and many of them are slow to do so. This has created a system where even some high-end Android phones don’t yet have the newest version of Android, Ice Cream Sandwich, running on them.

Google’s anticipated future revenue opportunities included better display, search, and local ad formats. The mobile ads seen on Android devices have improved since 2010, though it’s unknown whether or not ad revenue has improved as a result. Another revenue opportunity Google anticipated was the tablet market. The presentation makes it clear that Honeycomb, the version of Android designed specifically for tablet devices, was a major goal for the Android team at the time. They expected the high content consumption inherent on tablets to increase mobile ad revenue. However, as we know now, the tablet market still seems to be all but locked-up by Apple.

Google does seem to be right on track according to the Android Strategy shown in the presentation. In 2010 Android was already transitioning into phase two. The platform had clearly already achieved the goals set out in phase one, which were becoming a leading mobile software platform, gaining a significant amount of apps, being on multiple manufacturer’s devices, and obtaining millions of users. Phase two, which ran from 2010 until sometime in 2011, focused on improving mobile search, ads, and apps. Phase three, which Android is in currently, involves expanding monetizable services on the platform, including digital content such as movies, books and music. This strategy can clearly be seen in the launch of Google’s new marketplace, Google Play, where a vast array of content is now available. Manufacturers seem to have already beaten Google to a key part of phase 4, which is to scale the volume of Android devices by going down-market to feature phones. The lower-priced Android devices coming out recently aren’t exactly feature phones, but they are certainly leaving a dent in feature phone sales.

Google's Android strategy

Google’s estimations for a potential music download service are particularly interesting. The plan was for a music download service similar to iTunes, which would allow users to download DRM-free music and share %70 of its revenue to music labels. In addition, users would be able to rent cloud storage for their music library for $3 per month, with 50% of that money going to music labels. A feature that Apple recently rolled out with its iTunes Match service was also put forward: uploading songs to the cloud storage service and having them “refreshed” to a higher bit rate. Google predicted that it might bring in as much as $738 million in revenue from music sales in 2011, which certainly hasn’t panned out. Though Google Music has some of the features touted in the presentation for a future Google music service, Google is far from a leader in music sales.

Google's plans to sell music

Some of Google’s predictions have been exceeded by the success of the Android platform. Both unit sales for Android devices and Google’s mobile revenue greatly exceed even the optimistic predictions seen in the 2010 slide presentation. Other predictions, though, have not come to pass. The tablet sales and revenue expected, in particular, are far below what Google had predicted. Still, Google can’t be faulted for thinking big and setting impressive goals. Especially when they have met most of those goals. No matter what the next twist for the mobile market is, as Android transitions to phase four in 2013 the platform will, most likely, continue to pull in big revenue for Google.

Take a look at Google’s slide presentation yourself and see what a difference two years can make in the mobile sector. If you have insight about where Android has been and where it is going, make sure to leave a comment below and let us know.

(via Marketing Land)
(Slide pictures courtesy The Verge)

Google’s Android Expectations: Hope vs. Reality
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