However much Apple wanted to go ‘nuclear’ on it, Android is here to stay and will probably power the majority of smartphones in the near future. The key role Android will certainly play in wearable computing only adds to its considerable market power.

The Android juggernaut has a lot to do with Google’s innovative approach to licensing and their early commitment to open source. Open source distribution overcame the objections of the handset manufacturers and mobile operators who worried about OS lock-in, where Google might extract the highest-margin revenue from customers those operators and handset folks thought were theirs.

Android’s promise was that if a mobile operator felt threatened, they could compile their own non-Google Android from source, and run their own app store and cloud services. In practice, despite enormous investment by Samsung and others to offer alternative services, Android’s rise has been Google’s rise. Except, of course, in China, a market I’ll come back to discuss in a moment.

A lot is happening on top of the Android operating system: apps. Because, like Microsoft Windows and Apple OSX/iOS, Google both enables and competes with app developers who support its operating system, creating a fundamental tension in the market.

Some time back, Bill Gurley wrote about the brilliance of Google’s “less-than-free” Android distribution strategy. It played out more or less as Bill imagined it would, including the centrality of Google Maps. He saw Android as a defensive “moat” around Google’s search business. This was a logical assumption at the time, but the reality turned out to be a lot more complicated. The mobile eco-system we have in 2015 is dominated by apps not the browser-centric mobile web, as some anticipated. And that is a crucial difference.

The primacy of apps has three interesting implications for search, and ultimately for Android itself. First, the rise of messaging and social media apps has made traditional search less relevant — you find your content curated in your Twitter feed or on Snapchat, not via a search box. Second, a lot of high-value (read: monetizable) search has moved out of the browser into vertical apps. You look for restaurants in Yelp or OpenTable, you start your shopping search in Amazon, you look for car service in Uber. Third, the most lucrative “search” in mobile has turned out to be app installs which are largely driven from inside other apps rather than from search engine advertising that Google dominates (installs are a cornerstone of Facebook’s mobile revenue, for example). Mobile app companies have created considerable value riding this shift from search-driven discovery to app-driven discovery.

Google’s response has been to elevate its own apps and services — the Google Mobile Suite — to the central business position in Android, to de-emphasize the Android Open Source Project where the core OS resides, and to create leverage into 3rd party apps through an API that insinuates Google’s content and services, such as Map or Wallet calls, into 3rd party commerce flows. Google has doubled down on Gmail (and by extension the Google+ identity system), cloud storage through Drive, Google’s office productivity apps (Docs, Sheets, etc.), the Play store, Wallet, and most importantly Maps, which may be the most valuable and organically mobile search platform.

As late as 2013, at the Mobile World Congress in Barcelona, Google’s Andy Rubin was saying: “[O]pen is good … Competition is good. We built Android because there was no open operating system.” But as any carrier or handset manufacturer can tell you, Google has recently linked their attractive Android licensing to guaranteed distribution and placement of the Google Mobile Suite, and has started tightening compatibility certifications, ostensibly to “protect” customers. This is very troubling to carriers and handset manufacturers looking to create value through software, and very troubling for app companies competing with Google, particularly as Google has started increasing the “tax” for API access to things like Maps.

Everywhere, that is, except China. Politics, protectionism, and the threat of uncensored search have kept Google largely out of the Chinese market. Open Android, not Google Android, is the dominant smartphone OS in the country, with multiple variants compiled from Android open source distributions. Last December, the Chinese mobile company Xiaomi, whose phones run an Android variant (rumored to be a heavily modified version of Cyanogen’s CM9), became the most valuable private company in the world.

China’s mobile market is an interesting case study, because it has developed without the looming market power of Google (and, while China is a healthy iOS market, Apple doesn’t have the same hold on Chinese app developers that it has in the West). In China, the value in the Android eco-system extends broadly to 3rd party messaging (Tencent’s Weixin) and 3rd party e-commerce (Alibaba’s Taobao) without a commensurate platform tax. These Chinese mobile/internet providers have become incredibly powerful, valuable companies.

With mobile clearly the world’s most important commercial battlefield, and with four out of every five smartphones worldwide running Android, the role of an independent, truly open Android is of significant importance to every constituency in the mobile eco-system — from carriers to handset manufacturers, from app developers to end users.

Android taxonomies

For reference, and, perhaps, discussion: ‘Android’ means lots of different things, and there’s a lot of confusion about forks, Xiaomi, China and AOSP, as well as ‘the next billion’. So this is how Ben Evans thinks about this. First, there are actually (at least) six types of ‘Android’ in the market today

  1. ‘Stock’ Android, as seen on Google’s Nexus devices, complete with Google services (but with tiny unit sales)
  2. ‘Modified’ Android, as seen on phones from Samsung, Sony, LG etc, complete with Google services – generally, these are modifications that no-one especially likes, but which Google explicitly allows
  3. ‘AOSP’ or open Android, as seen in China – essentially these phones are the same as number 2, but with no Google services and apps from the Chinese portals embedded instead. Hence Samsung, Sony etc sell their phones in China without Google services, but few other changes
  4. (or perhaps 3.1) ‘Modified’ Android as seen on Xiaomi phones and those of its followers, which people actually seek out, and which comes without Google services in China and with them elsewhere
  5. ROMs and third-party implementations of Android that are available for any handset, such as both Xiaomi’s MIUI and Cyanogen (an a16z portfolio company), which may or may not have Google services included or accessible. Again, these contain optimisations and improvements that make people seek them out
  6. Forked Android, such as the Kindle Fire phone: Android heavily modified to produce a different experience, and Google refuses to allow Google services to run on them (other than plain old web search, AKA POWS). Note that Xiaomi and Cyanogen are not forks.

The first two or perhaps three I would describe as ‘closed’ Android and the second three are ‘open’ Android, certainly from the perspective of device manufacturers. The first two (actually just number 2) have over a billion users outside China (as of the numbers given at IO last summer). Versions 3 and 4 have a further 400-500m users, almost all in China, and there are perhaps 50m users of 5 ( a very rough estimate) both inside and outside China, partly overlapping with the others. Six – well, ask Amazon.

In parallel, it’s worth breaking down Android users in a similar way:

  1. ROM users (very roughly, perhaps 50m people)
  2. People who like to install the kinds of apps that do things Apple doesn’t allow on iOS and Google does allow on Android (note that Apple now allows rather more things and Google does not, oddly, allow gambling apps)
  3. People with a personal preference for Android, who none-the-less do not actually install ROMs or do many things that are blocked on iOS (the difference between this and 2 is a grey area, obviously)
  4. People who don’t actually care very much one way or the other between Android and iOS, and (for example) got a good deal, preferred the handset design or (especially) the larger screen size that used only to be available on Android, and indeed might switch back and forth between iOS and Android
  5. People who can’t afford iPhones or other high-end phones and so got Android as the cheaper option.
  6. People who actually don’t care about smartphones at all, and so just bought a ‘cheap phone’ (or just a  phone with a good camera, say), and happened to get an Android since it’s taken over most of the mid range and low-end, and who don’t do much with the ecosystem
  7. People in emerging markets who really can’t afford anything other than a $50 or $100 Android phone but are enthusiastically taking advantage of everything it can do.
  8. As above, but have a relatively expensive data plan, limited 3G coverage and, often, limited access to power to charge their phone (this one is is where the ‘next billion’ will sit)

Some of these categories (but obviously not all) also apply to iOS, of course, but selling phones only at $600 for the latest model creates a more uniform customer base.

Layered across both of these is huge geographic variation. The must-have phone for teenagers in San Francisco and Jakarta is very different. But the underlying point about both lists is that tech and mobile have grown far past the point that there is really a single market for anything. When you connect everybody you get, well, everybody, and they’re not all like you.

P.S: Ben Evans and Mitch Lasky have great posts on the Android ecosystem from different view points

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