Google's (
GOOG
) Android OS posted another quarter of gains in smartphone market
share, which grew to 75% of total shipments during the third
quarter, up from 57.5% year-over-year. Apple's (
AAPL
) iOS also gained in Q3, increasing its market share to 14.9% and
total shipments 57.3% year-over-year.
Overall we think that an increase in Android market share bodes
well for Google going forward as the firm's biggest driver of
revenue will be mobile advertising. The high market share ensures
that a large proportion of searches from mobile phones will be done
on Google, and this gives the company an opportunity to grow
revenues from other segments such as Motorola and Google Play.
See our complete analysis of Google here
Good News For Mobile Ads
While mobile ad revenues aren't a big percentage of total search
revenues yet, we expect them to grow at a rapid pace over our
forecast period. We expect that revenues per 1,000 mobile searches
will grow from $7 to $10 by 2019, and that total mobile search
revenue will eventually supplant traditional search advertising. We
think that our thesis is given more support by the fact that
Google's run-rate for mobile advertising almost quadrupled from
$2.5 billion to $8 billion year-over-year during the third
quarter.
Long Term Opportunity for Motorola
Besides mobile advertising, we expect that Android's dominance
in the smartphone will help the company's Motorola segment. Due to
the fact that Google will manufacture its own hardware with
Motorola, we think that it could churn out superior phones in
relation to its competitors. There are likely to be equipped with
more features because Google's Android engineers will design
software specifically for the Motorola hardware.
We think that if Android can maintain its market share during
the next few years, Google will see increasing sales of Motorola
phones over the long term. Users will have familiarity with an
Android phone which make them less likely to switch to a different
operating system as they look for higher end new phones.
Additionally, as global income increases, many users who are
currently buying entry level smartphones, will be more likely to
afford the higher end smartphones that Motorola manufactures.
Android Can Drive Google Play Revenues
We think that the wide spread use of Android phones around the
world can drive revenue growth for Google Play. As more users get
on the Android platform, they are likely to buy their music, games
and other media from the Google Play store. If Google Play is able
to emulate a small proportion of the success of the iTunes store,
which generated $6 billion in 2011, we will see Google Play
becoming a material contributor to Google's revenues.
Bright Outlook for Android
The increase in market share for Google's Android mobile OS is
great news for a company which is facing increasing competition in
mobile OS segment. Overall, we think that Google is in a good
position with the Android platform, but it needs to continue
innovating to stay relevant as new entrants come into an already
crowded market. In our opinion, smartphone market share figures
will be key to watch over the coming years as they will be a huge
determinant of whether or not Google is able to execute its mobile
ads strategy.
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