Google (GOOG) plans to push its Android mobile software in India and China, and is exploring ways for developers to make more money from applications, stepping up competition with Apple (AAPL) and Nokia (NOK).
To attract programmers to its Android operating system, Google may offer tools that help them sell subscriptions, virtual goods, and other items from within applications on mobile phones, Andy Rubin, vice-president of engineering at Google, says in an interview.
The company also aims to put its Android operating system on lower-priced phones made by Huawei Technologies (2049:TT) and LG Electronics (066570:KS) in parts of Asia and Europe, where it's taking on Nokia, the mobile market leader. "The down-market opportunity is about to happen," Rubin says. "It's actually quite a revolution."
Android is part of Google's strategy to get more of its software on mobile devices, creating new avenues to sell advertising—its main source of revenue. The total mobile-ad market will grow to $13.5 billion in 2013 from less than $1 billion last year, according to research firm Gartner (IT) in Stamford, Conn.
Google, based in Mountain View, Calif., lags behind Apple in mobile apps, which are a growing platform for ads and help attract consumers to devices. Android users have about 65,000 apps available, less than a third of the more than 200,000 Apple programs.
Google is taking steps to accelerate Android's growth. Expanding in new markets such as Korea helped drive up the number of users who activated Android devices to 160,000 a day in June, from 100,000 in May, the company said. Sixty-nine percent of Android-based phones sold in the first quarter were in the U.S. "We are definitely in the hockey stick," said Rubin, referring to Android's growth pattern. Gartner predicts that Android will leapfrog Apple's operating system, iOS, by 2012 to become the world's second-most-popular mobile operating system behind Nokia-supported Symbian.
Google also is increasing incentives for app developers. It's exploring ways for programmers to make more money from their software, such as by making it easier to accept payments within the apps or sell subscriptions, Rubin said. That provides a way for consumers to purchase new game levels, virtual weapons, and monthly subscriptions to digital magazines. Apple added similar features to the iPhone in 2009.
Android developers mainly make money from ads placed within their apps or from one-time fees. That makes it harder for them to earn as much as their Apple counterparts. Of the $4.4 billion that consumers will spend on app downloads this year, Apple's App Store will receive at least 77 percent of the revenue, according to Futuresource Consulting in Dunstable, England. Android Market will collect 9 percent. Natalie Harrison, a spokeswoman for Cupertino (Calif.)-based Apple, didn't return a call seeking comment.
While businesses like eBay's (EBAY) PayPal already offer in-app payment tools for Android developers, dealing with multiple companies increases the complexity, Rubin says. Since starting its in-app payment tool on May 19, PayPal has had more than 1,000 developers download it, says Osama Bedier, a vice-president at PayPal. Most of the developers came from China.
Helping Handset Makers
Google is also helping handset makers like Huawei in China and LG in South Korea offer cheaper Android-based smartphones, Rubin said. Huawei, the biggest maker of wireless equipment for carriers in China, unveiled four Android phones and an Android-based tablet in February.
Smaller Chinese manufacturers, which make up about 10 percent of the global phone supply, are also adopting Android, seeking to gain share with lower-priced devices. Many of these manufacturers rely on Taiwan-based MediaTek, which supplies chips for ultra-cheap phones sold in Asia, Africa, and South America. The company has joined the Open Handset Alliance, the group that promotes Android, Google said. MediaTek-based devices may cost carriers as little as $70 apiece, said Carolina Milanesi, an analyst at Gartner. Today, the cheapest Android phones cost carriers about $200, while low-cost Symbian devices run about $170, she said.
As more lower-priced phones come to market, more carriers will offer the devices to consumers for free. That could boost the adoption of Android, especially in emerging markets like India and China. That adoption will give Android a leg up on Nokia. While the Espoo (Finland)-based company holds only a fraction of the U.S. market, it is the leading phone maker globally. "As Android develops, the main vendor who is going to feel the pressure is Nokia," Milanesi says.
In the first quarter, more than 41 percent of smartphones shipped worldwide were powered by Symbian, the software used on most Nokia handsets. Almost 16 percent used Apple's operating system and 10 percent ran Android, according to consulting firm ABI Research in Oyster Bay, N.Y.
Nokia says it has the brand and products to maintain its market share in Europe and Asia. "Nokia has developed locally relevant solutions that consist of affordable mobile phones and applications, designed and built from the ground up to meet the specific needs of customers in emerging markets," spokeswoman Laurie Armstrong says.