Android: What Hath Google Wrought

Apple (NASDAQ:AAPL) has made impressive strides into the smartphone market since launching the iPhone. There has been plenty of evidence since then that it is taking a part of BlackBerry’s market. But, there was little evidence that was true when RIM (NASDAQ:RIMM) put out it impressive earnings. Rather than hurting one another, Apple and RIM may together be taking the high-end of the handset business from Nokia (NYSE:NOK), LG, and Samsung. Smartphones are replacing standard handsets in America, so the business of selling phones that can be used for e-mail and web surfing is better than a zero-sum game.

Apple and RIM should be worried by a piece of research by comScore that shows the Google (NASDAQ:GOOG) Android emerging as an extraordinary success among buyers of high-end phones. The survey shows that seventeen percent of people asked about their smart phone buying plans said that they were inclined to buy an Android-powered phone. Apple’s number was only 20%. The same question was put to consumers in August and only 8% of respondents were considering a phone with Android. The main strength of Android adoption is from sales of the Verizon Droid, but the Google mobile operating system is being quickly adopted by T-Mobile. Its success is likely to get it greater share from many more of the smart phone manufacturers.

The most impressive aspect of the Android’s success is that does not have an app store will tens of thousands of software products the way that the Apple App does. One of the most powerful features of the iPhone is the nearly 200,000 applications that will run on the handset, many of which are free. The numbers of applications that work on Android are much more limited, about 20,000. Google does have the brand and capital to draw programmers to work on software for the Android OS, but it may never have a suite of products anywhere near as large as Apple’s.

Android’s progress is usually tied to its open-source license. Handset companies can use the operating system for free and, under liberal licensing terms, can build other software on top of it. The Google brand, one of the most well-known and well-regarded in the world, has almost certainly helped accelerate customer adoption.

Industry experts have said that Google’s plan to offer its own Android-powered handset, the Nexus One, which may hurt its relationship with smart phone manufacturers. These companies are using Android and now Google is offering a competing product. That may undermine Android adoption because few hardware companies want to compete with a company of Google’s size and with its resources. Firms such as Motorola (NYSE:MOT) and HTC really have no choice but to use Android. They cannot get licenses to the Apple software or BlackBerry’s. The Microsoft (NASDAQ:MSFT) OS has a license fee. Perhaps more important than any of these reasons is that Android is nearly flawless software which gets extraordinary developer support from Google. Free and well-supported is a combination that is not available elsewhere.

The question about Android’s role at Google is the same as the questions about any business that the search company is in—aside from search. No one can figure out how Google will make money on Android. It is, essentially, a software toy that was expensive to build and is expensive to support.

Douglas A. McIntyre