How Google Will Navigate The Market Saturation of 'SmartPhones'

Worldwide smartphone market growth increasing rapidly and a large number of US smartphone market share by operating system has taken by Andr...

Worldwide smartphone market growth increasing rapidly and a large number of US smartphone market share by operating system has taken by Android owned by Google. The global smartphone business has not yet peaked, but growth will be harder to come from now on. Interestingly, that could be beneficial to Google.

How Google Will Navigate The Market Saturation of 'SmartPhones'
The web search giant, which is owned by Alphabet Inc., has a dominant position in this business. Its Android mobile operating system powers almost 80% of smartphones sold last year, according to International Data Corp. (IDC). Google has already released a developer release of this year's operating system, known as Android N. The full release is scheduled for early 2017.

The prominence of Android has put Google in the sights of European regulators, creating a certain risk in the long run, although its position may seem less impressive considering the growing signs of an unprecedented drop in smartphone sales.

In the first quarter, in an unprecedented move, global smartphone shipments were unchanged from the same period last year, IDC said. Apple's iconic iPhone first experienced a decline in sales during that period. Samsung, the largest manufacturer of phones with the Android system, also recorded a total drop in sales of its smartphones. This was because the weakness in sales of its older models countered a solid launch of its new Galaxy S7 device, according to IDC.

It is a hard fall for a sector accustomed to having a double digit growth. But business realities no longer favor rapid expansion.

Developed countries are flooded with smartphones, and most people who can afford to buy high-priced products, such as iPhones and the Samsung Galaxy S series, already have them. So the segment will now be driven mainly by those who decide to upgrade their handsets and users of basic phones that remain to be converted. Nearly 80% of the US population Owns a smartphone, comScore estimates.

There is still potential growth in developing markets such as India, Africa, and the Middle East, among others. But this type of growth will be slower due to the limitations of the networks and the affordability of these devices in those markets.

However, the outlook continues to favor Google. Unlike Apple devices that are more expensive, Google's are in the entire price range. Nearly 60% of Android phones cost less than $ 200, according to Neil Shah of Counterpoint Research, while there are no iPhones in that price range unless they are subsidized by a cellular operator.

So in a rapidly slowing market, Google should be able to grow for Android. And the scale is important.

Google does not make money by selling the devices themselves but by the way they feed their lucrative search and other services business. There is still room for improvement. Google's cost-per-click, which measures what advertisers pay, is nearly 30 percent lower on mobile devices than on desktops, says Eric Sheridan of UBS. This should increase as mobile users make more and more transactions on their phones.

IDC forecasts that smartphone sales will grow at an annual average of 6% over the next five years. Android is expected to gain market share in that period from almost 80% now to 85% by 2020.

For any Google investor worried about how the company will go in a slower growth market, that number should make them smile.

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