Google Inc (NASDAQ:GOOG)’s dominance in search and online advertising was built on creating cutting edge technology and letting others piggyback for a small fee. Adwords is a prime example, since anyone can start a targeted online advertising campaign at a reasonable price. The company’s Android mobile operating system is similar. Google Inc (NASDAQ:GOOG) designed the OS and lets others use it for free. It takes a cut from app sales and has cemented its position in the mobile market.
That said, as Google Inc (NASDAQ:GOOG) moves into new areas it is increasingly taking on new competitors and old friends. For example, Google recently purchased Motorola Mobility. While it claims the target was Motorola’s patent portfolio, Google is now in the handset business. The Moto X is already being primed for launch.
With partners like Samsung Electronics Co., Ltd. (KRX:005930), the only real competitive threat to Apple Inc. (NASDAQ:AAPL), using Android, getting involved in handsets is a risky move. It could open the mobile OS market to companies like Microsoft Corporation (NASDAQ:MSFT), which recently relaunched its Windows Mobile OS.
So far, Google has reached into mobile phones, wearable devices like Glass, and netbooks, though it is using a partner model in that space. Now the company is rumored to be making a watch and game console, both of which are key products for competitors and partners.
This is a big issue and an important one to monitor. For example, competitor Apple Inc. (NASDAQ:AAPL) was sure to include Google’s search as the default on its early iPhones. However, Microsoft Corporation (NASDAQ:MSFT)’s Bing is set to displace Google as the search tool for the Siri computer assistant. That may seem small, but Apple Inc. (NASDAQ:AAPL) has also tried to displace the Google Maps app.
Every chink in the armor weakens Google’s market position. The mobile market is probably one of the biggest issues. Google doesn’t dominate mobile ads like it does Internet ads, which has translated into lower mobile margins. This is the growth business right now. Getting Android to be the brains behind smartphones from companies like Samsung has given Google an industry-leading position since Android phones far outnumber Apple Inc. (NASDAQ:AAPL) phones.