Google Inc (GOOG) Has Lost Control of Android

Android is seemingly one of the biggest success stories in computing in decades. Google Inc (NASDAQ:GOOG)‘s rise to ubiquity in the smartphone market over the past three years has been nothing short of breathtaking, and its presence brings back memories of Microsoft Corporation (NASDAQ:MSFT) Windows during the rise of the PC.

Google Inc (NASDAQ:GOOG)According to Strategy Analytics, Android’s global smartphone operating system market share rose last year to an incredible 68.4%, well ahead of its next best rival, Apple Inc. (NASDAQ:AAPL), with 19.4%.

Smartphone OS 2011 Global Market Share 2012 Global Market Share
Android 48.7% 68.4%
iOS 19% 19.4%
Others 32.3% 12.2%

Source: Strategy Analytics.

Since Apple’s share didn’t change much from 2011 to 2012, those gains came at the expense of other platforms like Symbian, BlackBerry , or Windows Phone.

Here’s the problem, though: Google Inc (NASDAQ:GOOG) has lost control of Android.

No free lunch
Since Android is an open-source platform, any OEM can go out and obtain its source code for free. However, bringing a device to market typically involves royalties to Microsoft as well as going through the search giant’s Android Compatibility Program.

That last part is key for most OEMs, because it allows access to Google Inc (NASDAQ:GOOG)‘s large ecosystem of services and content, which is absolutely critical for most devices to have any chance of selling well. For the vast majority of OEMs, this is effectively a requisite because they simply don’t have service and content ecosystems of their own, in which case they have no choice but to go with Google’s.

Devices that don’t fit the bill exist outside of Google Inc (NASDAQ:GOOG)‘s official ecosystem. A growing number of companies now build their own ecosystems, and heavily modified, or forked, versions of Android are on the rise. Since Android’s primary goal is to funnel users into Google’s search and services, losing control of the platform is not a good thing for Big G.

First forker advantage
Amazon.com, Inc. (NASDAQ:AMZN)
was the first major company to do this with the Kindle Fire tablet. The first generation ran a forked version of Android 2.3 Gingerbread, and the second generation “HD” variety runs a forked version of Android 4.0 Ice Cream Sandwich.

When Amazon launched its Android Appstore back in March 2011 before it unveiled the Kindle Fire, it was a clear indication that the e-tailer had something up its sleeve. Sure enough, it did. The Kindle Fire has become a veritable tablet contender, shipping 6 million units (11.5% market share) in the fourth quarter. Amazon has carved out a subset of the broader Android market for itself, one that doesn’t help Google Inc (NASDAQ:GOOG).

Mind if I hitch a ride?
BlackBerry 10 is also piggybacking off of Android’s success, with the company coaxing developers to port their apps over to the new platform. Android apps comprise 40% of the 70,000 BlackBerry World apps that the company is launching its new platform with.

Since BlackBerry is only hitching a ride on the app front and has its own email and messaging services, again its use of Android isn’t directly helping Google. BlackBerry isn’t going as far as to run a forked version of Android, since it did just unveil a shiny new platform of its own, but it’s still getting some help from Android.

The “Google of China” in more ways than one
In China, Android is quickly gobbling up over 90% of the market, but most of these are forked versions of the platform. Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is the “Google of China” in more ways than one, as its Yi platform is simply a forked Android, ditching all of Google’s built-in services in favor of its own as the local market leader. Dell Inc. (NASDAQ:DELL) was one of Baidu’s hardware partners for Yi, among many others, before it said last month that it was exiting the smartphone business altogether because it’s had little to no success with Android.

Google has had numerous confrontations with the Chinese government over censorship issues, which has resulted in difficulties effectively reaching Chinese consumers. Since Chinese consumers aren’t heavy app buyers, the lack of Google Play isn’t as painful as it would be in the U.S. market. Baidu is the default search engine on 80% of Android phones in China.

China is now the world’s largest smartphone market and it’s mostly powered by Android, but Google doesn’t have anything to show for it.

Bits and pieces
Fragmentation has always been one of Android’s biggest weaknesses. The newest versions always add new bells and whistles, but many existing users never get to enjoy them. Even now, 47.6% of Android devices run 2.3 Gingerbread, which was released over two years ago. Incredibly, 2.7% still use 2.1 Eclair, released in 2009. Those figures only include devices that access Google Play, and speak nothing for all the forked variants out there that don’t feature Google Play.

Since software updates typically must clear both OEMs and carriers, who have little incentive to prioritize pushing out the new version, older devices get neglected. OEMs only really care about the initial sale where they make their margin, and carriers just want you to use more data. Why should they care about upgrading your device from 4.0 Ice Cream Sandwich to 4.2 Jelly Bean? They don’t.

A slippery slope
The most disruptive thing about Android has always been that it’s free for OEMs to use, and they can avoid paying licensing fees for Windows Phone or other platforms. Android has absolutely benefited Google immensely overall in terms of capturing mobile search and ads, but the company is still losing its grip on the platform.

The article Google Has Lost Control of Android originally appeared on Fool.com and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple and Baidu. The Motley Fool recommends Amazon.com, Apple, Baidu, and Google. The Motley Fool owns shares of Amazon.com, Apple, Baidu, Google, and Microsoft.

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