Why iOS makes more money for Google than Android does

LONDON, U.K.– Mobile devices running Apple’s iOS are more profitable for Google than Android devices, analysis of data revealed in court shows.

Last week the Guardian reported that according to figures revealed as part of a proposed settlement in an ongoing patent dispute case with Oracle, Google makes four times as much from an iOS device than it does from devices running its own Android OS.

The court documents reveal that Google has made about $543m from Android between its launch in 2008 and 2011. We know that by the end of 2011 around 200 million Android devices had been activated, with around 90 million of these activations taking place in the last two years.

It works out to about $10 per handset. Google licenses Android to handset manufacturers for free and generates revenue through advertising and app sales – it takes roughly a 30 percent cut – though the company has never officially revealed how much it makes from Android handsets. It’s worth noting that the court documents don’t tell us how Google works out Android revenue but does show us that Google offered Oracle a percentage of Android revenues, a deal which was rejected by Oracle.

But Google has been licensing the use of its products – maps, search and so on – to Apple since the launch of the first iPhone in 2007. There have been some 315 million iOS device sales since then and by working out Google’s overall revenue generated by mobile devices and removing Android from the equation, the Guardian reckons that Google makes around four times as much per iOS device as it does per Android device.

Asymco’s Horace Dediu takes the calculations further and said that iOS could even be earning Google five times more than Android.
“Many of these figures begin to hang together as we balance assumptions about costs, revenues and statements made in public. There is a consistency within a comfortable margin of error. If that is the case, then the economics of Android begins to take shape,” Dediu said.

“My take is that it’s not a bad business. But it’s also not a great one. As long as there is exponential growth in units, Android will improve its position inside Google relative to iOS. But from Google’s perspective, iOS is today a bigger business. And iOS is not standing still. It’s growing not only in terms of units but in revenue per unit.

“In terms of returns, Android is sustainable. However, in relative terms the value created leaves much to be desired. Whereas Android generates $1.70 per device per year and thus an Android device with a two year life generates about $3.50 to Google over its life, Apple obtained $576.30 for each iOS device it sold in 2011. The economics of Android are nothing like the economics of iOS.

Things could be about to get worse for Google and Android, too. A separate analysis from Flurry conducted earlier this year shows that revenue generated per iOS user by the iTunes App Store is over four times that of the revenue generated by Android user through Google Play, the company’s new-look app marketplace.
The same analysis showed that Amazon was generating much more revenue per active user in the Amazon Appstore than Google was generating per Android user. This could lead developers to abandon the company, Flurry’s Peter Farago predicted.

“As developers make decisions to support different platforms, the ability to generate revenue will always be a key factor. Based on revenue potential, we expect to see an increasing number of developers support Amazon. We also believe that companies such as Samsung, the leading Android-supporting OEM, could also consider emulating Amazon’s move to fork Android. Google will need to reduce commerce friction to maintain strong developer support,” Farago said.

While Google clearly relies on iOS to generate a large portion of its mobile revenue, Apple’s attitude to Android couldn’t be more different. As Bloomberg Businessweek reported last week, Apple is still very much at war with Android, driven by the determination of its late CEO and co-founder Steve Jobs to crush Google’s mobile OS.

Apple’s tactic is to take on Google via patent disputes in courtrooms worldwide, not directly, but through proxies such as Samsung, the largest manufacturer of Android-based handsets and tablets, and Motorola, another Android handset and tablet manufacturer which Google is in the process of buying.

Recent rulings would appear to favour Apple – just last week a ruling was described by one patent expert as posing a serious threat to “the Android ecosystem at large”.

So with levels of revenue generated by Android for Google comparitively low, developers considering it to be an unprofitable platform and Apple determined to crush it, it looks as if Android faces tough times ahead.

Analyst firm IDC sees Android not just surviving, though, but sustaining its share of the smart connected device market in the next few years.

The number of Android-based devices will grow from a 29.4 percent share in 2011 to a market-leading 31.1 percent share in 2016, IDC believes. iOS-based devices will grow from 14.6 percent share in 2011 to 17.3 per cent in 2016, according to the company’s projections. However, Android could still face the same problems with generating revenue over this period, it seems.

“Android’s growth is tied directly to the propagation of lower-priced devices. So, while we expect dozens of hardware vendors to own some share in the Android market, many will find profitability difficult to sustain,” said Tom Mainelli, research director, Mobile Connected Devices for IDC.

“Similarly, we expect a large percentage of application developers to continue to focus their efforts on iOS, despite the platform’s smaller overall market share, because iOS end users have proven more willing to pay for high-quality apps.”

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Jim Love, Chief Content Officer, IT World Canada

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