Seeking Alpha
Long only, tech, chipmakers, software
Profile| Send Message|
( followers)  

Summary

  • At Google IO, it was announced that the current number of Android device users had reached 1 billion, the largest of any mobile device ecosystem.
  • Improvements in the next generation Android L OS will make it even more competitive with Windows Phone and iOS.
  • New product announcements in Android Wear watches and Android TV demonstrate that Google can move quickly into new product categories.
  • IO confirmed that Google has become an even tougher mobile device competitor.

The lack of any new hardware announcements at Apple's (NASDAQ:AAPL) WWDC forced tech bloggers to play detective, sifting through clues to come up with a reasonable hypothesis about Apple's forthcoming products. No such detective work was needed at this year's Google IO (GOOG) (NASDAQ:GOOGL). The new products were there for all to see: Android Wear smart watches, Android TV, and most importantly, a new version of Android itself.

A Ruse Abandoned

Before I launch into Google's new product categories and their competitive implications, I have to congratulate (sort of) Sundar Pichai, Google's head of platforms, for at last abandoning the practice of announcing the number of Android "activations." This was a ruse that left the impression that the number of Android devices in use was equal to the number of activations. This couldn't be true if only for the reason that there has to be some level of attrition, with devices being taken out of service due to obsolescence or simple failure.

At the IO keynote, Pichai announced that the number of active Android users had reached 1 billion. Last September, when Android 4.4 (KitKat) was rolled out, it was announced that activations had reached a billion. I estimate, based on the daily activation rate of 1.5 million units that Google announced back in July 2013 at its 2013 Q2 earnings call (when cumulative activations were stated to be 900 million), that activations exceeded actual users by about 36%.

Android L

The most significant announcements from the standpoint of mobile device competitiveness involved Android L, the next version of Android, which for some reason abandons the candy nicknames. Android L makes very significant improvements that will make Android app performance much more competitive with mobile platforms from Microsoft (NASDAQ:MSFT) and Apple.

Until now, one of the advantages these platforms enjoyed was that apps ran "natively" on their respective devices. This means that app developers used the development environments provided by Microsoft and Apple to convert their programming language code into the streams of binary numbers (so called machine code) that microprocessors understand, a process called "compiling." The compile process is done ahead of app distribution, usually on the developer's PC, either Windows or Mac OS X based.

Android takes a different approach, in which the conversion of an app to machine code doesn't occur until the app is run on the user's device. In previous versions of Android, this process was usually performed by a "just in time" (JIT) compiler built into Android. The additional processing and memory that Android apps required while running often reduced the performance and stability of Android apps.

Android L employs a revamped run time that provides a new ahead of time (AOT) compiler that compiles Android apps into native code when the app is installed. This should substantially close the performance and reliability gap between Android and compiled apps running under Windows Phone or iOS.

In the past, when I've discussed this issue, Android supporters have tried to argue that the performance gap didn't exist. The very fact that Android L will employ an AOT compiler shows that it did. Will the AOT compiler perform as well as the compilers for Windows and iOS? Not likely, since the compilers that developers use are much more sophisticated and run on much more powerful processors, but the AOT will narrow the gap considerably.

Another, perhaps equally important development for Android L is that it will be fully 64 bit compatible for Intel and ARM processors. When I wrote "Why iPhone 6 Won't Reverse Apple's Market Share Decline" I had pointed out that iPhone 6 would face competition from Android phones running on 64 bit Qualcomm and Intel processors due to arrive this fall. This stimulated a number of comments pointing out the obvious that Android is a 32 bit operating system. The comments assumed that it still would be by this Fall. This highlights something I often see among the fans of any of the major mobile device platforms (it doesn't really matter which one), that they tend to be very ignorant of developments in the competing platforms.

It has been widely reported that Intel was helping Google develop a 64 bit version of KitKat to run on its 64 bit Bay Trail mobile processors. It would have been absolutely stupid of Google not to build 64 bit support into Android L. The more rabid Apple fans may dismiss Android devices as "junk," but I don't get the impression that Pichai is stupid. Pichai has moved very intelligently to address the shortcomings of Android as well as address future needs. The competition of iOS with Android will only get tougher going forward.

Android Wear

Since I wrote about Android Wear in March, it has gone from a developer preview to actual products that people can buy, with every developer at IO receiving a free Android Wear watch. The speed with which Google has moved out on Android Wear devices demonstrates at the very least that they don't spend a lot of time wringing their hands about whether a new product is "amazing" enough.

That being said, the watches are really clunky and unattractive. Most of the presenters were forced to wear them, like, oh yeah, this is really cool, I'm wearing this big chunk of electronics on my wrist. They're also very dependent on the user having an Android phone as well. Supposedly developers will be able to develop apps that run exclusively on the watch, but there isn't much the watch can do without an Android phone present.

As such, Android Wear devices mainly function as notification (and limited response) devices. It remains to be seen how compelling such devices will be in the marketplace. The forthcoming Apple iWatch, that I have described previously and updated as of WWDC, I expect to be more compelling and successful. However, I'll leave it to the respective fan bases to argue about which is the better product, since I consider this pointless until Apple fields an actual product.

Android TV

Android TV is not so much a device as a subset of Android L functions designed to work on a TV with nothing more than Google's excellent voice response system (definitely the best in the business) and a simple D-pad controller or game controller. Android TV doesn't try to provide full app functionality on the TV, but does allow developers to adapt their apps to the limited user inputs it supports. This means mostly video and games, the key areas that I have predicted that the next generation of Apple TV will support.

Unlike Apple TV, Android TV will not be limited to a set-top box, but will also be available built into televisions from companies such as Sony. Smart televisions capable of displaying Internet delivered content have become the norm, but as Google points out, with home-grown operating systems developed by television manufacturers. Google aims to standardize smart television operating systems on Android. In one stroke, Google will capture a significant share of the set-top box market as well as the Ultra HD (or 4K) smart television market (and all 4K TVs are smart).

When Amazon released Fire TV, I pointed out that Apple TV was the dominant set-top box and waxed optimistic about Apple TV's future prospects. I take that back now. The competitive landscape for Apple TV has just become much more treacherous. Apple TV was never going to be a big growth driver for Apple, but now it looks set to start ceding market share to Android.

Investor Takeaways

There were many other developments at IO, including Android Auto and improvements to Chrome OS that I've simply run out of space to talk about. I encourage interested investors (whether Apple or Google) to watch the IO keynote at the very least. The fundamental takeaway for investors of any stripe is that Android just keeps improving and becoming more competitive with iOS and Windows Phone. The idea that iPhone is "crushing" its competition, which is mostly Android, is a fanboy fantasy rooted in an ignorance that investors in Google's mobile competitors can ill afford.

When iPhone 6 arrives this fall, I believe it will still be superior to the wave of Android L phones it will compete with. The point I make repeatedly is that technological superiority does not guarantee market success. In "Why iPhone 6 Won't Reverse Apple's Market Share Decline" I predicted that iPhone's market share would subside to about 16% in calendar Q4 with iPhone y/y revenue growth declining to 7.8%, down from 15.6% in Q4 2013. The strengths of Android L may indicate that these numbers are optimistic.

Source: Where WWDC Hinted, Google IO Delivers... Something