Two and a half years ago I declared in my mobile computing wars series that Google would commoditized the mobile computing space, thereby turning the industry on its head dramatically changing business models and margin outlooks. Curiously enough, despite rampant evidence that I've been nothing but correct, investors, pundits and even leading industry participants still don't get it. CNBC ran the following article this morning... Chinese Smartphone Users Snub Apple for Local Brands
Sales of smartphones in China are outpacing sales in the U.S., and yet many Chinese shoppers are choosing cheaper, local brands, which now have more than 50 percent market share. The Financial Times reports.
What CNBC failed to realize was that the primary beneficiary of all of this is Google, who benefits from volume in handset and tablet sales, not margin. I made this point clear in my paid research reports, free blog posts and multiple interviews - to wit:
- Right On Time, My Prediction Of Apple Margin Compression 8 Quarters From My CNBC Warning Landed Right On The Money!
- Which Is The More Sustainable Business Model - Selling The World's Information or Selling Shiny New Things???
- Now You Will See Margin Compression In iPhones As Well As iPads
- Many Don't Understand The Google/Apple/Microsoft Business Model Dynamic Nor How Dangerous This Apple Legal Win Can Be For Consumers
- Reggie Middleton currently leading the CNBC Stock Draft Pick contest, see his opinion on air here
Let's face it, Smartphone Hardware Manufacturers Are Dead, Long Live The Google-like Solution Providers!
For those who disbelieve this statement, remember, there are no such things as cheap Chinese knockoffs anymore. It's all made in China, at least from a hardware perspective. The only thing that wasn't outsourced to Cheap Chinese Labor (CCL, but soon to be known as iCCL - inflation dinged not so cheap anymore Chinese Labor) was the IP and tech behind the OS and software. Here, Google easily reigns supreme, with its only viable competitors being Microsoft Windows Phone 8/RT/Pro and Apple's iOS6. Apple is nearly out of the picture, its just that the Hoi Polloi haven't received the memo yet (as was the case with our view of RIMM 2 1/2 years ago, and you see how that ended). Microsoft is simply an OTM call option with a decent amount of time premium still on it.
Here you have a device available right now for just $160 retail, even less wholesale, unsubsidized. It actually blows the spec pants off of the iPhone 4S and keeps the iPhone 5 in the conversation - both of which are at least 3x more expensive and most likely manufactured about 200 yards away from each other! For the record, the iPhone 5 retails for $650 to $850 dollars!
Potentially profitable and disruptive? Ask the classified and newspaper industries (or at least what’s left of them) if Google knows what it’s doing!!!!
As excerpted from our nearly 70 page forensic Google report (Subscribers, see Google Final Report 10/08/2010), I attempt to educate on the investment prowess of Google (that is both internal investment and external acquisition). Remember, many of Google's investments have become the largest instances of their type in the indsutry. The largest web video presence: YouTube! The largest mobile OS? Android! The largest mobile ad presence? Admob! the largest online productivity suite? Docs/Drive! I can go on with Gmail, Voice, etc., but if I haven't driven the message home yet then I probably never will. Google management has made it clear that YouTube will compete with major networks and Google Docs will compete and is actually pulling some business from Microsoft Office in the Enterprise. These are mere anecdotal examples. We all know the Android story already...
Industry Leading, Subscription Based Google Research
Google still exhibits the likelihood that they will control mobile computing for the balance of the decade.
Google Final Report 10/08/2010
A couple of bits from our archives...
The table of contents outlines how we have broken Google down into distinct businesses and identified both the individual business models and the potential revenue streams, as well as valuation for each business line.
Page 57 of the analysis shows a sensitivity table which outlines the various scenarios that can come into play and how it will change our outlook and valuation opinion.
Professional/institutional subscribers can actually access a subset of the model that we used to create the sensitivity analysis above to plug in their own assumptions in case they somehow disagree with our assumptions or view points. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade.