What Google and Apple’s battle for China means for the future of mobile

Photo credit: Reuters

On February 2, after a positive Q4 2015 earnings report, Google briefly outstripped Apple as the world’s most valuable company.

Since then, both companies’ shares have fallen, with Apple retaking the top position ($517 billion as of Feb 11 to Google’s $479 billion). What’s interesting is how these two titans of our industry have reached this pinnacle with fundamentally different business models.

No other market better highlights the differences between Apple and Google’s strategies than China.

Apple and Google’s market presence in China thus far

In 2010, Google abandoned China, refusing to be censored by China’s government. Google understood that China’s Politburo believed that search was too important to be left in the hands of a foreign enterprise, and correctly concluded it was a battle that it could not win. Since then, Google has foregone billions in potential revenue as “forked” or open-source developed versions of its Android OS have come to dominate China’s smartphone market, the largest in the world.

At the same time, China has become one of Apple’s most important growth markets, accounting for much of its revenue growth in 2015.

In 2016, this situation will change. As multiple sources have reported, Google is set to return to China this year with its Google Play app store.

Looking at Google’s China strategy can help us to understand what makes China’s mobile economy so unique, how Apple and Google are competing to own the future of mobile, and what challenges and opportunities this creates for those of us in the app industry.

How Apple and Google are competing to own the future of mobile

In 2015, Apple made the lion’s share of the largest-ever corporate profit in history ($53.5 billion) from one product: the iPhone. The iPhone has led the way at the high end of the smartphone market, and Apple’s App Store has become the platform to reach consumers who spend the most on apps.

In contrast, Google’s free, open-source Android OS, is now running over 80 percent of the world’s smartphones, in particular the vast majority of handsets in emerging markets. Of the next billion people who access the Internet for the first time, almost all of them will be on Android devices. However, these lower-income users are less likely to pay for apps or make in-app purchases.

To sum up the difference, App Annie recently reported that in 2015, iOS apps generated almost twice the amount of revenue as Google Play apps – from one half the amount of downloads!

 Why did Google decide to give away Android for free? In a word, data.

Why did Google decide to give away Android for free? In a word, data. With the “always on” nature of mobile devices, Google uses Android – and its preloaded Google apps – to collect data about smartphone users in the same way it uses its near-monopoly on search to collect data about desktop users. And no company in the world is better at collecting, analyzing and learning from data than Google. All of Google’s key products – search, maps, email – are ways to gather deeper and more detailed information about users and learn what is important or relevant to them.

With Adwords and Adsense, Google has mastered the monetization of its data expertise on the web through advertising, which generates almost 90 percent of its revenue. On mobile, Google has not been able to scale such monopolistic profits from advertising. There are a few reasons for this: One, a majority of users spend time in apps, not on the mobile web, and two, mobile advertising is less lucrative on a CPM/CPC basis. Three, Android users are less affluent and drive lower ad rates, and finally, the adoption of ad blockers (and Apple’s enabling of them) is negatively affecting the market.

What this means for app developers