Two bits of information came out about Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google and YouTube businesses this week. The first was an article from The Telegraph that says Google will release its own branded phone to compete with Apple (NASDAQ:AAPL) by the end of the year. And the second was the announcement from YouTube that it will soon allow users to broadcast themselves live from the YouTube mobile app, similar to how Facebook's (NASDAQ:FB) Live videos work.
Both could be significant moves for Google, so let's take a look at how these two things might help the company take on Facebook and Apple in two very different ways.
A jab at Apple
No, the possible Google phone isn't another Nexus phone manufactured by Huawei or HTC. The Telegraph says it'll be an honest-to-goodness Google phone (Pixel phone perhaps?) -- if it does, in fact, exist (nothing is definite in the tech world until launch day).
Apparently, Google wants to "tighten its grip on mobile software" and compete directly with Apple's iPhone, according to the article.
This isn't an entirely crazy idea, though I question Google's timing (more on that later). Android has continued to gain market share of iOS, and the latest data from Kantar Worldpanel shows Android gaining over the past year in the U.S., Europe, and China. Building its own phone might help Google tap into this trend and help improve the Android fragmentation that currently exits.
Google has for a long time relied on smartphone makers and carriers to make regular (or, rather irregular) updates to the devices, leaving many different versions of Android floating around out there. Google has clamped down on this over the past few years, but with about 24,000 different Android devices out there (totaling more than 1 billion devices), it's pretty easy for updates to fall by the wayside.
It's also a bit of risky move at worst, and ill-timed at best. Apple can attest to the difficulties of selling phones right now. The company's iPhone sales in fiscal Q2 2016 were down 16% year over year, the first time the devices ever experienced a decrease. Part of that drop stemmed from the high upgrade cycle from the year before, which Apple couldn't recreate the following year.
It's getting increasingly difficult for device makers to release phones that come with enough new features to warrant constant upgrades, and Google could face an even more difficult situation. There are plenty of good-enough Android devices on the market that can be had at very reasonable prices. If Google wants to take on Apple in the high-end market, it will need to add some pretty amazing features to convince even the biggest Android fans that its phone is worth it.
A potential body blow to Facebook
YouTube has allowed live broadcasting from its service since 2011, but never from its mobile app. The company says the live feature will roll out to its YouTube personalities and channels first, with all users getting the feature soon.
The move comes just after Facebook signed on a laundry list of celebrities and media companies to produce live content at a sum of more than $50 million. Facebook Live videos have proven successful so far, with Facebook saying users watch live videos on the site three times longer than they do regular videos.
Facebook is building itself into a video behemoth right now, with the company seeing at least 8 billion videos per day (not all live, of course) and U.S. users posting 94% more videos in 2015 than they did the previous year.
Still, Google's YouTube has two key advantages over Facebook. The first is that its live videos will show up in Google searches just like any other content. That, of course, will make them easier to find than Facebook's.
The second advantage is that while Facebook takes the No. 2 spot for video advertising, YouTube is expected to remain on top until at least 2017. A recent report from Cowen and Cowen says YouTube will retain 38.2% video ad market share until then, but that Facebook is creeping in.
Both companies are fighting over an increasing market size for video ads, which is expected to hit $28 billion by 2020.
Between the possible Google phone and the new YouTube live steaming feature, investors should consider the latter far more important to Google's overall goals. With spending on video ads growing (from under $10 billion to the $28 billion I mentioned earlier), YouTube's live feature should help direct more of that spending toward its platform.
I wouldn't dismiss Google's attempts to bring a smartphone to market just yet, but I think investors should focus on Google's prospects in sticking to what it knows best (i.e., drumming up advertising revenue) instead of hoping the company can figure out how to make money from selling phones.