It was never the revenue leader of the app industry anyway, yielding to a smaller but more fervent crowd of Apple fans who love to get the most out of their iPhones and iPads. But Alphabet's (NASDAQ:GOOGL) (NASDAQ:GOOG) Google Play platform has still enjoyed a respectable-sized chunk of the app industry's sales by leveraging the massive scale of Android's ecosystem. Google Play generated $29.3 billion worth of revenue last year, according to estimates from Sensor Tower. After taking its 30% cut (or 15% cut for subscriptions), that would translate into about $8 billion in annual app revenue retained by Google. Not bad.
As could have been predicted though, competitors are now gunning for a piece of that business. Reuters reported last week that mobile technology companies Xiaomi (SEHK:1810), Oppo, Vivo, and possibly Huawei Technologies are uniting to create the Global Developer Service Alliance (GDSA) as a means of pushing back against Google's control of the market.
The initial plans are conservative, and Google remains one of the most recognized brands in the world. But Alphabet shareholders should put the initiative on their radars all the same.
Standing together against Google
The alliance's confirmed participants are Xiaomi, Oppo, and Vivo. Huawei Technologies has neither confirmed nor denied its participation, and Xiaomi has denied Huawei is involved as well as denying that the formation of the group is meant to compete with Google Play. But, inasmuch as Huawei Technologies is trapped by political tensions between the U.S. and China (it's currently prohibited from using Google-owned technologies and intellectual properties), the company may have an incentive to remain out of the spotlight.
Whatever the group's constituents, they're all distinctly Chinese names operating where Google Play is banned. The alliance, however, consists of companies that also do quite well outside of China. Xiaomi is a popular brand in India, for instance, while Oppo and Vivo can make waves in Southeast Asia.
Rather than a singular app, the group says it will allow developers a means of uploading their apps to every participant's app marketplace, giving them access to markets that may otherwise be out of reach. The consortium may also charge a lower commission than Google Play takes. The group will first launch its initiative in nine regions where they collectively have some clout, including India, Indonesia, and Russia. Presumably, they'll move west as they learn. There's nothing to prevent the GDSA from eventually entering the North American market either, although political hurdles could materialize in the meantime.
Hitting Google where it hurts
Opinions about the potential of the Global Developer Service Alliance as a threat to Alphabet are mixed. Nicole Peng, vice president of mobility for technology market analysis firm Canalys, noted of the news: "The execution is difficult as it's hard to say which company is pulling more weight and investing more in it. We haven't seen the alliance model work well in the past."
Still, the development is nothing to dismiss. Counterpoint calculates that the four organizations in question (assuming Huawei is actually onboard) accounted for 40% last year's global smartphone sales. Their presence in the United States remains minimal at best, where Google as a brand does well. But the U.S. isn't necessarily Google Play's breadwinner. Sensor Tower reports app downloads via Google Play in the final quarter of 2014 were heaviest in India, by a long shot. India's Android users completed a total of 4.8 billion Google Play app downloads during the fourth quarter.
That's the same India where Xiaomi does so well, making up a market-leading 27% of the smartphone market. Vivo is second, with 21%.
To that end, the United States isn't even Google Play's second-busiest market. That honor belongs to Brazil, though it's a distant second with only 1.9 billion downloads during the fourth quarter. The U.S. ranks third with its 1.3 billion Google Play app downloads last quarter, trailed closely by Indonesia and then Russia.
Yes, that's the same Russia and Indonesia that the Global Developer Service Alliance says it's going to target first, and are markets where Oppo and Vivo phones sell well.
In that light, the GDSA has played their cards wisely, even if their only true intent was to negotiate better terms with Google.
No real cause for concern
The advent of the Global Developer Service Alliance has been deemed a game-changer by some. And, perhaps it is. More realistically though, it doesn't matter much. Google Play's estimated $8 billion in annual net (collected) revenue is only a fraction of the $162 billion in sales Alphabet has generated over the course of the past four quarters. The company remains first and foremost an advertising platform. It doesn't need its app store to survive, or even thrive, and it's not as if the GDSA is going to steal all that business overnight.
The true threat is what may take shape should the group find success as an alliance, and then decide to support Huawei's new HarmonyOS operating system as a way of building on that success. That's a project, however, that could take years to even start getting traction. Alphabet will have time to counter that move as well.