Alphabet's (GOOG 5.20%) (GOOGL 5.11%) flagship company Google has all but ensured it's going to become the dominant name in connected televisions. With most investors consumed by coronavirus news, this news would have been easy to miss. But once the contagion cools, it could alter the landscape of the smart TV market, which could soon be worth $300 billion per year.
After discussions with multiple smart TV manufacturing executives, the online news site Protocol explained last week that Google's confidential Android Compatibility Commitment bars those companies from also making smart televisions powered by other, "forked" versions of its Android operating system. That includes the Fire OS from Amazon.com (AMZN 3.58%), which is built on a highly altered version of Android.
And the penalty for using an unofficial version of Android to power smart TVs? That manufacturer's customers may lose access to the Play Store, and be prevented from using Google apps...even on smartphones and tablets made by that company.
The enforceability of such a clause is in question; regulators haven't been fans of Google's heavy-handed tactics. The EU, for instance, fined Alphabet $5 billion in 2018 for leveraging Android in such a way that it stifled search competition.
Still, few companies want risk a legal entanglement with the name behind the world's most used mobile operating system. That includes Samsung (OTC: SSNLF), which is not only the world's leading smartphone brand, but also a dominant name in the highly fragmented smart TV market. In fact, Google's Android Compatibility Commitment rules may be quietly aimed directly at Samsung.
The good news: Wakefield Research estimates that around 40% of smart televisions across the globe use Android. The bad news: Only 10% of those TVs are run using the official, approved version of Android. The other 30% that utilize Android are built around a modified version that could be considered a "forked" iteration that Google is now aiming to curb. The really bad (and tricky) news: An operating system called Tizen now runs a different one-fifth of the world's smart TVs, but Tizen is a Samsung-led development meant to be another Linux-based -- like Android -- alternative to Android.
But it's not Android...technically.
Alphabet may not quite see it that way, of course, and the difference could be mostly irrelevant if Alphabet does. Consumers love Google's Play store and Google's apps, and while Tizen is respectable, it's not nearly as marketable as a true Android-powered device might be.
As for Amazon's piece of the contractual puzzle, it was largely made out to be the chief victim of Google's recently revealed limitations on its partners' partners. And in the sense of what might have been, Amazon is indeed stifled.
Any prospective consumer technology partners will now clearly think twice about creating a Fire OS-powered television, particularly if they also make a popular Android smartphone. That's a problem in terms of potential growth. Although Amazon is well-positioned to sell its own electronics to consumers, Fire OS televisions account for only a tiny fraction of the entire smart TV market -- a sliver that may now never expand. Amazon needs help from more than just names like Toshiba and Insignia if it's going to make a dent in the smart TV space.
Amazon isn't going to lose smart television market share as a result of Google's rules, though; it has no meaningful market share to lose. Now, it may simply never have it.
Where to from here?
Presumably, most of the major television manufacturers will acquiesce simply because they're also big names in the smartphone arena. Samsung is the biggest among them, but Xiaomi (XIACY) and Huawei have become smartphone powerhouses, too. Both use Android in many of their devices, and all three companies make televisions as well. If any were toying with the idea of a Fire OS television, that's not likely to happen now.
The grand irony in Google's tactic, though, is that it may boost a smart television competitor it can do little to impede. That's Roku (ROKU 2.85%), which relies on an operating system that is neither Android nor a forked version of the operating system. As such, it's not subject to the restrictions laid out in Google's Android Compatibility Commitment document.
Roku still only commands a small fraction of the global smart television market, for the record, but that share is growing fast. About one out of every three smart TVs sold in the U.S. last year was a Roku television, positioning the company to potentially take the smart TV lead as it did within the set-top box market. Moreover, given growing interest from consumer tech companies to stop empowering Google as it adds restrictions to how they operate, investors shouldn't be surprised to see manufacturers support the most viable and least liable smart television OS alternative to Android. That is, if regulators don't clamp down first...again.
Still, with official and unofficial versions of Android already making up somewhere around half of the smart TV segment's operating systems, Google may already be an unmovable monolith. The response from consumer tech companies is going to be interesting, to say the least.