The current state of the smartphone industry pegs Google (NASDAQ:GOOGL) Android as a majority leader in terms of market share, but it earns a minority of the profits. According to IDC, Android finished 2012 with an estimated 68.3% market share, thanks largely in part to the abundance of sub-$250 Android smartphones in emerging-market economies. This large market share has not translated into the usage share that Apple enjoys. Velti, which operates its ad impression network in 68 countries, found that 67% of impressions went to Apple's iOS and only 37% went to Android. However, Google has a few tricks up its sleeve that should make smartphone gods take notice.
Kill the feature phone
The first order of business is for Google (with the help of its OEMs) to kill off the feature phone. Here's looking at you, Nokia (NYSE:NOK). As of last quarter, feature phones made up 64% of Nokia's device sales, which declined 19% from the year before. Low-cost Android smartphones are cannibalizing Nokia's feature phone business and should be considered an imminent threat to that business. But not only is Nokia's feature phone at risk, its smartphone business is in a vulnerable position as a result of its transformation into a full-fledged Microsoft smartphone vendor. If Android captures too much market share, and/or Windows Phone doesn't get the anticipated reception, Nokia investors may be in for trouble.
When the plan comes together
Increase the installed base of Android, and over the long term Google will continue to unlock more and more value out of its ecosystem. Piper Jaffray analyst Gene Munster envisions that Google will ultimately be able to tie offline activity to online activity, which in turn will improve the relevancy of its mobile ad network. This should translate into more advertising dollars being allocated toward mobile. Ventures like Project Glass offer the promise of connecting the offline world with the online world through a technology known as augmented reality. Combine this type of technology with Google Wallet and all of a sudden Android gets very, very powerful. Granted, we are still years away from this convergence, and until it happens, Android will continue to be underestimated. In the meantime, Google will continue killing off the feature phone.