This week Google (NASDAQ:GOOGL) announced it was starting an Open Automotive Alliance with chipmaker NVIDIA and automakers Honda, Audi, General Motors, and Hyundai to bring its Android platform into vehicles later this year.
Not only could this be a big step forward for the auto industry, but it could mean even more Android market share and additional revenue opportunities for Google.
An alliance built out of opportunity
Google said on its blog that it wants to adapt the Android platform for cars and create new ways to integrate Android devices into vehicles, and develop "new Android platform features that will enable the car itself to become a connected Android device." The latest alliance is a strategic move by the company to not only compete head-on with Apple's (NASDAQ:AAPL) iOS in the Car ambitions, but also a new way to keep users within its app ecosystem -- which could translate into additional revenue down the road.
Excluding Motorola, Morningstar estimates Google will earn about $7.5 billion in mobile revenue for 2013, without selling a single Android license to any phone makers. The vast majority of that revenue comes from its mobile advertising offerings, and adding Android to cars could help that number go even higher.
To be sure, Google isn't going to display ads on car infotainment screens. That would defeat any safety goals car companies have and would garner some serious opposition from the National Highway Transportation Safety Administration. But Google doesn't need users to click on ads on a vehicle's screen to make more money; it just needs to get people to use its services even more than they do now.
In its third quarter 2013 earnings report, Google said it would continue to invest in YouTube, Chrome, and Android because they are "[b]usinesses demonstrating high consumer success." Google has the opportunity to increase advertising revenue by getting current users to tap into its services more frequently -- and hopefully click on an ad -- and also lure new users to its services. The model is fairly straightforward: More usage means more ads served, which translates into more potential for ad clicks.
Google is still experiencing a transition from desktop advertising to mobile advertising, and moving the Android platform into cars could help increase Google app usage on mobile devices and hopefully increase ad clicks.
But it's not just advertising revenue that could see an uptick; an Android revolution in the car could bring additional Google Play revenue as well. The Android blog mentioned that the alliance will "create new opportunities for developers to extend the variety and depth of the Android app ecosystem in new, exciting and safe ways." Running Android in cars would allow developers to make apps that are specific to vehicles, on the No. 1 mobile platform in the world. While creating apps specifically for cars isn't anything new – even GM and Ford allow app creation for their systems -- it hasn't been done to the same level that this alliance will bring.
Some investors may be wondering whether the Open Automotive Alliance could really take off and if Apple's own in-car platform will dominate instead. First of all, Google has smartly opened up this alliance to other carmakers and technology companies who want to join. So, while there's only a handful of car makers and tech companies now, that could change quickly -- think of how fast phone makers took to Android. That openness is the opposite of how Apple is likely running its iOS in the Car endeavor. Apple usually doesn't welcome other tech companies with open arms, and it's possible we could see Google take the lead in autos because of this.
The second reason this could be a huge opportunity for Google and its investors is that car companies are in need of a cohesive system that pulls the resources of more than one company and spreads the benefits across many companies. Having the latest tech in cars is expensive and time consuming. It can take years to develop a car and bring it to market, and the tech in that car needs to keep pace with what consumers are using. By teaming up with automakers, Google can give them something they need -- tech relevancy -- while spreading the cost of innovation among many companies and utilizing a free platform at the same time. Overall, it could be a big win for automakers, Google's platform, and hopefully Google investors.