If you want to watch a YouTube video on a Windows Phone, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) isn't going to help you. There are some third- party apps that allow users to search for and play YouTube videos, but Google doesn't support Windows Phone. In fact, Google has only one app for the Windows Phone, its Search app. Meanwhile, the company makes nearly 50 apps for the Apple (NASDAQ:AAPL) iPhone and over 100 apps for Android.
So why is Google snubbing Microsoft (NASDAQ:MSFT) when there's clearly a demand for Google apps on its platform?
Google generates the majority of its revenue by selling advertisements. As such, it's usually advantageous for it to offer its services across as many platforms as possible. But something breaks down when it comes to the Windows Phone.
One explanation is that porting its apps to Windows Phone simply isn't worth the investment for Google. Windows Phone accounted for just an estimated 3% of smartphone sales in the U.S. in the three months ending in November 2014. Sales of Windows Phone have been significantly better in Europe and Australia, however, where the Microsoft OS accounts for over 8% of sales. Microsoft is weakest where average ad prices are lowest -- Asia. The same Kantar Worldpanel estimates put Windows' share of smartphone OS sales at less than 1% in China and Japan for the three months ending in November 2014.
While Europe isn't quite at the level of the U.S. in terms of average ad prices, it could certainly be worthwhile for Google to pursue over 8% of a market that's relatively valuable.
One thing that may drive average ad prices down on Windows Phone ads is the increasing tendency of Windows Phones to sell for less than $200. Low-end phone users don't convert into valuable customers as easily. Conversely, Apple only makes high-end phones. Advertising on iOS devices is often more valuable than on Android due to the valuable customer base using Apple phones.
But Google has plenty of resources, including over $60 billion in cash and short-term investments sitting on its balance sheet, according to S&P Capital IQ data. The company could take the risk of seeing relatively low return on investment to develop its apps for Windows Phone without seeing as much as a dent on its cash pile. Instead, Google seems to have other reasons it doesn't support Windows Phone.
It's no secret that Google absolutely dominates the mobile OS market. Some form of Android is installed on over 80% of smartphones.
Although Android is open source, Google is able to benefit from the vast majority of Android devices sold (outside of China) due to what it built on top of Android to make it functional -- like its app store and push notification API. As such, Google is able to pre-install a large number of its own apps on every Android device according to the Android licensing agreement manufacturers have to sign.
Therefore, Google's primary interest in mobile is to grow Android's market share. Supporting Windows Phone with dozens of Google apps would only make the competing OS more attractive. So, while there's clearly an opportunity on the platform, it's outweighed by the potential impact it could have on Android's market share.
Mobile is the future for Google
A recent report from Morgan Stanley indicates mobile advertising could account for as much as 60% of online ad spend by 2020. Thus, it's key for Google to maintain its dominance in mobile advertising as more ad dollars shift to the platform. Suppressing Windows Phone adoption by not supporting the OS is one way it can do that.
Last year, Google generated approximately $16.2 billion in mobile ad revenue. While mobile ad revenue generally carries a lower gross margin for Google, $16.2 billion represents nearly 25% of Google's projected $66.5 billion in revenue during 2014, and over 35% of the company's projected $45.5 billion in net ad revenue. That percentage is poised to grow as mobile ad spending outpaces growth in desktop ad spending.
With a large number of mobile players like Facebook, Twitter, Apple, and even Pandora growing market share in mobile ad spend, Google needs to maintain caution in how it attacks the mobile market. Its control over Android is extremely valuable in attracting more eyeballs to its services. Extending its most valuable and popular services -- like YouTube and Gmail -- to Windows Phone might only increase migration away from Android.