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Source: Alphabet.

When it comes to smartphone operating system market share, China is quickly becoming the new U.S. For years, Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android commanded near monopolistic market share with all other operating systems, including Apple's (NASDAQ:AAPL) iOS, virtually shut out of the country. And that's mostly due to the business models these participants employed.

For Alphabet, the company decided to work with third-party original equipment manufacturers, or OEMs, to speed adoption, similar to Microsoft's moves over Apple in personal computers during the '90s. Alphabet became the de facto standard in the Middle Kingdom as a host of low-cost Asian manufacturers embraced the OS. In all fairness to Apple, the company is much-less concerned with market share than it is controlling -- and fully monetizing -- the entire experience.

Recently, however, Apple has been winning converts in China as many there have been trading up to Apple's premium brand. Cupertino has gone from strength to strength in China as the company recently convinced the Chinese government to allow its iTunes digital-content store in the country. Will Alphabet's Google Play -- -- its digital content store -- be able to follow iTunes into China? A recent report helps build the case that the answer is "yes," and that could mean good things for allowing Alphabet to make money from Android users in China.

China is an example of the limits to an open-source, OEM-supported OS
In addition to working with OEMs, Android is also an open-source operating system. Android's Open Source Project, AOSP, is free for any hardware maker to use provided they meet Alphabet's requirements. Alphabet doesn't do this out of charity, of course, as the term "open source" is slightly misleading.

Alphabet controls the application programming interfaces in order for an Android phone to perform the key functions users are accustomed to, like push notifications. To have access to these, you need to allow Google's host of services -- including Google Play, Gmail, and Google Maps -- on your Android phone. Amazon.com had some success "forking" Android at the tablet level with its FireOS, but its foray into smartphones, the Fire Phone, was widely considered a failure.

The limitations of an open-source system with multiple hardware partners are that each market participant will eventually attempt to shift the relationship in a way that benefits it to the detriment of others. For Alphabet, the best example of this is China. Although the company still leads the OS market here, with Kantar Worldpanel estimating a 74% share as of last update, a combination of a communistic government, domestic smartphone makers such as Xiaomi, and Chinese third-party developers and competing companies have banded together to reverse engineer the APIs that Alphabet normally uses to keep partners in line.

Even worse for Alphabet, China's government bans Google's host of services, making Alphabet's formidable Chinese market share mostly unmonetizable. Unlike Apple, which mostly profits from direct device sales, Alphabet's desired monetization method of data collection and search revenue are essentially kneecapped in favor of Chinese companies. If Google Play is allowed in the country, however, it would boost Alphabet.   

Lenovo's CEO thinks things are changing
Alphabet has been forthcoming about its desire to get Google Play back into the country and, according to an androidcentral.com post from this week, Lenovo's mobile division head, Chen Xudong, expects Google Play to enter China's market this year. The Chinese company executive's comments add to a November report from Reuters quoting sources as saying Google Play would return to China this year. 

Whether Google Play is allowed back in the country or not will be a large issue in the Android/iOS China rivalry. More recently, Apple's top-line growth has been driven by China. For Apple's last fiscal year, the company increased Greater China revenue 84% on a year-on-year basis, with more than 50% of the company's year-on-year growth directly attributable to the country,  As previously stated, in September the company reached an agreement to bring its iTunes store to China after years of having its App Store in the Middle Kingdom. If Google Play is not allowed in the country, Apple could continue to steal market share.

If Alphabet is able to bring its top-notch Google Play store to the country, however, especially to the high-end Samsung Galaxy models, Apple could face competition at the high end in China, especially if further collaboration between the Chinese government and Alphabet continues and allows a full host of the company's services on Android models to battle Apple. For Alphabet, a more compelling content digital-distribution platform could stop the slow, but steady, migration away from Android-based models to Apple's iPhone in the country.

 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jamal Carnette owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon.com, and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.