Google has another fast growing business (Hint: It’s not search)
In five years, Google Play has gone from being an upstart marketplace for mobile phone apps to a mammoth media hub.
On Thursday’s second-quarter earnings call, Google’s outgoing Chief Business Officer Nikesh Arora all-but-said as much. In addition to apps, it now sells now sells digital movies, TV shows and music to the more than one billion people worldwide who own Android phones and tablets.
It “continues to grow at breakneck speed,” Arora said on the call.
Google doesn’t break out numbers for just how well Google Play is doing. But sales have steadily grown into the second largest source of revenues behind the company’s long-standing cash cow, advertising.
Finding alternative sources of revenue is critical to Google as it tries to offset the inevitable slowing growth in its online ad business. Selling apps and entertainment for mobile device can be an important way to keep Wall Street investors happy along with making its operating system more attractive to consumers and device manufacturers.
Citigroup analyst Mark May predicts Google Play’s annual revenues will grow from $1.3 billion in 2013 to $5.2 billion in 2017. Those figures remain a fraction of the $10 billion in iTunes sales Apple reported last year, but Android’s momentum is undeniable.
Nearly four out of five smartphone owners worldwide have an Android device – twice the market share Android had three years ago – according to IDC. Apple’s iPhone, meanwhile, has a 15% market share.
That’s seriously impressive for an operating system some have criticized for being less polished and unified than Apple’s. Android’s strengths have been its ability to be customized by phone makers – something that Amazon , with its forthcoming Fire Phone, and HTC with its “Sense” software – have tried to take advantage of.
But that same “open” nature breeds complications because there are hundreds, if not thousands, of different phones, using different variations of Android, a situation referred to as “fragmentation.” Users of some versions of Android can’t upgrade their phone’s software at the same speed other users can. It’s because of fragmentation that Android security remains what one tech writer colorfully called a “toxic hellstew.”
But such quirks and challenges will do little to block Android from steamrolling mobile around the world. And Google Play’s rise as a serious source of revenue for Google is just more evidence of that.
Google Play’s chronology is a bit convoluted. It launched in 2008 as an app store called Android Market. In 2012, it merged with Google Music and was renamed Google Play.
The Play store had 1.5 million apps available as of June, more than the 1.2 million offered by Apple’s own App Store. In terms of entertainment, the sprawling marketplace offers many recent movie releases and TV episodes for rental or purchase, bestselling e-books, periodicals and music. The goal is obvious: Android users should be able to access as much of their digital content as possible from the Play Store wherever they are, tapping and swiping among Disney’s Frozen, George R.R. Martin’s Game of Thrones or Lorde’s chart-smashing Pure Heroine album on a dime.
In the call Thursday, Google bragged about landing deals for more content in Play including access to television programs from CBS (CBS) and Viacom . Google takes a commission on all sales through Play and gives the rest to app developers or copyright holders.
Google CFO Patrick Pichette, credited “apps and content” for helping lift sales in the company’s “other revenues” in the quarter by 53% year-over-year to $1.6 billion. “Other revenues” include services for businesses along with sales of its Chromebook computers.
“I think its important to step back and look at what the Google Play team has achieved,” explained Arora. “I mean its — it come from nowhere. It’s a phenomenal platform which provides services, apps, content around the world.”