Alphabet Poised to Drive Company Success Further


Alphabet, parent company of Google, is already one of the world’s profitable companies. If they tap into the huge revenue that app licensing could add, they are set to really take off.

Large companies usually don’t get to where they are by holding back, and generally will attack the marketplace very aggressively when the opportunity presents itself. There are exceptions here though and Alphabet’s use of their Android software is one of them, thus far anyway.

Android is the operating system that powers most of the world’s smartphones and tablets, and over 2 billion people use the platform regularly. Android has also been looking to expand its reach even further, with Android TV, Android Auto for your car, and the Wear OS that runs most smart watches.

Android is owned by the same company that owns Google, one of the world’s largest companies these days, and the company used to actually be called Google until they changed the company name to Alphabet in 2015, seeing the name change as suitable for a company that is now much more than a search engine and has many other business interests.

When a company makes software that is used in billions of devices, you would think that Alphabet would be fully leveraging this relationship, but in fact, they have not really been pursuing this very aggressively at all and seem happy enough to have their apps installed on all those Android phones and tablets and they certainly make a lot of money from displaying their ads to these people through their searches and other apps.

This attitude does seem to be changing though as the company is now looking to charge licensing fees for the bundle of apps it includes with its Android operating system, like Gmail, You Tube, Google Maps, Play Store, and Chrome.

These are apps that users have come to expect on an Android device, and withholding them wouldn’t be seen as a good thing. If a small fee was charged for this, there may be some users who may not be too happy, but probably not enough to have them move to a competing platform such as Apple or Windows.

It’s far more likely that people would just accept this extra cost, as long as the cost is pretty small, like $15 per installation. That’s what Alphabet is looking to charge device makers, starting in Europe but perhaps extending globally after a trial run.

With annual installations of 1.2 billion per year, this adds up to $18 billion a year, which won’t cost much at all to implement, as the only real difference between this and the way things operate now is that there will be a transfer of funds involved with this package, towards Alphabet’s accounts.

To give you an idea of how significant this is, this number is well in excess of Alphabet’s net profit per year of about $12 billion. The addition of this $18 billion in revenue, if Alphabet really does take these licensing fees globally, won’t be 100% net profit, but close enough to say that this can easily double the company’s profits all by itself.

When you take a company as big as Alphabet is, and contemplate doubling their profits without even spending much money, that’s pretty exciting indeed, and Alphabet is starting to get on board with this.

Alphabet Is a Great Company That May Become Greater

It’s not that this is something that the company just started thinking about though. The idea of taking much better advantage of their Android platform and look to get users to pay a little has been around since at least 2010, when then CEO Eric Schmidt foretold what their future strategy with this may be.

Schmidt remarked back then that “if we have a billion people using Android, you think we can’t make money from that? All it would take is $10 per user per year.” That’s $10 billion right there, and like everything else, it seems that 9 years of inflation has put the price up some, and together with an extra 200 million people a year getting involved, this adds up to a lot of money indeed.

This is causing some analysts to take notice, not only at the company’s potential to grow revenues with Google, but grow in other areas as well, such as with Android. The company is already seen as performing well and these new opportunities could take them even further, perhaps even much further in time.

KeyBanc’s Andy Hargreaves is high on the company for a lot of reasons and sees a price target for Alphabet’s stock of $1430, a big move up from its current price of $1110.75. He backs this up by telling is that “we believe Alphabet retains compelling opportunities to continue driving strong advertising growth in Search, YouTube, and Maps, and retains significant growth opportunities in Cloud, hardware, and Other Bets.”

There are some significant opportunities with app licensing as well, and even though these apps deliver a lot of advertising revenue, the lifeblood of the company, if you can make people pay for the software that delivers all this ad revenue, all the better.

We are speculating somewhat in thinking that Alphabet can pull this licensing off, at the levels we’re talking about, but it’s hard to imagine there not being significant opportunities present in Android’s position in the marketplace, making money from things that would stay under the radar and not diminish their market share too much but add a whole lot more money to the company.

John Miller


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