Android will start charging from February next year

Google is finally ready to take action. Starting from February next year, Google will charge licensing fees to all Android phone manufacturers that use Google App services. However, Google still promises that Android is a free and open source platform.

In Europe, Google is changing its licensing model for the Android App Store and other Google software services, and will adopt a charging model for EU Android phone manufacturers for the first time. This is also the decision made after Google was fined $5 billion by the EU for monopoly in July this year. This decision is like flapping the wings of a butterfly, giving Chinese mobile phone manufacturers and independent car brands a chill.

Cost shifting

In the past, Google provided Android software for free because it could generate revenue through the Google Chrome browser and Google search engine. However, since the pre-installation of these services was accused of monopoly, Google "had to" adopt a new business model and charge up to $40 in patent fees per device for the core parts of Android. In other words, if these devices sold in the European market need to install Google Mail, Youtube, Google Maps, Gmail, etc., they will need to pay licensing fees to Google.

However, Google reiterated that the Android operating system is still free and open source. In other words, if these smart device manufacturers do not need to install these services in the Google App Store, they do not need to pay licensing fees. However, given that Google's services have become very popular in Europe, few consumers are willing to choose a phone without application services, so Google's charges can be considered "mandatory" in disguise.

Hiroshi Lockheimer, head of Android, said in a statement: "Because pre-installed features such as Google Search and Chrome browsers and Android apps can help Google open up and provide free open source Android systems to phone manufacturers, we will introduce new licensing fee agreements for Android phone manufacturers sold in Europe."

However, Lockheimer's statement omitted the connection between Android open source and the collection of licensing fees. That is, in the past, Google would "force" pre-install Google Search and Chrome browser on Android smart devices, which was also an important source of profit for Google in the future. However, the record-breaking $5 billion fine issued by the European Union forced Google to make up for this part of the revenue source through other means, resulting in charging mobile phone manufacturers, and ultimately this part of the fees will be passed on to consumers who buy Android phones.

Opponents believe that Google is recovering costs in the form of licensing fees, which undermines the win-win and mutually dependent relationship with mobile phone manufacturers and creates a "lose-lose" situation. Mark Mahaney, an analyst at Royal Canadian Capital Markets, pointed out: "An ironic result of the EU's accusation that Google forced pre-installation of apps is that manufacturers may need to sacrifice some profit margins to continue pre-installing Google apps."

"If companies don't want to pay, they can still release devices without any Google apps and services, as Amazon has long done," Lockheimer said.

But you should know that in Europe and the United States, almost no one will buy an Android phone that does not support Google Play Store or search, Google Maps and other applications. Last year, 94 billion applications were downloaded from the Google Play Store, and more than 80% of smartphones in the world are equipped with Android systems. Google Search and other applications have a market share of about 90% in major European countries. Google applications have almost become a "rigid demand."

How much influence do mobile phone manufacturers have?

The reporter from Yicai.com asked Xiaomi whether Chinese mobile phones sold in Europe would be affected. A Xiaomi official told the reporter: "This involves a series of Google applications. This problem does not exist in China, but the situation in Europe depends on the specific provisions of the agreement." However, some analysts pointed out that Chinese mobile phone manufacturers such as Xiaomi are launching low-cost devices in Europe, which is actually more dependent on Google's applications bundled with the Android operating system for free.

Jia Mo, an analyst at consulting firm Canalys, told China Business News: "Google's specific measures have not yet been announced, but from what we have heard, because Google itself has different pre-installation agreements with mobile phone manufacturers, changes may eventually be reflected in the details of these agreements, but they are not expected to have a very big impact."

Google's shocking announcement also means that this form of licensing fees is becoming more and more common. In the past, Android phone manufacturers had to pay Microsoft patent fees for using the Android system, because Android's underlying code uses Microsoft's Linux, and they also had to pay Qualcomm chip licensing fees.

The hidden dangers faced by domestic mobile phone manufacturers who lack the dominance of operating systems have been further exposed. Although Google has only started charging in the European Union, once this precedent is set, it is still unknown how Google will maximize the development of Android, a potential revenue treasure box, in the future due to revenue pressure. This is not a good signal for domestic mobile phones. After all, Android has only been free for five years in China.

However, some people believe that the new agreement rules get rid of the condition that mobile phones must be pre-installed with Google's entire family of applications before leaving the factory, which can reduce the resource occupation of the Android system on the model. At the same time, it gives mobile phone manufacturers and other software developers the opportunity to develop alternative software for survival and development. It also allows Google's competitors such as Microsoft to have more room to cooperate with hardware manufacturers and become their default applications for search and browsing, which may also cause some European Android users to switch to the Apple camp.

Advertising growth hits a bottleneck

Google's unprecedented launch of a charging model for Android also suggests that its advertising revenue is facing a potential decline amid fierce competition and strict regulation. Many years ago, Google was the only company with the largest global Internet digital advertising revenue, but with the rise of Facebook and Amazon, Google began to worry about its dominance in mobile advertising. Currently, mobile advertising accounts for about 23% of Google's advertising business, which is also a fairly mature business model that Android has already operated.

Currently, Facebook and Google have a combined 57.7% share of the entire U.S. online advertising market. According to research firm eMarketer, Facebook and Google will earn $21 billion and $40 billion in online advertising revenue in the U.S. this year, respectively, and Amazon is catching up. This year, U.S. advertisers may spend more than $4.6 billion on Amazon's advertising platform, an increase of nearly 145% over last year. The research firm said that while Amazon's advertising growth is partly due to changes in billing, the main reason is that more and more companies are buying ads on Amazon.

Another important change is the General Data Protection Regulation (GDPR) newly launched by the European Union this year. Due to the fear of Google's omnipresence, the European Union hopes to suppress Google's influence and ensure the security of European Internet data and privacy from an institutional level. In the past, Google has always provided operating systems and applications for free. An important reason is that it collects data through search engines, browsers, maps and other services to ensure the effectiveness of its advertising and revenue. However, the new GDPR law requires companies that hold EU citizens' data to first obtain the "explicit" consent of users to collect their personal information.

In other words, according to the new GDPR law and EU antitrust law, Google will no longer be able to collect data through these built-in applications. In the European market, Google's data advertising effectiveness and advertising revenue will be affected, which also means that Google may lose some advertising revenue again.

In this regard, Fu Sheng, CEO of Cheetah Mobile, which has a major presence in Google's overseas stores, told China Business News: "This policy change by Google has a huge impact on us, and may cause us to lose hundreds of thousands of dollars every day."