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How Android will earn its bread and butter, explains Goldman

Many have criticized the fact that Android can make money, for them there is no money in Android. But, Goldman Sachs’ (GS) James Mitchell thinks otherwise. Even Google’s Eric Schmidt said that scale is the key for Android’s success, if they were able to put Android on 1 bn devices, it will only need to make $10 from one device per year.

But coming back to Mitchell, he said in a note to investors:

We believe that Android accelerates smartphone and mobile search usage, boosting Google’s operating income by $300 mn, or 2%, per year.

  • Use of Android rather than iPhone reduces TAC payments to hardware manufacturers and carriers, which we estimate protects Google’s operating income by $500 mn, or 3%, per year.
  • Google collects a 30% share from Android market app purchases, which we believe ends up being low margin, and we estimate a 40% sharefrom mobile in-app advertising via AdMob.
  • Google could use Android to evolve into a virtual telco, providing a single contact number and popularizing its Internet-based calling services, helped by its stake in Clearwire.

Via Fortune’s  Google 24/7 Blog

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