Key Take Away From Google’s Development Conference

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The recently concluded Google’s (NASDAQ:GOOG) development conference gave some insights into the strategy that the company plans to adopt in the coming year. The company gave a preview of some of the products that it plans to launch in coming months, including a new virtual reality device, cloud storage for photos, a pay system for Android users, a universal apps campaign manager and the next generation of the Android OS. In this note, we explore these offerings in brief.

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During the conference, Google announced a new operating system that supports a fingerprint reader and longer battery life for mobile devices. Furthermore, Google has improved and tightly integrated Google Now with the apps installed on Android. This integration will allow users to access Google recommendations and search assistance within an app. Google announced that the new version of OS will also integrate Android Pay service (explained below). Upgrades to Android are becoming increasingly important as user dependency on smartphones to manage their lives is on the rise. The company that has a wide reach among users will be in an enviable position to monetize the ever expanding mobile user base. Android holds about an 80% share of the worldwide smartphone market, according to research firm IDC. The company has not announced a date for this release of the new Android OS. However, rumors are that the update will be in late summer or early fall, around the same time when Apple is expected to release the latest overhaul of the iOS software that powers the iPhone and iPad.

Android Pay Services

Android Pay Services are set to be the replacement of Google’s wallet application on mobile devices. This will provide functionalities such as in-app and tap-to-pay purchases. Google plans to implement a streamlined hassle free shopping experience for users by letting them set up tabs at stores and facilitate payment via Google to the cashier they’re paying before leaving with their items.

The global non-cash payment transactions continue to gain momentum, due to an improvement in the global economy and an increase in adoption of these services in developed and developing countries. Furthermore, increased penetration of smartphones, together with increased Internet usage, advances in technology, and innovative products, are all fueling growth in mobile and electronic payments.

According to the data available on payments.com, worldwide mobile payment transaction values were around $235.4 billion in 2013 and are estimated to be $325 billion in 2014. [1] So the growth is rapid.  Gartner predicts that the mobile payment market will reach $700 billion by 2017, with NFC services accounting for 5% of the total transaction volume. U.S. mobile proximity payments, defined as payments made with a smartphone at the point of sale (PoS) in place of a credit card or cash, reached $3.5 billion in 2014, according to eMarketer. The data firm estimates that by 2018, mobile proximity payment transaction value will reach 118 billion. If the company’s market share reaches 25%, then Google can reach a transaction volume of $175 billion from mobile payments alone.

Universal App Campaign Manger

Although Google continues to dominate the PC search industry, it has failed to as extensively monetize the mobile search market despite the popularity of Android OS. The primary reason for this has been the increasing use of in-app facilities within a specific app. For example, a user can easily search for a restaurant on Yelp’s app and decide whether to order from it. At the conference, Google introduced deep linked application programming interface (APIs) for developers and marketers to purchase ads for app. The new tool will also help boost revenue for programmers developing Android apps and streamlines the process to promote applications (and its content) across Google search.

Google Photos

At the event, Google announced that a stand-alone entity called Google Photos that will let a user store unlimited photos (max resolution of 16 megapixels) on Google’s servers, uncoupling it from the Google+ social network where usage was inevitably constrained. There is also a paid version for pros, who can upload high resolution photos and content. Through this offering, Google plans to collect as much data on users who are prolific users of social photo sharing services across Facebook and Instagram.  While it is still debatable what the company plans to do with the large repository of user generated photos, Google has stated that it will not use images or videos uploaded onto Google Photos commercially for any promotional purposes, unless the users give explicit permission.

We currently have a $552.43 price estimate for Google, which is 5% above the current market price.

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Notes:
  1. Global Mobile Payments transaction Ticker, December 3 2014, www.pymnts.com []