Google Adopts Open JDK For Android

Alphabet‘s (NASDAQ:GOOG) Google is replacing Oracle’s Java application programming interface (APIs) in Android with OpenJDK (also an Oracle initiative) in order to steer clear of copyright lawsuits brought upon it by Oracle in 2010. Google’s Android N will rely solely on OpenJDK rather than Android’s own implementation of the Java APIs. ^[1] While this does not change anything about the court case, Google claims that this move will create a common code base for developers to build apps and services. We believe that this move will enable the company to secure the future of its critical mobile operating system — Android. In this note, we explore the importance of Android.

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Growing Mobile User Base Is Powered By Android

According to Cicso’s visual networking index, global mobile data traffic in 2014 accounted for 46% of internet traffic and 4% of total IP traffic. ^[2]. It is expected to grow at a CAGR of 57% between 2014 and 2019, reaching 24.3 exabytes per month by 2019. The reasons for this growth are faster cellular networks that are capable of transferring data at speeds comparable to fixed lines and rampant use of smart connected devices that can use wireless networks effectively. As a result, users now stream both videos and data directly to their mobile devices, many of which now also boast bigger screen sizes. On the operating system front, smartphones now have sophisticated operating systems that support a host of user friendly apps. As a result, users increasingly access Internet through these apps rather than web browsers installed on desktops and mobile devices.

Google’s business is heavily dependent on the number of users using its search engine. The company leverages its popularity across PCs (65% market share) and mobile devices (over 90% market share) to sell ads. As a result, according to our estimates, its mobile search ad division makes up 29% of the value. Increasingly, people are browsing the Internet and accessing information through their smartphones. While 2.6 billion people around the world already have a smartphone, the remaining 4.4 billion either do not have access to mobile phones or continue to use feature phones. However, by 2020, there will be 6.1 billion smartphone users led by huge growth in less mature markets. ^[3] Google’s Android operating system is specifically targeting the wireless smart mobile devices segment in emerging markets.

Over the past few quarters, Google’s revenue growth from the desktop has slowed down, while revenue from mobile devices is growing. Much of that can be attributed to pricing pressure on ads and slower growth in search queries across the Internet from desktop. The Android OS can help the company to combat that pressure by having as many smartphones that run on it. If Google can maintain its Android initiative free from any litigation, it can reduce any potential risk of payout to litigators.

We currently have a $719 price estimate for Alphabet, which is 7% below the current market price.

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More Trefis Research

1. Google plans to remove Oracle’s Java APIs from Android N, December 30 2015 [↩]
2. Cisco Visual Networking Index: The Zettabyte Era—Trends and Analysis, May 2015, www.cisco.com [↩]
3. 6.1B Smartphone Users Globally By 2020, Overtaking Basic Fixed Phone Subscriptions, Techcrunch, Jun 2, 2015 [↩]