Will the Android Trojan Horse Lead Google Into the Next Trillion Dollar Industry?

Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Intelligent systems, in which devices are able to communicate over the Internet, are right around the corner. IDC, according to Bloomberg, predicts that the market for Internet-connected devices will grow to $2 trillion by 2015, and according to IDC analyst Al Hilwa:

“Android is sitting pretty in this space to take more share from the incumbents... The fundamental advantage with Android is that the vendor can take a bigger chunk of the software and own it.”

Google's ) Android operating system is already dominant in the smartphone space, and spreading it into appliances and anything else is good for Google. Google gets 67% of its revenues from its websites, and another 27% from its network members' sites. If Android becomes dominant in "smart appliances" that can be controlled by consumers' Droid smartphones and tablets, adoption and domination of their OS, and revenues, may increase greatly.

Exchanging information amongst electronic devices will become much easier if Android is built in to them, and soon phones, washers, televisions, and any other electronic item or appliance may be linked by Android. Android-run products are apparently already in existence: including rice cookers and refrigerators, according to Bloomberg. Companies such as LG and Samsung are also already starting to roll-out smart appliances that can be controlled with smartphones, as well.

But There's A Catch...

Carl Howe, an analyst from Yankee group stated that:

“The open part isn’t as important as the reliability... It requires support and courting of customers. If Google has no interest, it’s not going to go anywhere.”

Just because Google gives Android away for free, doesn't necessarily mean that they will see wide adoption of their OS in devices if the support isn't there. If other companies such as Microsoft ) catch wind, they may offer a more expensive, although more polished and supported, alternative that syncs with Windows. Think of Ford's (NYSE: F) SYNC technology, which is powered by Microsoft and "smartens" up the traditional, boring-old automobile. As Ford's CEO, Alan Mulally (in reference to SYNC technology) said it:

"Look, it's cool to connect. But it's past cool... It's a reason to buy. Tech is why people are going to buy Ford! We're going to be the coolest, most useful app you've ever had, seamlessly keeping you connected."

If it's cool in cars, why not in appliances? This is all speculation of course, but as of now Google is the main mover getting into the technology, and is one of the only companies that can afford to "give away" its operating system in order to book revenues from data collection and mobile traffic. It will also be interesting to see how appliance makers like General Electric (NYSE: GE) respond to the future "smart" appliance market. GE is already focused on its "Industrial Internet" and smart grids.

The Bottom Line

Google is moving into new territory, and among its competitors, its operating system is most likely best positioned to benefit from "smart appliances." That's if (a big if) they can get appliance makers to adopt their OS as a standard. It's not like that scenario is highly unlikely. Android is free and open, so it has its benefits- as long as another company doesn't come in and do it better at a reasonable price. 

Still, Google seems to notice that it needs to make its OS and ecosystem as a whole more credible. The company not only notices, but is looking to improve- going directly for Microsoft's throat in enterprising. Amit Singh, a Google VP explained the discrepancy between their enterprise offerings and Microsoft's:

“We know the gaps between our features and theirs. We’re improving them week by week. We’re going to get to the 90 percent.”

A bold statement- but Google is determined to dominate everything from enterprise software to smart electronics and appliances. If Droid expands to appliances and dominates like it dominated smartphones, they may have another huge source of growth. As smart appliances become incorporated into Internet-based ecosystems, however, it's highly unlikely Google will be the only company in the race for market share. Android is a Trojan horse, a free gift, that spreads and steals market share- and if it spreads into appliances, it will also be clear that it is capable of transcending beyond just mobile phones and tablets. This doesn't mean that more contenders won't be charging right behind them to grab their piece of the pie, either. One advantage unique to Google, however, is its dominant search engine- which will benefit and expand tremendously with all the data Android collects from all of these new "smart" devices and appliances. This will lead to more revenues for Google.


Jharry1 owns shares of Ford, General Electric Company, and Microsoft. The Motley Fool recommends Ford and Google. The Motley Fool owns shares of Ford, General Electric Company, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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