Mobile computing executives are gathering in Barcelona this week as they do each year at this time to hold symposia about the telephone business and to show off their latest handsets. Alphabet Inc.'s (GOOGL - Get Report) Google unit, which makes over half its advertising revenue from paid search on mobile devices, faces a new challenge to maintain its advertising empire.
In addition to making money on devices running its Android operating system and on Apple Inc.'s (AAPL - Get Report) iPhone, Google sells the "Pixel" line of smartphones for which it is responsible for all the costs and earns the revenue, just like any other smartphone maker. The Mobile World Congress meeting in Barcelona this year will be the first time since Google debuted Pixel that the company faces a major shift in the marketplace for those devices.
Dozens of vendors of Android-based phones will be unveiling their first models that use faster 5G cellular connections -- networks that can have upward of two billion bits-per-second download speeds, and, as important, dramatically faster upload speeds than what's commonly available. Samsung Electronics (SSNLF , the world's largest maker of phones, pushed up the announcement of its own device, the "Galaxy S10," hosting an event in San Francisco this past week, rather than its usual gathering in Barcelona, to get ahead of the wave of news from competitors.
Google doesn't have a 5G phone, and it's unclear if they will when the next model of Pixel arrives, presumably this fall. That is noteworthy, because Google faces a marketplace that is increasingly looking to supplant some of the functionality that Android affords and, perhaps, give Android device makers, including Samsung, a new degree of control over the mobile operating system.
Samsung, for example, has its own camera app that it built for the Galaxy S10, which can be used instead of the built-in, stock, camera app Google provides with Android. That Samsung app has the ability to send short-form video directly to Facebook's Instagram service, a new level of integration between the device maker and the social network.
A variety of services are placing deeper hooks into the device over and above what Google offers. Samsung positions its "Bixby" voice-controlled intelligent assistant as an alternative to Google's own Assistant software. One imagines that Amazon.com Inc.'s (AMZN - Get Report) Alexa software will similarly gain greater prominence on Android devices over time, thereby threatening Google's position as the primary interface to the phone. Losing that preeminence would threaten Google's advertising revenue stream from the phone.
The Pixel has been one way for Google not to lose control of its own platform, by maintaining a new level of control over the services the average user consumes. If Google's delay in offering a 5G version hinders its sales of new devices, the risk is not merely lost device sales, it is a loss of prominence on its own platform.
The results for Pixel in the market have been decent so far. Although the Google phones don't crack the top five of devices by unit shipments, Pixel was the top-selling smartphone in the U.S. in the December-ending quarter, according to market research firm Strategy Analytics. Pixel unit sales rose by 43%, the firm estimates, which is a fine number. It's also made even more impressive because the market overall dove by 23% as sales by Samsung and Apple and other top vendors failed to live up to expectations.
It remains to be seen whether being late to the 5G party will slow Pixel's advance. It may as yet be so early in the deployment of the new network that it won't make much difference this year and Google can catch up with a 5G model later this year or in 2020.
But Android will remain a challenging market approach for Google. The company must keep Android partners such as Samsung happy by helping them to make sure their devices are desirable. At the same time, Google must continue to build the competitive position of its own Pixel offerings to hedge against a future in which other parties - Samsung, Facebook, Amazon, Apple - dominate mobile with their own applications.
For the moment, Google seems to believe it can strike that balance, advancing Android generally as a platform and still assembling a decent offering of its own. Time will tell if all that is enough.