Edison Investment Research

Alphabet – Great thrall of India

Africa warning as India falls into Google’s thrall.

 Google is moving consolidate its growing grip on the Indian market and unless rivals act quickly, there will soon be nothing left.
 Furthermore, Google’s tactics in India is a sign of what it is to come in Africa providing a warning for those intending to address that market.
 Google’s coverage of Indian railway stations with free WiFi has past 100 stations up from 52 at the end of Q3 16 and is well on its way to 400.
 Just a few years ago, India was a reasonably open market but the failure of the local players to act (see here) allowed Google to grab the market and we see it being just one step away from its goal.
 Several years ago, buyers of smartphones in the Indian market would ask for Android such that it was difficult to sell a device without a picture of the green robot on it.
 Now, users have moved one step on and are demanding devices with Google Play just like users in developed markets.
 This puts the handset makers on the backfoot as while it is easy to make an Android device, to get Google Play, one has to jump through all of Google’s hoops.
 This means that in addition to Google Play, one has to install Google’s major services, put them front and centre on the device and set them by default.
 Having apps and services pre-installed on the device and set by default has long been known to be a big driver of usage.
 This is even the case even if the service is inferior as is the case with Apple Maps.
 Consequently, once Indian users move from demanding Google Play to using, enjoying and demanding Google Services then there will be very little that any competitor can do.
 We see India being close to this tipping point now.
 We think that the EU will force Google to unbundle Google Play from the rest of its services (see here) (as it did with Microsoft) which could cause Google problems in distributing its services to users.
 However, if Google can migrate users from demanding Google Play to demanding Google Services then this remedy will effectively have been neutered as Google will no longer have to enforce the bundling of its services with Google Play in order to generate usage.
 This is why we think Google is rolling out free Internet in India as fast as it can and why it was keen to stop Facebook from getting a grip on the Indian market (see here).
 We think that this should also serve as a warning shot to anyone who is intending to develop an ecosystem in Africa.
 Africa remains one of the last reasonably untapped market where users are largely ignorant of any Digital Life services.
 We suspect Google intends to repeat its Indian strategy in Africa giving any domestic player a relatively short window in which to act.
 We continue to prefer Microsoft, Tencent and Baidu over Alphabet and Alibaba.

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