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Google Play Competes with Apple - Analyst Blog

Contributed by Zacks

Google Inc. (GOOG) is doing all it can to build its position in the smartphone segment. What started out as a need to protect search market share has grown into a full-fledged war to gain supremacy in the space. Google’s Android is not doing too bad, giving number one rival Apple Inc (AAPL) a run for its money.

But the company was soon to realize that a good OS is not all that it takes to keep people stuck on its Android-run devices. What actually creates sticky customers is software development around the OS, which increases the convenience and enjoyment of using the device.

The problem with Android has been that its app sales have not been up to expectations. Company officials believe that one of the reasons for this was the complicated payment system. So Google is now taking steps to simplify the system.

It recently announced Google Play, which is similar to Apple’s app store, enabling all forms of digital entertainment download and purchase. While developers may not welcome Google’s more expensive Digital Wallet as the payment system, the company has made certain that there would be a single payment system on the platform.

This effectively blocks out eBay’s (EBAY) Paypal, as well as Zong, which was also recently acquired by eBay. Although eBay could be put out, they probably can’t do much about it, since Apple has been using its own payment system from day one and no one has complained. So if Google does the same thing, it should also not be penalized.  

Of course, Google has been caught on the foot a number of times and regulatory interference should not be ruled out. Google for its part, continues to support its action, saying that it would benefit both developers and consumers. Developers are likely to see increased sales, since the convenience of the system could help draw more customers. At the same time, customers are likely to find the system more convenient, so are likely to generate more sales.

We think this is all good news for Google and we see the company gradually narrowing the gap between itself and Apple.

We currently have a Zacks Rank of #3 on Google shares, implying a Hold rating over the next 1-3 months.