Google points to security risk of Huawei ban, but what about commercial threat?

Google might have national security concerns about prohibiting Huawei from using the Android operating system, but it should also be worried about a potential threat to its market dominance.

If you are looking for a market with almost zero movement in terms of competitive threat, the OS segment is a prime example. With Google’s Android and Apple’s iOS, there is pretty much no-one else in the market worth considering. KaiOS has a fraction of the market, thanks to a focus on feature phones, while Nokia and Microsoft still have some legacy share, but realistically the duopoly of Google and Apple reign supreme.

That said, Huawei’s OS could prove to be a pain the Google’s side should all the pieces fall into place. It is of course a massive long-shot, but it is definitely a risk Google executives should be considering.

According to the Financial Times, Google has warned there could be some unintended consequences to the Huawei ban. With Huawei currently prohibited from using Android in any of its devices moving forward, Google is suggesting a rushed attempt to create an alternative could result in software bugs and an OS which is more susceptible to hacking. Huawei has already said it is progressing well with its own OS and should tensions between the US and China continue to rise, it will likely be debuted in the near future.

This is a risk but not something which is likely to concern the White House. It would not be a stretch to imagine the answer being ‘so what?’, if the Huawei OS has bugs that’s China’s problem. Google has reportedly approached the Commerce Department to request being exempt from the ban, allowing it to continue providing security updates to Huawei devices powered by Android, though it would seem these pleas have landed on deaf ears thus far.

Increasing the risk to national security is certainly an unintended consequence of Trump’s Executive Order to blacklist Huawei doing business with US firms, but there do seem to be more instances of friendly-fire each week.

During the immediate aftermath of the Huawei ban, several US firms were hit hard. US companies such as Xilinx, Skyworks Solutions, NeoPhotonics and Qorvo watched share price crumble away as they were effectively banned from engaging their biggest customer. Some have recovered slightly, but the damage has not been completely wiped out.

Another potential consequence to the ban is Huawei emerging on the other side of the conflict still intact. This could possibly be worst case scenario for the White House, as it would be a PR victory for the Chinese government and Huawei would be in a stronger position, no-longer dependent on the US. The OS market is one place US dominance could be notably challenged.

Huawei is currently the second-largest smartphone manufacturer in the world. This is down to a number of different factors, such as the price/quality comparison though its supremacy in the China market should not be underappreciated.

The China market itself might not be a massive concern to Google, as it is largely banned there, though other markets which are closely linked to China might be more of a concern. Android itself is an excellent springboard to profits for Google. Applications such as Gmail, Maps and Chrome as installed on devices as default, providing an outstanding link to monetization. As the second-largest smartphone manufacturer over the last few quarters, Huawei is a very good source of revenue for the Googlers.

If Huawei’s OS proves to be effective and it manages to convince international users that it is a brand which is worth persevering with, a third OS could enter the ecosystem. There are of course a lot of moving parts to consider, establishing trust with the consumer is going to be the biggest issue here as we suspect there will be some PR assault challenge the credibility of the OS and links to the Chinese government, but it is a realistic possibility. If it is anywhere near as good as Android, Huawei’s OS could gain market share and could chip away at Google’s profits.

That said, we can’t see Huawei making a significant challenge to Android’s dominance in the European markets, were the Huawei smartphone has seen good adoption trends, but there are others. Asia, for instance, or Africa, where Huawei’s cheaper devices may be more appealing than competitors. These are also nations which have largely managed to steer clear of being caught in the tension between the US and China.

As mentioned before, there is a lot which needs to go right for Huawei to gain a foothold and break the Android dominance around the world, but it is a realistic possibility, if only a long-shot. Usability and trust are two factors but developing the ecosystem would be another. The Google Play Store is a monstrous library of apps, and Huawei would have to offer something similar to be appealing to consumers.

Another unintended consequence is perhaps Huawei emerging as a more innovative and resilient player on the technology scene. By removing its reliance on US suppliers in certain areas of the supply chain, Huawei will be forced to move more capabilities in-house or search for new companies to plug the holes.

Huawei already had a sneak-preview of the damage which can be done through the US Entity List. ZTE was almost forced to extinction by the Trump signature on an Executive Order, which perhaps encouraged Huawei to invest more in HiSilicon, its own fabless semiconductor company based in Shenzhen. The more the White House forces Huawei to stand on its own, the more powerful Huawei could become.

The intended outcome of this action from the White House is surely to weaken China’s flagbearer in the telco and technology world, but if Huawei can ride the wave of adversity, it might just emerge as a much more powerful, innovative and influential player, free from any reliance on the US technology sector.