Narrative: Google's Hardware Push
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Narrative: Google’s Hardware Push (Jan 24, 2017)
Written: January 24, 2017
In late 2016, Google introduced a slew of new first-party hardware at a dedicated event, including its Pixel phone, its Home speaker, its Daydream View VR headset, and its WiFi product. And yet Google’s history with hardware is littered with at least as many failures as successes, and so there was reason for skepticism about how this new hardware would fare.
Perhaps the worst previous Google hardware product was the Nexus Q, which never actually even made it to market, but the Pixel Chromebook and Pixel C tablet both sold in small numbers, and other than the Chromecast there really hasn’t been a breakout success. Google had had more success working with its OEMs on hardware, as with the Nexus program, which delivered modest but decent sales, and the OnHub routers, on which Google worked with two different partners.
In the end, the new hardware introduced in 2016 is all really solid – I’ve tested everything but Google WiFi myself, and found the hardware to be nicely designed, high performing, and competitive with some of the best products in the field in each category. Google has been thoughtful about each of these products, and the Daydream View in particular is head and shoulders above the Gear VR in usability. These are great products, especially if you treat them as Google’s first in several categories (though of course it has that long experience working with partners). Early sales have been fairly good too, though we don’t have any exact numbers yet – we should get some indication from Google’s results later this week. Supply constraints have hampered Pixel sales in particular, and none of these products is going to sell in massive numbers just yet.
However, Google’s hardware push has two big strategic downsides. The first is that it risks its relationships with OEMs, which have been strained already as Google tries to clamp down on Android customizations. Though the Pixel was aimed squarely at the iPhone (and even looks like one), the main competitive threat is actually to the high-end phones made by Samsung, which arguably has the most complex relationship of any OEM with Google already. The second strategic downside to Google’s hardware strategy is that Google has tried to differentiate its hardware by making Google Assistant integration exclusive to the Pixel. This directly disadvantages OEMs, but it also limits the distribution of the Assistant among end users, in contrast to Google’s historical approach of maximizing distribution.
The big question is therefore whether Google’s pursuit of first party hardware will deliver enough benefits to Google to offset the tension it introduces in its OEM relationships and the downsides for its services and the ad revenue and stickiness associated with them. At this point, it’s far from clear that this will be the case.
Here’s a roundup of some of the smaller announcements Google made today, including the Pixelbook Chromebook, PixelBuds wireless earbuds, and an intriguing AI-powered camera called Google Clips. The Pixelbook is true to the original Pixel Chromebook from Google, which was equally bizarrely positioned as a premium device in a category which is mostly appealing for its low cost. It’s added some hot recent trends like convertibility and a $99 pen, ChromeOS has added Android app support, and Google is debuting its Google Assistant on a laptop here as well. None of that is likely to overcome the inherent funky positioning of a $999-plus Chromebook, and it’ll continue to be a marginal device. That Google should continue to compete here rather than entering the smartwatch market directly feels funny given how much more the Android Wear ecosystem needs first party hardware from Google than ChromeOS does.
The PixelBuds earbuds are in the “neckbud” category rather than the truly cordless earbud category Apple’s AirPods dominate today, and I think that’s fine – I’m wearing BeatsX on a plane as I write this, and continue to like these better than AirPods, and I think this category has a lot of value. The earbuds are priced the same as AirPods, and as with those buds, come with a voice assistant built in, though Google’s big differentiator is real-time language translation, which was successfully demoed on stage. Of course, most of us only rarely (if ever) need such a function, so this is more of a gimmick than a useful feature for now, but it’s a great gimmick.
Lastly, Google’s big surprise at today’s event was one of the last things it unveiled, which is a small standalone camera which is designed to unobtrusively capture pictures and video in the home, powered by AI which will determine when and how to take them. That’s a brand new concept, though it obviously competes to some extent with both Samsung’s Gear 360 line and cameras from the likes of GoPro, whose stock took a big hit today. In reality, of course, this product likely won’t sell in any big numbers because the category doesn’t exist, because it’s priced at $250, and because Google doesn’t have the presence or history in hardware to launch a new category, and it’s best seen – like the real-time translation feature in the PixelBuds – as evidence of Google’s AI chops, and as something which might therefore come to other Google products in time and thereby reach a broader audience.
★ Google Announces Pixel 2 Smartphones (Oct 4, 2017)
I’m breaking up Google’s announcements today into several chunks, starting with the Pixel smartphones it revealed here. Much was already known about these new devices, starting with external images and some of the features, but there were some details such as pricing and availability, as well as one or two additional features which were more of a surprise, as well as the marketing and positioning, which is always one of the most important parts of these launches but which doesn’t leak ahead of time. What we got from Google was a pretty confident launch, building on last year’s decent start, and emphasizing even more than last year the software and AI capabilities behind what the phone can do, while de-emphasizing the hardware itself, which got fairly short shrift. That reflects Google’s relative strengths and weaknesses in this space, but it forces it to ignore the big hardware advancements being made in things like dual cameras, 3D depth perception, wireless charging, and so on, which have been themes in other flagship phone launches this year.
Last year’s Pixels suffered from four big challenges: firstly, the phones were competitive but not notably better than other phones on the market in any key ways; secondly, Google’s marketing was handicapped by targeting the iPhone whereas the most likely buyers are existing Android owners; thirdly, devices were in short supply; and lastly, distribution was limited, with just Verizon as a US carrier partner. This year’s phone looks a little stronger relative to the competition, but not enormously so given the big advances from the other major players. From a marketing perspective, we’ll have to wait and see what Google does as the time of launch approaches, but I’m not holding my breath for anything dramatically better or different relative to last year. There was at least one reference to short supply by Google hardware exec Rick Osterloh at today’s event and so I’m guessing it’ll fix that this year. But distribution remains limited to Verizon in the US, which is a baffling choice given how much Google is pouring into this hardware effort – why go to all that fuss and expense in making hardware that three quarters of US smartphone buyers won’t even consider?
All told, I’d expect this year’s phones to sell better than last year’s, but not nearly as much as if they’d launched on all four carriers as they should have. That should leave other premium Android OEMs breathing a big sigh of relief, because it means Pixel 2 won’t even be a consideration for most of their buyers. This marks two straight years of Google making somewhat puzzling strategic choices with regard to the Pixel launch, something I wrote in depth about last year.
Google and HTC finally announced the deal that’s been rumored for a while and for which many details leaked yesterday. Google is in the end only acquiring 2000 employees and some non-exclusive intellectual property, for $1.1 billion, an amount over half of HTC’s market cap before the deal was announced. The 2000 are around half the research and design team at HTC (and a fifth of the total workforce), while the other half will remain and work on a streamlined portfolio of first-party HTC hardware including a new flagship already in the works. Google’s blog post about the deal is remarkably vague and unhelpful, and it’s equally remarkable that there’s no SEC filing or press release on Alphabet’s investor relations site about the deal given its magnitude. It’s almost as if Google doesn’t want to talk about the deal or its details, but HTC very much wants to, emphasizing both the financial boon – the money to be paid in cash once the deal closes in early 2018 – and its ongoing commitment to making smartphones and VR devices.
The deal has echoes of Microsoft’s bailout acquisition of Nokia a few years back – HTC is a far less important strategic partner to Google, but this very much feels like Google offering a financial lifeline to the very unprofitable and shrinking HTC in return for some assets it needs. Those assets are IP necessary to make Pixel phones without being sued by HTC or anyone else but also the research and design skills necessary to build those phones exactly to Google’s specifications and needs rather than having to work off HTC’s foundation and platform, originally built for other devices. That optimization and the integration with Android it should enable are going to be critical for Google to squeeze the most out of its hardware efforts, though it also needs to go deeper on the chips side, something it’s been reported to be doing separately.
One of the things I’ve been asked about by reporters over the last 24 hours or so is what effect this will have on other Android OEMs. The simple answer is that it clearly strengthens Google’s first party hardware capabilities, which for now aren’t much of a threat. But it’s not as if those OEMs can do anything about it – Android is the only viable open smartphone platform out there today, and if OEMs aren’t producing top-notch, differentiated hardware, Google’s efforts in the space are far from their only problem. One thing is notable: Android engineering head Dave Burke is apparently in Taipei – which is interesting because Google hardware has been said to run at arm’s length from Android team, like any other OEM, so there’s no real reason why Dave Burke would need to be involved in this transaction, and yet there he is in HTC’s home city as this deal is announced.
From HTC’s perspective, the cash infusion will give it breathing room to continue working on a strategy that can again provide sustainable profits in the long run, presumably with its Vive VR business at its core, given that even a shrunken smartphone team isn’t likely to be profitable at its current (or smaller, Pixel-less) scale. I do wonder why Google didn’t just buy the whole company – at under $2 billion market cap, Google could presumably have paid roughly double what it is and had the whole thing, taking what it needed, including manufacturing capability, VR hardware expertise, and other useful pieces, and shut the rest down. This deal is certainly simpler and less painful from an integration perspective, but I’m still not sure I see a viable future for HTC even with this investment and the attendant changes.
Moto X4 Brings Android One to the US and Google’s Project Fi (Sep 20, 2017)
I noted a couple of weeks back with the launch of Xiaomi’s first Android One device that the project appeared to have morphed from a low-tier emerging markets play to one focused more on the mid market, and today’s news reinforces that perception. Motorola is launching its Moto X4 device into the US market as part of the Android One project, and this $400 phone will be available on Google’s own Project Fi service as an alternative to the Nexus and Pixel phones it’s offered until now. (The Nexus phones Google has offered are, by the way, currently showing as out of stock on the Project Fi site, suggesting they’re likely to get phased out with the launch of new Pixel devices in a couple of weeks.) The Android One version isn’t the only one Motorola offers – as I noted when it was announced, the main version actually comes with Alexa baked in, something the Google version certainly won’t do. All of this is indicative of Motorola’s falling leverage with carriers, and its need to do deals with other market players to parcel up its phones in different ways to find attractive niches.
HTC has formally announced that its shares will halt trading for a material announcement tomorrow, and Bloomberg is reporting that it will be that Google is acquiring at least part of the company’s smartphone operations. Other sources – including Taiwanese site Apple Daily and as I understand it shortly also the Wall Street Journal – are saying that it’s the smartphone design operations specifically that Google will acquire, for a relatively small sum in the hundreds of millions of dollars. As I’ve said before, there’s a strong logic to this acquisition despite the history with Motorola. The biggest change since that earlier acquisition is that Google is now far more clearly serious about hardware, with a consolidated division about to announce a second generation of major products at an October 4th launch event. In addition, acquiring a very focused slice of HTC would be a very different proposition from buying what was at the time a much larger and more diverse Motorola business, which was subsequently run largely at arm’s length inside Google. I would expect Google to bring the HTC assets deeply into its own hardware division and to use the new capabilities to drive much more optimized and integrated hardware design relative to the ODM approach used for Pixel hardware, which likely relied heavily on existing designs and platforms from HTC.
All of this is, of course, further validation along with Microsoft’s Surface push of the approach Apple has long taken to tightly integrating hardware and software. It’s increasingly clear that the best results in hardware are achieved by those who can combine hardware and software in such a way, preferably with tight control of the whole process, and Google would get a lot closer to that goal through this acquisition. The big question still remains what happens to whatever’s left of HTC, which presumably will abandon making smartphones and focus on its Vive VR efforts, something that’s going to be a tough proposition in an increasingly competitive market. I’m still surprised that Google isn’t taking over the whole thing, because it could clearly benefit from the Vive assets as it seeks to deepen its own Daydream VR capabilities.
Droid Life appears to have obtained images and pricing for three of the hardware products Google is expected to unveil at its October 4th hardware event. It has four separate posts on the Pixel 2 and Pixel 2 XL, a Chromebook called the Pixelbook, and the Google Home Mini, which is exactly what it sounds like. The Pixel 2 models seem to lean heavily on the design of the first versions from a hardware design perspective, with some minor changes and some new color options, with the smaller one being made again by HTC and the larger one by LG, as reported earlier. It looks like Google will embrace this year’s super premium pricing for larger flagships, too, with an $849 starting price on the XL, although it’ll offer monthly financing (whether directly or through a partner is not clear) as well. The Pixelbook is the predicted successor to the original Pixel, a high-end Chromebook, though this time with a screen that folds over the keyboard to become a clunky tablet, and an optional pen, while it retains the premium pricing. So that’s more or less in the Surface ballpark and a more expensive and laptop-like alternative to Apple’s iPad Pro line. Lastly, the Google Home Mini is exactly what you’d expect, borrowing from the Google Home’s slightly softer design relative to Amazon’s fairly industrial looking speakers in a smaller and cheaper form factor.
We’ll have to wait for the event itself to see all the software and feature details – these leaks are pretty much exclusively about external features and pricing – but I half wonder whether Google has allowed some of these details to leak out ahead of Friday’s iPhone 8 launch to give at least some potential buyers pause before jumping into a new iPhone. Given the breadth of the leaks, though, I suspect it’s more likely a rogue employee looking for some attention and/or notoriety. As with the iPhone leaks, I think this kind of thing benefits all of us very little while trampling on the hard work of many who’ve been prepping these devices for launch.