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  • Google and the Definition of Insanity

    September 27th, 2017

    When it comes to Android handsets, Samsung rules the roost, selling the most hardware. In fact, Samsung is the market leader among smartphones, except for one little thing. No single model line outsells the iPhone, not even the Galaxy. Apple maintains the leadership not only in profits from mobile hardware, but in model-to-model units sold.

    The iPhone’s leadership in the area of the market where it counts — where most of the money is made — continues to freak out Apple’s critics. Every new Samsung handset is regarded as the potential iPhone killer. In fact, one overwrought blogger for a major publication suggested that Apple was actually trying to build a Samsung killer.

    Now even though Android has an overwhelming share of the marketplace, with an emphasis on cheaper gear, Google doesn’t earn money from OS licensing. Android is given away free. Google’s earnings are via ad clicks and their cut of Google Play app sales. But the sum total from the latter is still less than what Google earns from its search business.

    Over the years, Google has taken stabs at hardware, beginning in 2010 with the Nexus One. The Nexus smartphones were meant to provide the pure Android experience, with no changes or gear stuffed with useless junkware in the spirit of many Windows PCs. That meant that you should be able to get regular Android updates, quite unlike other gear, where the chances of actually seeing an update, even a critical security or performance fix, were slim to none.

    But it’s not that Google built a manufacturing facility to make this gear. They simply had one of their Android partners, such as HTC, build the products.

    While Nexus handsets got plenty of coverage, particularly in tune with a new Android release, sales were nothing to shout about. Distribution of the new gear was limited. Google stopped short of actively competing with its partners on a global scale.

    Clearly Google wanted to get more involved in the hardware business, so in 2011, the company announced its largest acquisition ever, spending some $12.5 billion to buy up Motorola Mobility. The purchase included Motorola’s mobile handset and set-top box businesses, along with loads of patents.

    Only it didn’t work out so well. By 2014, Google unloaded the division for $2.9 billion to Lenovo. They evidently held onto the patents, however.

    That year, Microsoft, ignoring Google’s unfortunate experience, decided to make a similar move, buying Nokia’s handset division for $7.9 billion in one of former CEO Steve Ballmer’s final major decisions. Since Nokia was the main supplier of Windows Phone handsets under the Lumia brand, I suppose this seemed to make sense at the time.

    Well, Microsoft didn’t wait long to admit failure. With the Windows mobile gear holding just 3% of the market, Microsoft wrote off $7.6 billion of the Nokia purchase the following year, beginning a process where the company phased down its mobile operations. Yes there are still Lumia handsets for sale. Few care.

    I just wonder what IDC thought about Microsoft’s failure to grab a significant share of the mobile marketplace, considering they predicted Windows Phone would be second to Android in 2015.

    So what did Google do with its mobile handsets?

    In 2016, evidently admitting that Nexus smartphones didn’t make much of a dent in the market, they tried again. First introduced in 2016, the new gear was known as Pixel, Phone by Google. Again, they offered the promise of the pure Android experience.

    Did giving Nexus a shave and haircut make a difference? Probably not, although the gear, as with the Nexus handsets, received decent reviews. But limited availability again hurt its chances to challenge Samsung, which some suggested may have been the ultimate goal. As with some Nexus gear, the Pixel was also built by HTC.

    Now with the failed purchase of Motorola Mobility by Google and Nokia’s handset division by Microsoft, I would think Google would have learned the folly of getting involved in the manufacturing business. These are two notorious examples that resulted in billions of dollars of losses.

    And we all remember the “classic” definition of insanity, which is doing the same thing over and over again and expecting a different result. Well, don’t take that seriously, but you see the point.

    So what is Google’s next move? Well, for $1.1 billion, Alphabet, Google’s parent company, has decided to buy people rather than manufacturing facilities. So for that figure, some 2,000 engineers and designers from HTC will join Google, which means they will work strictly on Pixel hardware and whatever else they choose to design. I suppose that means HTC will still build the gear.

    Honestly, I’m not completely sure what Google is hoping to accomplish, other than to have a large in-house staff to work exclusively on its mobile gear, rather than contracting those tasks to outside firms. It will certainly ensure loyalty if nothing else.

    But it is fair to say that, even when you don’t consider the ongoing Google connection, HTC hasn’t made much of a dent in the smartphone space. Sure, the products get good reviews and all, but it’s not that Samsung has anything to worry about.

    Will this investment, which is to go halfway on acquiring a manufacturer, make a difference? It just seems to be a variation on a theme and not much more. Hasn’t Google learned yet that maybe, just maybe, it’s not fated to become a major mobile handset manufacturer?

    At least the price isn’t terribly high, which means that if this experiment also fails, it will be a trivial matter to give those people their walking papers and move on. These new Google employees shouldn’t expect much in the way of job security, but I would hope they at least got sizable raises from this transaction.



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