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Google's hardware business is really confusing.
It means creating products like these.
They're like history, so confusing.
You can almost like put funny music to it.
It considers companies like Samsung, both a partner with services
like Android and a competitor with hardware like the Pixel 4.
It has branded devices under Nexus, like the Nexus One and Nexus Q,
Chrome, like the Chromebooks and Chromecast, Pixel, like the Pixel 4
and Pixelbook Go, Nest, like the Nest Home Hub and Nest WiFi, and its
own name, like the Google Home and Google Glass.
And only a few of these products have gone on to take a successful
share of their respective markets.
Google's a real hardware competitor in some markets, especially when
you think about education and laptops with its Chromebooks.
But in general, as a player against Apple and Samsung and phones and
other places, it's not considered a major player in this space.
For a company with an almost $900 billion market capitalization,
Alphabet, Google's parent company, just doesn't make a lot of that
money from its hardware.
But through acquisitions, partnerships, internal design and
developments, Google has stitched together a product line that makes
the company's complete vision hard to see.
So if the company can't rely on hardware as a major source of income
the same way Apple and Samsung do, what is Google's ultimate goal?
The hardware's true sort of value is the fact that it helps Google
collect information that can be used for advertising and then to
serve you ads anywhere you might be.
I don't view Google as a hardware contender because at its core it's
an advertising company.
It's easy to miss Google's hardware strategy in its current lineup.
Google says it wants to create products that can exemplify Google's
software and services like Android, Chrome, Google Assistant and
others. But let's be very clear.
Google is not a hardware company.
Of its $38.94
billion revenue in quarter two of 2019, only about 16
percent came from Google's so-called "other revenues" category, which
includes Google's hardware sales, Google Play sales and cloud
revenue. The vast majority of that $38.94
billion income comes from its ad business.
Google captures 20 percent of all U.S.
ad dollars, both online and offline, and a whopping 74.6
percent of all U.S.
search ad dollars.
The hardware business has to serve the rest of the business, which is
an advertising business.
Where it's collecting profiles, it's collecting data on you.
Looking at its history, Google has tried hard to clean up its product
line, like Steve Jobs famously did when he returned to Apple in the
90s. But it's still struggling in general.
Google creates its hardware in three ways: through partnerships,
through acquisitions and through its own in-house efforts.
Google's first big hardware partnerships were thanks to its operating
system, Android.
When we talk about flagship best Android devices, the Motorola Droid
was really probably what put Android on the map in the consumer's
mind. In fact, to this day when people talk about Android, you still
hear them refer to it as droids.
It wasn't the first Android phone, but it was the first Android phone
that got a tremendous amount of attention and drove a tremendous
amount of sales. But the Nexus line of phones signified a change in
the way Google looked at hardware.
So the Nexus line was originally developed, sort of showing what you
can do with an Android phone with the latest version of Android.
It was for developers to build their apps for the platform so that
partners in the Open Handset Alliance could then launch phones based
on that. The Nexus One only sold about 20,000 units in 2010 compared
to Apple's iPhone 3GS, which sold 1.6
million units in the same year.
The next hardware for Google to tackle was the computer itself.
Chromebooks used to be laptop-like internet terminals that Google
developed during its shift to cloud-based computing and storage.
Originally, these laptops just accessed the internet via Google's
Chrome browser, nothing else.
Everything was stored on Google's servers, even the applications.
The hypothesis is that you were always connected because at the time
when they first came out, there was very little storage on the
device. You had to be connected for it to do everything.
The first Chromebooks were manufactured by Samsung and Acer and got
the products off to a rocky start, leaving reviewers wondering why
Google made these glorified netbooks.
But by 2016, Chromebooks were outselling Macs, thanks in part to
their popularity in schools.
In fact, Chromebook took 60 percent of the U.S.
educational market share by 2018.
It was in 2012 that it really decided to want to put a lot of money
behind hardware. It acquired Motorola Mobility for about $40 a share
for $12.5 billion, marking a huge investment in Google's hardware
strategy to build its own phones, instead of partnering with other
people to build its phones for it.
In a blog post, then CEO Larry Page said the combination would offer
consumers accelerating innovation, greater choice and wonderful user
experiences.
The biggest value that the company got out of it was its patent
portfolio so it can go toe-to-toe with companies like Microsoft
and Apple.
Then in 2014, CEO Larry Page decided they wanted to get out of the
mobility business and ended up selling Motorola Telenova for $2.9
billion, which was vastly less than what they paid for.
$9.5 billion less to be exact.
I can only classify the Motorola acquisition as a complete bust.
One of Google's most lucrative investments was in the company Nest,
which was originally acquired by Google's parent company, Alphabet.
That was sort of the start into this home hardware foray and at the
time it was just a smart thermostat.
I mean, how many houses do you walk into or apartments where the Nest
is the featured element?
With its eye still on the hardware prize, Google announced in 2017
that it would spend $1.1
billion on a cooperation agreement between itself and longtime
partner HTC, a company that previously developed several Nexus phones
and even manufactured a few Pixel models.
I believe this was a reaction to post, spinning off Motorola,
realizing they didn't have enough of their own employees or
contractors to do what they needed to do, and they just they needed
experienced bodies.
Google acquired about 2,000 HTC employees, many of whom worked on the
Pixel team while at HTC, and the acquisitions continued.
In 2018, Google decided to absorb Nest fully into its own lineup,
making it no longer an independent company under Alphabet.
In 2019, Google closed a $40 million deal with watch group, Fossil,
and most recently, Google acquired Fitbit for $2.1
billion. For smaller, more niche projects, Google turned inward,
like with Google Glass, which was a wearable device.
Kind of goes down and is infamous for not really making much of a
breakthrough in the market like the company had hoped.
Glass was advertised as a pair of augmented reality glasses that
could provide users with turn-by-turn directions, read messages and
emails and take pictures and videos.
But the real-life functionality was much more limited due to its
small battery. I personally went out and bought Google Glass and I
was pretty sure at the time it was going to revolutionize everything.
The product was such a flop that adopters of the glasses were
referred to as "glassholes."
Google really didn't understand the personal ramifications they would
have on its users.
That was very negative.
Google discontinued the product for consumers in 2015, but they live
on in the workplace.
In 2016, it decided to reverse course again and it made another
aggressive stride into hardware.
This gave way to incredibly successful products like the Google Home,
which was the most popular smart speaker lineup in the United States
in 2018. I think Google's best performing device is likely the Google
Mini. And with this new Google-centric frame of mind, the company
nixed Nexus to create its very own Pixel line of phones, Chromebooks
and tablets. They're not co-branded with people like Huawei or LG.
The Pixel phones have been critically acclaimed, but pulled a dismal
2.25 percent of the smartphone market in North America, less than
Samsung, LG, Huawei and even former subsidiary Motorola.
I think when you see Google Pixel commercials and see the YouTube
videos with millions of views, you might get the impression that this
is a huge phone and has a very vocal and dedicated fan base.
But when you look at shipment figures around the United States
particularly, it's not even among the top five, although we've seen
in past years that the Pixel is growing.
So besides products like the Google Home Mini, now the Nest Home
Mini, why would Google continue to sell hardware that is failing to
bring in big bucks? The unspoken interaction or
contract between the consumer and Google is that I'm going to make
these devices do amazing things, I'm going to know things about you
so it's going to do things that I know you wanted to do and then
we're allowed to advertise back to you.
Google knows a surprising amount about you.
Whether you're using an Android phone or just use a bunch of Google
apps like Google Maps, Gmail, YouTube and Chrome, Google has built a
profile for you that includes a lot of information.
Google knows that I don't have kids.
Google knows that I work for a very large employer that has more than
10000 people. Google knows that I'm a renter, not a buyer.
It does know some details that you probably know that you've never
sort of explicitly told them, but it's inferred these things through
all of your behaviors on Google.
Google uses this profile to provide you with more accurate search
results and the like, but more importantly, it uses that info to
serve you targeted ads.
Obviously, there's these Google Homes, there's these smart home
sensors and all of these things are also collecting data on us.
They also say that all of this collection is to just make your
experience with their products easier.
So they want to be really relevant.
They want to be fast. They want to know that when you're talking to
your home device that you want things that are in your town or if
you're asking for, you know, a pair of shoes that they're going to
give it to you and your size.
And Google isn't shy about the information it collects or how it uses
it. Just check out Google's privacy and terms page.
It has a video explaining all of this.
So it's very easy to find all of this information and see what they
have available about you.
And it's very easy to opt out.
There's a little button that says, "turn off my ad targeting."
It's very easy to do that.
It's a little less easy to understand from a third-party player
perspective what information they have collected that has now gone
out to these third party players.
The network is probably extraordinary.
Now when it comes to software, there are few that rival Google.
Android holds a huge majority of the smartphone market worldwide, and
Chrome OS currently powers more than half of the mobile computers in
U.S. schools.
When you look at phones, Android's the real winner here, not
necessarily Google Pixel.
When you look at laptops, it's Chrome OS made by Google's partners,
not necessarily Google's Pixelbooks.
But when it comes to putting that software in every nook and cranny
of your life through hardware, it gets a bit worrisome for consumers.
It still has issues that it has to overcome.
It has to convince consumers that it's actually serious about making
technology and being in the hardware space.
It also has to convince consumers that they can trust them with being
in the most personal areas of their lives and having hardware that
will protect the user's privacy and security.
It's hard to say exactly what the future will be for Google's
hardware business. But one thing is for sure: if you're using a
Google product, you are helping Google sell you better ads.