What Google buying HTCmeans for the mobile industry

The rumors drifted around about a possible Google purchase of HTC for only a short time before the news was confirmed, but the details were a surprise.

As we now know, Google didn’t outright buy HTC, their patents, their VR team, or their manufacturing capabilities. Any or all may have been on the table though, depending on how bad you think HTC’s struggles are right now.

Instead, Google “acqui-hired” a 2,000 strong R&D workforce from HTC, many of whom were already working on the Pixel. Google also bought some non-exclusive rights to HTC’s intellectual property, and possibly an RF Lab too. The deal is due to settle in early 2018.

Many keen watchers were left a little mystified as to why exactly Google would pay around half a million dollars for each employee.

Google senior vice president of hardware Rick Osterloh explained the decision in a blog post. Formerly president of Motorola, Osterloh returned to Google to work on its renewed hardware plan.

The post was titled “Google signs agreement with HTC, continuing our big bet on hardware.” That title pretty much summed it up, as there wasn’t much more to learn from the post apart from the confirmation of a hardware push.

Google started their journey on hardware long ago, but have ramped it up with the (re-)hiring of Osterloh and now this move.

The Motorola flip was written off by many as a smart patent play but it was still an expensive venture, with a $9 billion discrepancy between what Google paid and got paid, even if the company did retain a lot from Motorola in the end.

Either way, the dalliance appears to have given Google more of a battle-hardened approach in its acquisition tactics. It approached this deal by not jumping in to take over all of HTC’s mobile division or even its manufacturing plants, just the key know-how it was after.

So, we can now speculate on what happens next.

Starting with the obvious, the announcement made by Google has one big lofty goal: Apple-like control of hardware and software.

This is not breaking news. You don’t hire 2,000 specialist smartphone designers, engineers, quality assurance testers and so on to build a rocket. You build phones. Perhaps some other devices with Google smarts, but mostly phones.

The reason this deal strikes many as odd is that it doesn’t necessarily match what we know about Google to date, which has always been a business that sought reach, offering their products freely to gain a big userbase.

Google has traditionally wanted to be everywhere, in cooperation, to give you great products freely, in order to serve you ads. The company made $67b last year on those ads. It’s worked better than any company before this.

But it looks increasingly like Google has made a commitment to a new approach. Apple’s internal hardware success and growth in service offerings of late may have forced the issue. Perhaps the coming AR and AI revolutions were another reason to move.

Apple has started building more and more of the internals of its devices, and to great effect: the ‘A’ line of processors are a solid competitor to Qualcomm’s Snapdragon line. Only Apple can tie unique hardware to iOS in a single device, and while it notoriously has choker-tight control over its ecosystem, it has very visibly benefitted from it.

Similarly to Microsoft, Google is no longer willing to leave the fight against the Apple to its traditional OEM partners and has stepped in to fight its own battles. Microsoft’s Surface line has been a success, prompting the likes of Dell, Acer, ASUS, and others to up their game. The Mac line has been besieged by excellent competitors. Google is now looking to do the same thing against the iPhone.

There’s no doubt Google also has a plan in mind to better serve consumers via AI too. It has the jump on AI thanks to bogglingly-massive data that it has on hand from its omnipresent search. And Google Assistant is pretty much the default voice assistant much like Google is already for search.

The company made sure we understood at Google I/O this year that it is switching from a mobile-first company to an AI-first company. AI integrations are also driving Google’s big bet in hardware. Doing more to incorporate a better Google Assistant in unexpected places, along with the expected software improvements, is an area to watch. How do you more finely integrate software and hardware? By making both yourself.

Shaking up the OEMs

Google’s move should be a worrying one to OEMs like Samsung and LG, whose success has been fuelled in part by Google’s own improvements to Android. 

Samsung won’t be worrying about the impact today. Pixel sales have been relatively slow, and it’s not even available in all territories. Google has neither a retail presence nor a visible strategy. The company doesn’t even have an in-store solution for warranty issues. Instead, you have to send your device away and wait.

But Samsung must be wary of this deal. The South Korean giant might have some cards to play if Google start eating away at their sales, rather than the iPhone.

One real risk to Google is that Samsung could start partnering with other services, like Bing , or even Amazon’s Alexa. The symbiotic relationship between Google and Samsung may well split in time. However, the Korean hardware giant isn’t the only Android OEM that may have to come up with a Google exit-strategy, or at least reorient for a landscape in which Google is their competitor.

All OEMs will be affected differently. HUAWEI, LG, Sony, Xiaomi, and new players like Essential might not like Google’s new direction either. Like when Microsoft started making hardware, though, this might just push them to offer even greater differentiation in the space.

If Google going all Apple on us means other OEMs have to step up their game to compete, then that’s good news for everyone.

LG is making the Pixel 2 XL, but is already denying Pixel 3 involvement. The phone could be the last collaboration two companies that did great things together, releasing products like the Nexus 4, Nexus 5, and Nexus 5X. LG will probably still provide some components and manufacturing, though.

Google has no real presence outside of Android in China, where makers like HUAWEI, Xioami, OPPO, and vivo rule the roost and don’t look like they’ll be disrupted any time soon. With India set to be the next the next major smartphone battleground, and there’s a chance Google will offer a value-phone to get in on that market.

Sony continues to ship around 15 million smartphones each year, but in the US they’re usually only chosen by people with a certain taste. The recent decision not to pack a fingerprint sensor in their XZ1 and XZ1 compact in the US market was surely some kind of odd business compromise. Even Canada got the XZ1s with the side-mounted fingerprint sensor. Sony recently underwent a big restructure recently which is keeping them in the black. With a focus on the premium-end of the global market, you can be sure that the Japanese maker will be keeping an eye on what Google does.

Given there’s no deal until 2018, we might not see too much from the new Googlers for some time. The Pixel 2 and Pixel 2 XL are set to launch on October 4 this year, and perhaps the Pixel 3 in late 2018 will show some Google-only hardware features, but it might not even be until 2019 that we really see things in motion.

2019-2020 onwards is when we’ll start really seeing what value Google is getting, and be able to truly assess the impact on the mobile phone industry.

And what about HTC?

I wrote earlier that it’s good news for HTC:

“The cash injection will keep the lights on at HTCin its original form and help keep the dream alive for a little while longer – far better than what happened to Nokia when it was struggling.”

HTC have offered genuinely good and even great devices over the past few years and the HTC U11 is no exception (unless you need a headphone jack). The mobile industry is better off with HTCfighting to reclaim market share with fresh innovations.

Losing half an R&D team won’t help HTClaunch something that could surprise us, but it’s more than a skeleton crew, and far better ceasing to exist or being sold off as a shell brand to be reincarnated.

HTC has confirmed we’ll see a new flagship in 2018, and to expect a more streamlined portfolio of products.

A more cynical viewpoint would be that HTChas to make a show of continuing on. Any sign of the company faltering in the mobile space would see a disastrous collapse; a fire-sale on current devices, a torching of all future designs, and might even cost the company goodwill on their VR business.

HTC could still pivot entirely towards VR, something Android Authority understands the company has been considering for at least 12-18 months. That would be a big bet, and would be undeniably hard for a publicly listed company to do without solid revenue projections. It would send shares plummeting and attract deep shareholder ire, if not lawsuits.

It seems HTC’s best bet is to keep calm and carry on. For now.