As it turns out, Google’s deal with HTC is to acquire a part of the Taiwanese company’s smartphone business, to the tune of $1.1 billion. This means as many as 2,000 HTC employees now become a part of the Google family, and the latter also gets access to HTC’s research and development team and the smartphone tech that was being developed for future Android smartphones. Google is not acquiring the whole of HTC, and certainly not the virtual reality headset business which developed the HTC Vive headset.
According to numbers by research firm Statista, Android phones make up for 86.1% of the global smartphone market (with 380 million smartphones shipped globally), while Apple’s iOS devices comprise of 13.07% share. Yet Google doesn’t make any of them. That is because Google has remained not entirely serious about the hardware side of the smartphone business, instead of focusing only on the software, all these years. Yes, there were fleeting attempts on and off along the way, but for most part, Google remained reliant on phone makers such as LG, HTC and Huawei to develop and manufacture the erstwhile Nexus and the current Pixel line-up of phones. While these devices were positioned as benchmark smartphones for the Android ecosystem, Google never really was in charge of the hardware side of things.
There were perceived winds of change, when Google bought Motorola for $12.5 billion in 2011. Most of Motorola’s phones at the time, as it continued to operate as a separate company, were aimed at the lower price points in search for greater volumes. The larger benefit for Google was perhaps the fact that they could get hold of Motorola’s patents at the time. There was the threat from Apple’s iOS and also Microsoft, which was quite bullish back then about the future of the Windows Phone operating system (as it turns out, Windows Phones currently make up for 0.3% of the market, as per the numbers by Statista).
There was great expectation that with Motorola working under the same roof, Google will be able to replicate the kind of success Apple has had by keeping full control over the hardware as well as the software of iPhones. That didn’t happen, and Google sold Motorola to popular smartphone maker Lenovo for $2.9 billion in 2014—but retained the patents it had acquired in the first place.
The new Pixel branding (the Nexus branding was retired after many years of service) unveiled with the Pixel and Pixel XL smartphones last year, also represented a change in strategy. Earlier, Nexus phones, in some way, were pitted against other Android phones—the same companies Google otherwise closely works with. The slick switch was to challenge the Apple iPhone 7 and the iPhone 7 Plus at that time. The Pixel phones were being made by HTC, but without any HTC branding visible. With the latest acquisition, Google has basically brought the team responsible for first-generation phones, in-house, along with patents that will be important for this year’s Pixel phones and also for the next few years.
This seems to have worked out perfectly for Google. They get the top talent, which was not just responsible for the Pixel phones, but also other top-notch Android phones such as the current U11 flagship and the One series in the past. “With tighter control on Pixel, Google will now focus on making the experience in that segment equivalent of the benchmark—iPhone and start evolving an ecosystem of services and applications around Android,” says Faisal Kawoosa, principal analyst telecommunications, CyberMedia Research.
Could we take this as an indication that Google is now finally serious about the hardware side of the smartphone. Perhaps, but it won’t be that simple. Any more than the annual Pixel smartphone line-up refresh will put Google back into head-on competition with the likes of Samsung, Sony, LG and the aggressive Chinese phone makers including OnePlus and Xiaomi which are constantly providing better specs and performance at much more affordable price points.
We aren’t entirely sure how well this will work out for HTC though. Yes, the company gets the much-needed cash injection to focus on augmented reality (AR), virtual reality (VR) and smart home products. But how much the “drain” of the brains to Google stunt the development of future products, only time will tell. However, unlike last year which was a bit of a distortion, any new “made by Google” phones may actually be made by Google.