On the face of it, operating an existing cell phone company should be easier than creating and maintaining computerized eyeglasses, robots, and Internet-connected home appliances. Now that Google (GOOG) has admitted failure in the phone business by selling Motorola to Lenovo (992:HK) for about $3 billion, how credible are its chances to pull off its much more ambitious aspirations in hardware?
The company says the Motorola sale doesn’t mean it is throwing its hands up at making physical things. “This does not signal a larger shift for our other hardware efforts,” wrote Larry Page, the company’s chief executive, in a blog post announcing the Motorola deal. “The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry. We’re excited by the opportunities to build amazing new products for users within these emerging ecosystems.”
In fairness, Google faced some tough barriers in the mobile business. Like Microsoft’s (MSFT) purchase of Nokia’s (NOK) device operations last year, Google’s 2012 purchase of Motorola for $12.5 billion was a play to become more like Apple (AAPL), selling smartphones as well as the software that powers them. But the incumbents may just be too strong. No attempt to ape Apple has borne much fruit, and Samsung Electronics (005930:KS) sucks the rest of the air out of the smartphone market in most of the rest of the world. (The big exception is China, where local companies are humming along, but Google doesn’t exactly have a history of success there.)
The smartphone industry’s also-rans are struggling. Motorola lost $797 million during the year ended in September. It was sick before Google bought it, but its purchase carried drawbacks specific to the search giant. Because Google’s main mobile effort is an operating system that other hardware companies use, it didn’t make a lot of sense to compete directly with its customers.
Google does emerge from the wreckage with most of Motorola’s patents and an experimental technology group led by Regina Dugan, who used to head Darpa before joining the company. Both could be helpful down the road, but that’s likely cold comfort at the moment.
So what’s to say that Google’s current buying binge, which includes acquisitions of smart thermometer company Nest and robotic powerhouse Boston Dynamics, will turn out any better than its foray into smartphones?
First, as Page pointed out, Google won’t have to chase a powerful leader if it targets industries that don’t really exist yet. And its new purchases are young, vibrant companies, rather than a slipping business struggling to regain its footing. Google’s own hardware experiments with autonomous vehicles and computerized eyewear are similarly ahead of the times. But Google’s lesson with Android is that the company doesn’t necessarily have to build the stuff itself. Also, it has failed in hardware before, with its myriad television projects and the Nexus Q, an octopus-shaped media player.
Google’s latest moves toward physical goods mark a huge expansion of its ambitions. The hope, it seems, is that the pieces will all begin to snap into place by leveraging the company’s biggest strength: data. While each hardware project seems unrelated, they could connect if they can provide grist for Google’s mills and help it spit out targeted advertising, another strong suit. Still, that doesn’t make the task of transforming into a hardware company any easier. While it’s why Google wants to do this kind of thing, less certain is whether the company can pull it off.