For Google, hardware is the new black

For Google, hardware is the new black

Summary: Just because Google thinks hardware is the new black doesn't mean it can wear it well. The great Google hardware experiment is a work in progress.

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The first day of Google's I/O developer powwow revealed some serious hardware ambitions. Hardware is quite fashionable at Google, but analysts warn that there are significant operational risks and matching Apple is going to be much harder than it looks.

Day one of Google I/O featured Google Glass---and perhaps the best stunt demo ever---Nexus Q, a home entertainment orb, and Nexus 7, a tablet to compete with Amazon's Kindle Fire. Google is manufacturing the Nexus Q, prototyping Google Glass and partnering with Asustek on the Nexus 7. And don't forget Google also manufactures cable set-top boxes and smartphones via Motorola Mobility.

Some have argued that we saw the future of Google with its Google Glass and hardware-happy approach. It's far too early to make that call. With Google, we've either seen the future with a hardware-software approach or one big profit-margin-eating sinkhole.

No matter how you slice it search advertising is going to be far more profitable than hardware. Apple envy doesn't come cheap.

More: Bott: Google's Nexus Q takes on Microsoft, Apple in the living roomGoogle I/O 2012: Android Fireside ChatGoogle Glass: Should developers buy a $1,500 deep prototype?Google's Android 4.1 Jelly Bean: Sign of dev maturity, market share

Rest assured we're going to hear a lot more about hardware from Google. Robots, cars, Chromebooks and other goodies will abound at Google I/O. There will also be a healthy dose---and a track---for Google TV.

Given this hardware fetish is relatively new at Google it pays to hang back and watch. There's no need for big pronouncements. Just because a company thinks hardware is the new black doesn't mean it can wear it well.

Wells Fargo analyst Jason Maynard said:

While the company made a number of new product announcements, our overall investment thesis remains unchanged. We were impressed by the coolness of Glasses (the skydiving demo was perhaps the greatest ever in tech). On the other hand, the Nexus 7 is nice but it doesn’t change the game versus Apple or Amazon, in our view. We continue to think the hardware business is going to be harder to manage then the consensus believes. Motorola Mobility could bring both margin compression and dilution if Google gets aggressive in pricing devices, as with the $199 Nexus 7.

Om Malik noted that Google is basically competing with everyone now. History shows us that multifront wars are really tough to win.

CNET: Editors' take: Nexus 7 gets price, performance right | Pictures: Nexus 7 hands-onJoin us for the Google I/O 2012 Day 2 keynote (live blog)Google I/O Day One: Google continues attacks on Apple, Amazon | Full Google I/O coverage

And how does Google fare when everyone is a hardware vendor too?

Maynard continued:

Google's challenge is how to navigate through an increasingly complex competitive landscape. In our view, many of today’s announcements make it clear that Google is entering established markets which carry lower margins and many tough competitors. Of today's announcements, most represent direct challenges to Apple, Amazon and/or Facebook. These include Android’s improved voice activated typing (vs. Apple’s Siri); the Nexus 7 tablet (vs. iPad/Kindle Fire); the Nexus Q (vs. Apple TV/Sonos); partnerships for improved media content available for rent or purchase (vs. iTunes/Amazon Prime) and the launch of Google Events (vs. Facebook). While these challenges may be strategically necessary, in our opinion, we think they may also prove expensive and challenging for Google to win.

Some analysts such as Anthony DiClemente at Barclays Capital have argued that Google's foray into low-end tablets with the Nexus 7 could lower traffic acquisition costs if the search giant gets market share. "If the Nexus 7 can take share of the broader tablet market, it could help Google to reclaim some of the traffic acquisition costs (TAC) that it is paying on an increasing amount of search traffic coming through tablets, particularly the iPad," said DiClemente.

DiClemente's theory is sound, but the jury is way out on whether the Nexus 7 will be a hit. Google lacks the distribution of Amazon, which can plug the Kindle Fire on its store at will.

Sterne Agee analyst Shaw Wu noted:

With the acquisition of Motorola Mobility and more direct entrance into the tablet market, we see Google becoming more of a more vertically integrated platform play where it is combining hardware, software, and services, similar to Apple and IBM. However, it remains to be seen if Google can deliver the same level (or higher) of quality and seamless integration.

Google's third quarter report in July will shed light on its great hardware experiment. Analysts are already adjusting estimates on the lower profit hardware margins Motorola Mobility brings to the table.

Topics: Laptops, Apple, Google, Hardware, Mobility, Tablets

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17 comments
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  • Front page image for this article

    TIP: If you're going to cut a selection out of an image to change the background, try using a selection 'feather' to soften those edges when you use an automatic selection tool. In Photoshop or PaintShop Pro, you can use the magic wand selection, but there's a feather option that you can change before clicking on the original background. The current image looks like it dates back to the 256-colour transparent .GIF days of the Internet in the 90's.

    Oh, and not to sound too nitpicky, but shadows that are lighter than black background don't make any sense.

    ....Of course, if you're using this amateurish image to as a metaphor for Google's inability to create attractive user experiences, I think the message comes across loud and clear. ;)
    Joe_Raby
    • Awwww....

      Somebody changed it. :(

      They should put a Dolan shot on the laptop screen though.... :P
      Joe_Raby
  • @Joe_Raby The last paragraph is right.

    I laughed hard when I saw the image you mentioned. An average person is better at Photoshop than you think. That image was definitely intentional.
    Charoze
  • Google's fundamental problem

    Is that no matter what [i]else[/i] they do, they are first and foremost an [b]advertising sales company[/b], so everything they do is fundamentally intended to sell more, better ads. The primary function of every Google product is be a conduit of data into "The Algorithm" and/or a path of targeted ads out of it. Google hopes you'll use their products because they're free. This is in contrast to a true hardware company like Apple, which hopes you'll [b]pay[/b], a premium, to use their products because they more beautiful, if not better (or at least aren't pimping you out to an advertiser who wants access to your demographic).
    matthew_maurice
  • premium hardware vs. advertising company

    "hardware company like Apple, which hopes you'll pay, a premium, to use their products because they more beautiful, if not better (or at least aren't pimping you out to an advertiser who wants access to your demographic)."

    True enough about Apple's hardware pricing/profits. But then, do Apple users then NOT use Google's many services in order to avoid becoming part of Google's demographic? I think not. So, if Google is already making $$ off Apple users, why not try to stabilize the Android ecosystem by providing decent hardware and "pure" Android for its fans? Sounds like a win/win proposition to me.
    bunkport
    • Hardware Company???

      Apple is a hardware company? Really? Can you please tell me what hardware they have made, ever? Samsung builds more of Apples product than Apple. Apple is a technology repackaging & marketing company. They are not a hardware manufacturer. They may be recognized as an OEM, but they are not a hardware company. Do you know how many mobile technology patents Apple has? About 1100 of their roughly 3000 and some odd patents are related to mobile technology. Now reference that to the tens of thousands Nokia has, the 20,000 samsung has & the 17,000 Motorola has. You still gonna tell me they are a hardware company?
      George Leon
  • Google just threw all their tablet OEMs under the bus!!

    How can their OEMs compete with google with its below cost selling of the $199 tablet? Microsoft, with the surface is at least expected to price it high / very high and not sell it on their own marketplace at cost. Forget retailers, Android tablet OEMs were just given a death blow. At higher price there is Apple and now for them, at lower end - where they expected to compete, there is google. And why in the world would Google reveal that all they took to build Nexus7 was 4 months? That poses serious doubts about the device and is bad publicity.
    sunilgmishra
    • dumb

      are you really that dumb? seriously theres a reason why theres so many oems making android devices. What did amazon do? Does the Kindle fire use any google services at all? Answer me this question smart one? what OS does the kindle fire run? Ok then, im pretty sure all the other OEMs can do the same thing. Build their own flavor or android. Have you heard any uproar from the OEMs about the nexus 7 like they did with windows 8? Stop being a troll.
      wolfn11
      • dumber

        did my post mention "fire" even once? Who cares if Kindle fire uses google services or not? The kindle fire might have been the source of "inspiration" for google, but it ended up killing its OEMs as well. and which oem complained about surface on the record? The blog posts and opinions don't count. If surface was bad, this is worse for OEMs.

        Finally, we are talking tablets here, not phones - and android tablets just don't sell, period. My basic question was how can an OEM expect to compete at 199 price point - with marketing, retailer margins etc?
        sunilgmishra
      • android tablets just don't sell?

        sunilgmishra: you mean they are vaporware, like, the other one, nevermind...
        http://www.talkandroid.com/117341-android-tablets-now-own-nearly-half-the-tablet-market/android-tablet-marketshare/
        from what see, they have cornered around 50% of the market, not bad for a tablet that "just don't sell, period".
        just curious, how W7 tablets are doing in the sales department?
        theo_durcan
  • Is Google Managing Hardware or Trying To Drive Direction?

    After watching the keynote ([i]term [b]Nerdgasm[/b] applies[/i]), I came away with the feeling Google was looking to drive the direction hardware moves rather than be a primary hardware vendor itself. Drive discussion, influence expectations, and add some "WOW!" to it to get the customer and developers involved.

    Just MPO ;)

    yes, my 7 has been ordered. The Q I want to see first - but I do like it.
    rhonin
    • yup

      I will order mine soon hopefully. Also im extremely interested in the Surface Pro tablet. To fully be able to mix edit and master my songs on the go and then come home to finish it sounds very appealing to me. The nexus 7 is going to be strictly just for play to watch videos movies n browse while im at work. My 3.5 inch iphone 4 screen although gorgeous is not doing it for me. I need bigger space.
      wolfn11
      • Spot on

        Looking to the Nexus 7 as a consumptive intermediary device.
        Looks like it will work well. Gives me a chance to check out JB too.
        rhonin
  • Sights!

    Nexus did not "aim its sites at Kindle." Sites are places: construction sites, campsites, websites, etc.

    Sights are things you see, or the things mounted on top of your gun to help you aim it. Nexus figuratively aims its sights.

    And if you want to refer to an authoritative source, you cite it.
    kidtree
  • Google is here to CRUSH! (happy caps lock day)

    The Fire cannot compete with the Nexus 7, the Nexus has the quad core tegra 3, and a 12 core GPU. The Nexus isn't quite an iPad, but with only 48 pixels less per inch, Androids integration, & its price point it is set to worm into the apple market-share. If you already have an Android phone...just make it a mobile hotspot and connect your Nexus 7 to it, and TA-DA 4G LTE tablet. Well done Google, well done.
    bsongy
  • Wow

    "Some analysts such as Anthony DiClemente at Barclays Capital have argued that Google???s foray into low-end tablets with the Nexus 7"

    Is the "low end" comment from DiClemente or the author's ? The specs are hardly low end.
    RandallRPR
  • The Supply Chain

    It's about understanding the Supply Chain, and understanding that Google is in the supply business. But if you are not ahead of the game you get pushed aside, by someone supplying a better product, a better way of supplying, or some "must have" cool thing.

    MS missed the boat on some key product/technologies, so watch as the mobile information age passes them by. Which in a few years will be the only information technology. Google does not want to be caught "asleep at the wheel", like the snoozing Balmer.
    bigpicture