Google and HTC: hardware comes and goes

Google has ended weeks of rumors with an announcement that it has agreed a $1.1 billion deal with HTC to incorporate around 2,000 employees of the struggling Taiwanese company and that includes too a non-exclusive agreement to use its patents.

The deal is not, as such, an acquisition, although it affects approximately half of the company’s workers: HTC, which suspended trading on Wednesday due to the instability the rumors were generating, maintains its independence as a company, but it considerably alleviates its economic problems and gives Google a very important research, development and hardware manufacturing capability by incorporating a whole division of a manufacturer it has been working with for some time. In fact, a good part of the employees that now officially work for Google were already working on several projects for the company, fundamentally smartphones or tablets in the Pixel line that were manufactured by HTC but sold with the Google logo.

Why has Google taken over a hardware company, when in 2011, it paid $12.5 billion for Motorola Mobility, quickly selling it on to Lenovo for $2.9 billion (keeping the patent portfolio) to avoid problems with other Android terminal manufacturers? Firstly, the Motorola buyout was never about manufacturing hardware, but instead an opportunity to acquire a solid portfolio of patents applicable to the smartphone environment, without which the company could have faced expensive litigation from Apple, which at that time was fighting Samsung in court. The threat at that time was that developments that originally emerged from the acquisition of Android in 2005, but that were not protected by patents could be subject to complaints related to intellectual property, an aspect that Google , until then, had not considered especially strategic. The Motorola acquisition solidly positioned the company in that environment, but above all, avoided a hypothetical acquisition by a third party with litigation: Google’s intention was always to get hold of that patent portfolio, never to become a hardware manufacturer. After a brief collaboration, and after seeing how some terminal manufacturers began to worry that Motorola would get priority access to Android’s new features, Google sold the company to Lenovo as a way to get rid of a problem and ensure that those manufacturers would not launch models with other operating systems or Android forks.

What has changed now? Everything indicates that we have gone from the era of “hardware is hard”, to a new situation where complete control of the process is fundamental for a company that aspires to leadership in the world of technology. Google began to manufacture devices of various types last year, some with notable success, and aspires to consolidate itself as a major player in several categories, among them devices for content distribution, such as Chromecast, wireless routers, home wizards, cameras and thermostats, glasses and devices for virtual or augmented reality, and of course, smartphones, where it aims to position Pixel as a competitive terminal able to overtake Apple, which still sets the industry’s agenda.

The agreement must still be approved by the anti-monopoly authorities, and is not expected to be finalized until early 2018. Everything indicates that HTC would keep its brand and focus on producing a much smaller range of smartphones and enhance its virtual and augmented reality line, HTC Vive. Google, for its part, will promote its Pixel range more openly way than it previously did with Nexus, positioning itself as a leader in the latest Android developments. For Google, the idea of controlling the line logically includes taking some of the profits terminal manufacturers were making.

The operation could have important consequences for the smartphone market. How will it affect the relationships between big players such as South Korea’s Samsung or China’s Huawei, Oppo or Vivo? The reaction to Google’s decision to become a hardware company and compete openly in the market with its own models could lead those brands to create their own brands, or to come up with their own Android forks, which could imply an even greater atomization of the market. In a few years, hardware has gone from being considered an annoying commodity outsourced to third parties, to something so strategic that it is better for companies to own and control if they want to be competitive. Hardware, like so many other things in technology, comes and goes.

(En espa?ol, aquí)