Google sets its sights on the iPhone with HTC deal

Of the three most influential companies in smartphone design, Nokia fragmented into a million pieces after being bought out by Microsoft, Apple is still going strong, and Google just bought the third with its $1.1 billion deal with HTC. The reason why Google acquired what looks to be the majority of HTC’s phone design and engineering team is simple, and it’s been obvious for over a year: Google is serious about becoming a hardware company.

Early in 2016, Google created a new hardware division and re-hired Motorola chief Rick Osterloh to run that group. A brief few months after that, the company was plastering the streets of Europe and the US with billboards trumpeting the arrival of the first “Made by Google” Pixel devices. Why do we refuse to acknowledge what’s right in front of our eyes?

Google is going to war against the iPhone.

It sounds preposterous given the number and quality of apps that Google produces for Apple’s iOS ecosystem, but the iPhone is a direct threat and counter to Google’s overarching goal of being ubiquitous on every internet-connected device. Apple’s voice assistant Siri searches the web using Bing rather than Google, and Apple Maps was created explicitly to shake off Apple’s dependence on Google Maps.

As Apple works to become independent of Google through the provision of its own services like Apple Music and iCloud, Google is moving to become independent of Apple by trying to make a better smartphone. One company is getting serious about services, the other is getting serious about hardware, and the end result will be an escalation and exacerbation of the conflict between them. The good old days of the Apple CEO and Google CEO sorting out their differences over casual coffee on a Palo Alto street are over.

Everything we’ve seen Google do since the hiring of Osterloh can be best understood through the prism of competing with Apple’s hardware. Why, for instance, does Google need to buy the HTC team that built its first-generation Pixels? The answer lies in the benefits of tight, Apple-like integration: Google can iterate Pixel designs much faster with an in-house crew, and it can do synergistic things with its hardware and software that it wouldn’t be able to when contracting the work out (even the former Google+ VP Vic Gundotra has stated a preference for this approach). This is an awful example, but having its own design team means Google can build its own Bixby button for launching the Google Assistant.

In a blog post announcing the HTC deal today, Rick Osterloh used words that could just as easily have come from Apple CEO Tim Cook’s mouth: “Our team’s goal is to offer the best Google experience—across hardware, software and services—to people around the world.” Hardware isn’t a hobby for Google anymore, it’s an equally important component to software like the Android OS and services like YouTube. This is just the way things have to be now: either you integrate all three components into one cohesive consumer proposition — as Apple has done and as Microsoft is doing with its Surface line of Windows PCs — or you get left behind by those who do.

Google’s $12.5 billion takeover of Motorola in 2012 is a commonly cited reference point for today’s HTC news. I find that history so distant and different as to be unhelpful to even consider. With today’s move, a very different Google is acquiring a different set of assets for a different purpose and a different price. Whereas Google wanted to appease Samsung and other Android OEM partners back in those days — leading to it feeling ambivalent about what to do with the Moto business — now Google is fully invested in being a hardware vendor itself. If Samsung doesn’t like that, it can try selling Tizen phones instead of Android.

The Motorola deal was complex, involved a vast and valuable patent portfolio, and required careful balancing to preserve at the least the appearance of Motorola operating independently. With its new staff coming in from HTC, Google is getting a big and highly experienced team — close to 2,000 people, according to HTC CFO Peter Shen — and it’s putting them directly under Osterloh’s command. There’s no confusion about where orders are coming from, or any external interests that need to be appeased. It’s just going to be Google, suddenly powered up with the years of experience that a new hardware vendor usually lacks, with the clear goal of ousting Apple’s iPhone from its position as the device most identified with the word “smartphone.”

The striking thing about Google’s transition to being a formidable competitor on the hardware front is how swift it has been and will be. The first time that Google put the “Made by Google” label on a phone, the Pixel turned out to have the best smartphone camera of its time — and it arguably still does. On day one, Google’s Pixel had already won one of the biggest battles against the iPhone: that of having a better camera. Yes, Google has had major stumbles in its efforts to supply enough phones to sate Pixel demand, but those are problems that can be overcome with time, experience, and a thoughtful scaling up.

Apple is also enjoying rapid growth with its services group, but in my estimation Google is closer to catching up to Apple’s hardware design and engineering than Apple is to recreating Google’s online empire. Maybe Apple’s investment in developing in-house CPUs, GPUs, and the proprietary Face ID system will pay off in granting it a technological edge in the future, but as of right now, those are potential advantages, whereas Google’s online lead is already in evidence.

At Google I/O this summer, Google proudly boasted it has more than a billion users of Google Maps, YouTube, Chrome, Gmail, Search, and Google Play. And more than two billion active Android devices. Granted, Google doesn’t quite have the quality of third-party apps that Apple has (who does?), but I still see a more logical and obvious progression for Google than I do for Apple.

If Google were to leave the battle to forever be between the iPhone and Android, between an integrated piece of modern tech and a mere operating system, Apple’s device would always win. Apple’s not-so-secret advantage is in having tight control over every aspect of the iPhone user experience. Google can’t be out there filing down the sharp edges of the USB-C port on its hardware partners’ devices. But it can design its own, premium-tier device that can go right up against the iPhone. The HTC deal today makes sure of that.

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