Google's US$1.1 billion acquisition of HTC's smartphone engineering arm is not a direct assault against its chief rival, Apple. But it is a recognition of Apple's successful strategy.
It is also an acknowledgement that an ecosystem dominated by hardware manufacturers and telecom providers – each with a set of priorities and plans that doesn't dovetail with Google's – results in a myriad of devices that run the gamut of quality.
With that in mind, Google's buyout of HTC's engineering IP will enable it to create a pure Android play by marrying hardware and software in a move that could eventually reduce fragmentation in the Android ecosystem.
HTC has acknowledged the deal with Google will affect about 2,000 of its own engineers, who help control the design of the of interior of a Google phone, and therefore can create better integration between cameras, sensors and processing chips from the likes of Qualcomm.
The resulting "flagship" smartphone will become a standard to which Google hopes other handset makers will aspire.
"It's the same thing Microsoft did with its Surface computer," said Frank Gillett, a principal analyst at Forrester Research. "They got impatient with the product [manufacturers] four or five years ago feeling like they didn't have strong enough flagship products to compete against the Apple Mac product line."
So, Microsoft designed its own hardware to establish what it thought would be the flagship Surface laptop and delivered the integration of hardware and software in a way only a vendor that controls both can do.
Microsoft has tried to separate its Surface hardware team from the software team so that Windows device manufacturers still feel they have a role.
"Microsoft is not trying to take over from all the OEM partners. They do compete with their partners there, but not for the bulk of the market. That's what I expect Google to do as well," Gillett said.
What Google doesn't get from the HTC deal is chip engineers, which it will likely need to acquire in a separate deal.
Android and iOS now account for 94% of the mobile operating system market worldwide, according to Forrester Research's just-released "Mobile, Smartphone, And Tablet Forecast, 2017 To 2022." Android is the dominant platform for smartphones, capturing 73% of the market with more than 1.8 billion subscribers in 2016.
Android is expected to maintain its lead this year, according to Forrester, with 74% of the market, followed by Apple with 21% and Windows Phone with just 4%.
Android, however, has an image problem.
Device manufacturers play a key role in making phones and tablets more secure, and with a fragmented ecosystem where software upgrades are controlled by carriers, some updates have been known to be delayed for months.
"Android also has a problem in that the latest version of Android OS is generally a small portion of the base of devices in the marketplace," said Jack Gold, principal analyst at J. Gold Associates. "So, when upgrades are issued, not everyone gets them. Whereas, when Apple upgrades, everyone gets it."
Apple, which just this week rolled out iOS 11, has a unique relationship with telecom providers where it insists on controlling everything from application testing and device certification to OS updates. That way, when an iOS update or patch is released, it is immediately available to all devices that run the operating system.
Tuong Nguyen, a Gartner principal research analyst, said that by marrying hardware and software, Google is likely hoping to bring some consistency to the Android user experience.
"They're trying to get some of that consistency reigned in, probably first and foremost," he said.
Nguyen agreed with Gillett and pointed to Google's Pixel smartphone as an example of a high-end, but limited release, device that was never meant to outcompete its Android partners.
"When you do that [compete against other leading vendors] you do a global release with multiple carriers and through carrier channels rather than the online market," Nguyen said.
At the same time, the high-end Android phone likely to result from re-engineering hardware would become a direct competitor to the leading producer of high-end Android phones: Samsung Electronics.
That, however, is less a concern for Google whose message to the Android market will be to compete for everything and for Samsung to take the new hardware head on. In that way, it mirrors how what Microsoft did to the Windows tablet market several years ago.
"Samsung lives in that premium space, so, in effect, this is a direct challenge to the Galaxy S and Note lines," Gillett said. "Now, the Samsung response will be that the deep engineering they've done with the Knox technology that builds security into the phone means they will have a stronger security play for enterprises – and I'm sure they'll argue they're better at security than the Google phone will be."
This is not Google's first foray into hardware. In 2011, it paid $12.5 billion for Motorola with plans to make its own smartphone, but three years later it sold the handset maker to Lenovo for $2.9 billion.
What Google discovered is that most handset makers don't make much profit on the hardware; and because it wasn't interested in investing more money into Motorola, it decided instead to simply keep the IP and hardware patents, Nguyen said.
"The Microsoft Surface, again similar to Google's Pixel, was not mean to outsell or compete with Asus or Dell or whomever," Nguyen said. "They were trying to promote the platform and show how it could make a nice, high-end device. They were saying, 'We want you to follow our lead.'"
Google and HTC already have a history of teaming up on handsets. HTC worked with Google to produce its first smartphone, the Pixel; the next version of the Pixel is expected to be announced Oct. 4.
Google's hardware play is also likely to extend beyond smartphones, with tighter hardware and software integration for its new Chromebook, expected to be called Google Pixelbook.
Google also makes the Chromecast streaming device and Google Home, a smart speaker, and it's enabling third-party speaker manufacturers to use its Google assistant on their devices.
"So again, what I think we're seeing is Google building up their capability because they recognize that the strategy Apple has pursued works in many hardware categories – the deep integration of hardware and software," Gillett said. "Google is now seeking out a flagship position in multiple hardware markets to prove to the market and its partners that this is the vision; now, compete for the rest of the market and challenge us for the flagship position."
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