Google finally finds its bedfellow with HTC

The value to Google of the deal with HTC is to use it as a platform to showcase how technology on the Android platform should be implemented. Its devices will continue to stand as a reference for Google’s OEM partners on how to implement technology innovation that will come from Google Labs, while fully utilizing the most recent releases of the Android OS. The deal, however, is also set to upscale Google’s smartphone portfolio enabling it to develop as a competitive threat to its partners as well as to others in the marketplace.

Google has trodden this path before with both its Nexus branded products and through the acquisition of Motorola. In terms of the Nexus devices, each year Google has delegated their manufacture to one of its partnering OEMs, which includes HTC as well as Huawei, Samsung, LG, and Motorola. Although no one could argue about the superior capabilities of the Nexus devices, they have not been the most attractive in terms of industrial design. The Nexus OEMs have, understandably, dedicated minimum efforts to the designs because they were not given any real incentives by Google to promote or position these devices, which are, in effect, competing against their own flagship smartphones.

For a while, Google shied away from a full-blown acquisition as it did not want to exacerbate any competitive threat it may pose with its own customers, but then it bought Motorola in 2011. Its main reasoning at the time was to acquire Motorola’s patent portfolio to protect against Apple (and Microsoft) while also providing stiffer competition to Samsung (although Google would never admit to this). Google’s plan was to drive Motorola devices into the mid-range and lower price tiers so that it could push Android and Google services out to a wider audience, selling the smartphones at, or below, cost. This all ended abruptly in 2014 when Google sold Motorola to Lenovo, ridding it of its manufacturing burden while keeping the majority of Motorola’s patents. As an adjunct to this saga, and perhaps a sign of what Google wishes to achieve with the acquisition, is the sight of Rick Osterloh, head of Google’s hardware department, spearheading the relationship with HTC having also lead the handsets businesses at Motorola and then Lenovo. The message here being, wherever he goes, ergo there will be a hardware business.

While the HTC deal has many parallels to Google’s previous forays into the smartphone market, this time round it has the hallmarks of being a much different, successful partnership. Notably, HTC has worked closely with Google over the past ten years as a key manufacturer of Android and Nexus smartphones, as well as being a lead original equipment manufacturer (OEM) for its latest Pixel devices. Moreover, HTC does not have the unwieldy scale and baggage that came with Motorola, and there are no signs of any manufacturing facilities swapping hands under the terms of the deal. In addition, although HTC does not have a particularly large or important patent portfolio, Google has secured authorization to use those that make most sense to the partnership.

What is also in Google’s favor is that it is buying just a part of HTC, and it is a part that can help push forward smartphones with a superior, elegant industrial design while also delivering in-house a much tighter integration between hardware, the Android OS and Google’s services. Moreover, HTC’s premium brand strength sits well with the higher-priced aspirations of the Pixel range, despite current Pixel shipments totaling at less than 3 million. The tie-up will enable Google to grow scale in the high-end using an outsourced manufacturing approach, thus becoming a major competing threat to the other Android OEMs, as well as Apple, rather than acting as just a platform point of reference.

Indeed, it will be interesting to note how competitors such as Samsung react to the news having tried and failed in the past to be less reliant on Android through the creation of differing ecosystems and services. Furthermore, the advantages that their current flagships products enjoy, packed with high-end features and leading technologies, such as gigabit throughput, biometrics, OLED displays, and all-screen designs, are sure to be short lived once the new partnership beds in and Google’s Pixel portfolio strategy starts to take shape.

And where to next for what is left of HTC? Ultimately, such a deal makes sense for the company. The injection of cash will be a welcome relief as it has been struggling to make a commercial impact in the smartphone market for some time despite being one of the most aggressive OEMs in adopting technology innovation. However, its remaining smartphone business will face a continuing struggle to stay competitive in the market with the likes of Huawei, Lenovo, Oppo, Vivo, and Xiaomi challenging for volume and margins. The company could find itself squeezed even further if it also hives off its nascent Vive VR business.