Google wants to build a serious hardware rivalry with Apple - but it will take much more than a new chip to fix its messy product strategy

AP

Rick Osterloh, senior vice president, Devices & Services.

• Google is reportedly working on a custom chip for its range of smartphones and tablets, which would give the company more control over building future phones and laptops.
• However, the company faces many other challenges if it wants to succeed in hardware. The division has faced an identity crisis for several years.
• Rick Osterloh currently oversees Google's hardware efforts, and took charge of the division in 2016.
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For the past four years, Google, a company that built its kingdom on search and data, has puffed out its chest and told the world it's now a serious hardware company.

But its efforts have often been clumsy and confusing.

Yet there are signs that the company isn't abating. According to a new report from Axios, Google's 2021 lineup of phones and laptops could be powered by silicon that the company builds itself.

The report claims Google has made "significant" progress in making its own processor that would power future Pixel smartphones and Chromebook laptops, replacing the Qualcomm silicon that runs inside them today.

That chip would also be optimized to power Google's machine-learning technology and improve the performance of Google Assistant, the company's voice AI.

All told, it would give Google power to better tailor its future products, while placing the company on a more even playing field with Apple, which has long had a unified approach to software and hardware in its phones.

To date, Google's Pixel phones, which are rolled out annually, have showcased the company's most cutting-edge software features, but they've not proven to be huge sellers. The Pixel 4, the latest in the range, was also a surprising disappointment among reviewers. While CEO Sundar Pichai boasted about strong sales across other products in the company's last earnings call, he downplayed the success of the Pixel 4, suggesting it hasn't been a huge performer for the company.

Will a custom chip launch the Pixel 5 or Pixel 6 into the big time? It will certainly help, but it also risks further confusing Google's relationship with the third-party companies it leans on to sell the majority of Android phones - companies that are both an ally - and increasingly - a competitor.

Google is gradually unifying its overall hardware line of products, which includes phones, laptops, wearables, and smart home devices - but it's taken the company years to get its ducks in a row, and even now it's not clear that there is a cohesive strategy going forward.

"Made by Google as a tagline is something that has just come about in the last 18 months, whereas Google has been trying to sell hardware for a very long time," said Rohit Kulkarni, an Alphabet analyst at MKM Partners.

Google's entire hardware line is currently overseen by Rick Osterloh, who commanded Google's first "Made by Google" product launch in October 2016 to kick off the company's hardware play.

But Google is yet to generate the same level of buzz that Apple manages to create around its annual iPhone launches. "Think about what Apple does when it launches a new phone. We don't see the same amount of marketing muscle from Google," said Kulkarni.

"I also think from a regulatory standpoint they are to some degree handicapped, given Android's position in the marketplace," Kulkarni added, referring to Android's current stronghold of over 86% of the global smartphone market. That, he believes, could limit Google's ability to leverage Android's popularity for its own hardware, or otherwise attract attention from regulators.

Identity crisis

Outside of the Pixel line, Google's to-ing-and-fro-ing on branding has also caused much confusion over the past few years. When the company structure was blown up to form Alphabet in 2015, Nest, the smart home company it acquired just a year before, was kept at arms length from Google's own smart home efforts.

But last year the division was finally rolled into Google, with some Nest products launched just months before getting a rebrand while still on the shelf.

Google has used its smart home products in particular to demonstrate the benefits of "ambient computing" that come from its AI software and services, but some analysts believe the company needs to evolve its software-first mindset if it wants to win at hardware.

"I think it's evolving through slow baby steps," said Kulkarni. "If and when they close the Fitbit acquisition I think that will be the third muscle hardware acquisition the company will have taken, [following Motorola and Nest]."

Google's wearable platform was too rebranded, in 2018, from Android Wear to WearOS, a way to better signify that the watches also worked with iPhones. But its wearable play has still failed to resonate among users, something it hopes will be fixed by its acquisition of Fitbit, though it faces increasing scrutiny from regulators over the deal. And even if the deal goes through, it faces another brand challenge: keep Fitbit and WearOS together, or keeps them as two separate and competing product lines?

Sources inside the company have described a particularly messy approach to Google's wearable strategy, with a lack of direction for several years. The company came close to launching its own Pixel Watch in 2016, but pulled the plug, and is yet to deliver a smartwatch of its own.

As of right now, employees at both Google and Fitbit tell Business Insider that little has changed since the announcement of the acquisition, and will likely remain that way until it is completed.

For Google's wearables, a better chip would actually be more valuable, as Qualcomm's sluggish iteration in smartwatch chips has kept Google's WearOS partners behind while Apple has whizzed ahead. If Google is working on a new chip for its phones and laptops, it would do well to build one for its wearables too.

Google has plenty of muscle in software and services, but when it comes to building the hardware around it, it needs to formulate a better long-term plan and stick with it.

"I think they're forcing themselves into creating a hardware muscle," said Kulkarni, "but it's TBD whether they can grow that, no matter what the company does."

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