Last week, we looked at the fall of Motorola. Google’s purchase of Motorola gave Android fans hope that Google would be implementing vertical integration in an Apple-like manner. Unfortunately, the business was quickly sold off and the dream was dead. Just last week, Google purchased the majority of HTC’s smartphone design team for 1.1 billion dollars. Maybe vertical integration could be on Google’s horizon.
“Vertical integration” sounds like the type of buzzword you would use in your Engineering presentation to make everyone think you know all about business, but in this case, it is no mere buzzword. Apple has perfected the art of vertical integration, and other Silicon Valley businesses have been scrambling to catch up. If you look up the dictionary definition of the term, it will tell you something along the lines of “a single company that expands its business operations to two or more stages of production that are normally operated by separate companies.” In the case of Apple, it means they design their smartphones, but they also design their own CPUs and software. These extra two steps allow Apple to have the best mobile CPU on the market all to themselves, allowing for optimization of their devices to be on another level from that of Android.
Even though Android has separate advantages due to the openness of the platform, many have speculated for years that the only way Android could compete with Apple’s strengths is by a similar vertical integration strategy from Google. Last year, Google started the Pixel line, a new flagship smartphone line with buttery smooth software and a proper advertising budget. Google had been working with manufacturers for years on Nexus devices and never spent nearly as much on advertising as they did with last year’s release. To many, this signaled a new era for Google — one where they might make their own smartphones a priority. Another interesting tidbit about the Pixel devices: Google made them in collaboration with HTC.
HTC has had similarly bad times as Motorola in the smartphone world, but their path was very different. The peak of HTC’s smartphone market share was 11% in 2011, and by 2016 that had fallen to below 1%. HTC has been losing money every quarter since Q3 2013 due to their failing smartphone business. Despite this, HTC has had many great devices and smartphone firsts. The HTC Evo 3D was the first to have dual cameras in 2012. The HTC One M7 was the first metal unibody smartphone and was one of the first to have front-facing stereo speakers. The One M7 and M8 were some of the best smartphones during their respective release years. None of this was enough to sell their devices and turn a profit, however.
HTC’s failures and collaborations with Google eventually lead to Google’s purchase. This purchase is vastly different from the purchase of Motorola. In this deal, only the smartphone team was bought, and patents were licensed. In the Motorola deal, the entire company was purchased with all of their patents. Before, Google kept the patent portfolio and flipped the rest. Here, they share some patents, and absorb the smartphone team to bolster their Pixel line.
This move could be the big step Google needs to compete on a larger scale. It also could save the HTC design team that created phones like the One M8, which I personally enjoyed. The Pixel 2 had its design set long before this deal, so look out for the Pixel 3 next year to see what Google and the HTC team do next together under one roof. Don’t be surprised to see a Google-developed CPU in the next two years either, as that may be the last piece of the puzzle they are missing in their pursuit of vertical integration.