Three reasons why Google acquihired a part of HTC

Google recently entered a cooperation agreement with HTC according to which it is buying a team of HTC (working primarily on Pixel phones) for $1.1 billion. There are a few points that should be understood before we delve into the reasons of this agreement.

Firstly, it is a cooperation agreement and not an acquisition. This means that HTC will continue to function and retain its brand sans the division (called as “Powered by HTC”) and people that will move to Google.

Secondly, as a part of this agreement, Google also retains non-exclusive rights for some of HTC’s Intellectual property. To make it clearer, a Non-Exclusive Licence grants to the licensee the right to use the Intellectual Property (IP), but on a non-exclusive basis. That means that HTC can still exploit the same IP and it can also allow other licensees to exploit the same IP.

Thirdly, the meaning of term ‘acquihired’. As per Wikipedia, Acqui-hiring or Acq-hiring or a talent acquisition, is the process of acquiring a company to recruit its employees, without necessarily showing an interest in its current products and services—or their continued operation.

Lets look at some of the reasons now-

Reason#1: Google’s hardware ambitions:

Google wants to be increasingly seen as a hardware company. In Oct 2016 at the “Made by Google’ event, it announced various products including its Pixel smartphones, Google Home, Google Wifi etc. 

Google has traditionally (if I can be allowed to use the word “traditional” for company as trendy as Google is perceived to be) built a humongous software services business. Sundar Pichai,at the Google I/O event earlier this year, shared that Google Maps, YouTube, Chrome, Gmail, Search, Google Play each has 1 billion plus users and Android device almost twice that scale.

But it brings us to a moot question- why does Google wants to foray into hardware after having built insanely successful empire of software services?

At the outset, I would like to answer this question by putting forward another question. What factors have made Apple as successful as it is now? Of course, it would be naive to just pinpoint one factor for Apple being close to Trillion dollar valuation. But for the sake of argument and the context of this post, that one factor potentially is- “hardware/software synergy.” Apple tightly controls the entire iOS ecosystem and by building hardware of its own it really doesn’t need to deal with complexities that Google has embraced by being a true open system.

Of course, this open-ness (on Google’s part) has got its great deal of benefits including the ones that led rapid proliferation of Android devices (remember 2 billion Android devices as against 700-800 million iOS ones) but in a long run Google apparently has realized the importance of owning the entire ecosystem.

This aspect is well summarized in a Verge article that says-

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.

If we connect the dots from 2016 till now- Google hired Rick Osterloh (former head of Motorola), now leading Google hardware division, introduced slew of hardware products and now the agreement with HTC- it clearly indicates Google’s ambitious plans to make it big in hardware space.

Reason#2:  Google owning entire mobile User Experience

By building its own hardware, Google is really taking its destiny in its own hands. Of course, its not doing bad at all by forging partnerships with the players such as Samsung, Mi etc. but such “broken” approach to dealing with entire ecosystem, doesn’t hold well for Google’s future. The reason for this can be summarized in one word- “User experience”. This narrative from Wired article sums it up well-

Tighter control over manufacturing affects more than just the bottom line. "Bringing that design capability in-house would likely allow Google to design exactly the phones it wants to, giving it both more freedom and a greater ability to optimize designs to get exactly what it wants and needs from the hardware," says Jan Dawson, chief analyst at Jackdaw Research. New technologies like augmented reality and virtual assistants, especially, require massive power and optimization. Apple's ARKit works so well in part because of Apple's new A11 Bionic processor, and its dedicated GPU and neural-processing chips. If Google wants Google Assistant and ARCore to work seamlessly, it needs to make sure the underlying hardware can support them. And even if its traditional Android hardware partners churn out workhorse devices, Google risks that Samsung and others (but mostly Samsung) will eventually want push everyone to Bixby and the Gear VR instead.

Reason# 3: People and IP

The third reason isn’t too difficult to understand. Even though Google paid in excess of $1 billion for this agreement, it probably is no big deal for Google. Given its lofty hardware ambitions and cut-throat competition, time is of utmost essence. If Google doesn’t do this agreement, it will take more than many years to build the experience and IP and will cause it to lose crucial ground in the market.