This summer, right before our eyes, Google began to morph into something it had always seemed to detest: a hardware company. In May, after federal authorities finally green-lighted its $12.5 billion purchase of Motorola Mobility, Google wasted no time in replacing that firm’s executive ranks with its own team. Then, at its developer conference a month later, the search company released a slew of gadgets bearing its name, including the critically acclaimed (and thus far, commercially successful) Nexus 7, a $200 tablet that Google designed in close conjunction with Taiwanese electronics giant Asus. The other star of that show was Google Glass, the firm’s sci-fi-worthy digital specs, which were flown into the auditorium by a crew of skydivers who landed on the roof. We get it. Google is more than mail and search, but do you really need a team of stunt bicyclists to prove that?
There’s one glaring flaw in Google’s plans: It is diving into the hardware game with one hand shackled behind its back. Google considers Android, its smartphone and tablet operating system, an extension of its primary business, advertising. It gives the software to device makers such as Samsung and HTC for free, in the hopes that those firms’ customers will flock to Google’s ad-powered online services. The Motorola acquisition has rattled those partners, leading Google to protect their tender sensibilities by erecting a firewall between Android and its new Motorola division. The new rules ensure that Motorola’s hardware teams get no more access to Android’s engineering teams than any other device maker would. "I don’t even know anything about their products," Andy Rubin, Android’s chief, told reporters earlier this year.
How bizarre. If Google really wants to succeed as a gadget company, it should merge its Motorola and Android divisions into a single hardware-software powerhouse, anointing Google’s own devices as the true home for Android.
Part of Google’s reticence to do this may lie in its desire to preserve Android’s openness, one of the company’s central dogmas. Yet there’s little evidence that Android’s hippie-dippie structure has led to better devices. While there are some great Android phones on the market, there are many more terrible ones, a situation that hasn’t helped Android’s brand image.
Google needs to make its own machines because its primary rivals—from Apple to Amazon to Microsoft—are now in the hardware-software game. Their products, notably Apple’s, are the most compelling examples of the benefits of integration. Devices that benefited from an integrated development approach have so much more polish compared with run-of-the-mill Android ones. Steve Jobs was fond of repeating the computer scientist Alan Kay’s edict that "people who are really serious about software should make their own hardware," and some of Apple’s greatest innovations—from the multitouch interface to its devices’ long battery life—came about because it builds the chips and the code. The signature feature of Microsoft’s upcoming Surface tablet is a paper-thin touch keyboard that is a marvel both of industrial design and clever software.
Even Google understands this. That’s the whole point of its Nexus line of phones and tablets: to show how wonderful Android devices can be if hardware and software designers work together in close collaboration. And yet it can’t take the next step and work with its corporate sibling.
This half-baked strategy may severely limit Google’s revenue and profit growth. Google has managed to turn Android into the world’s most popular smartphone software, with more than 64% of the global market, according to the research firm Gartner. But it hasn’t translated that success into serious revenue.
Documents in Oracle’s recent patent trial against Google suggest that between 2008 and 2011, Google saw around $544 million in revenues from ads and app sales on Android devices. Apple books that much profit on the iPhone every week. Indeed, even Google makes more from customers using its services on an iPhone than it does from Android. The analyst Horace Dediu estimates that Google makes about $6.50 through ads on each Apple device, compared with less than $2 per Android one.
There’s only one company that does seem to be monetizing Android: Samsung. Since the summer of 2009, when it released its first Android device, Samsung’s smartphone business has generated nearly $20 billion in revenue. But if Google went back on its promise and combined Motorola and Android, what could Samsung do? Nothing. It has nowhere else to go.
The final argument for putting Android and Motorola under one roof comes from the other hardware gewgaw Google revealed last summer. The Nexus Q, a small spherical media hub, was the first consumer electronics device that Google had ever made without a hardware partner, but that soon became a distinction that wasn’t quite promising. The Q earned terrible reviews—buggy, hard to use, purposeless, and, at $299, expensive—and Google decided to delay the launch.
"We always wanted to be in the hardware business," said Google chairman Eric Schmidt in July. Well, the perfect chance to do it is sitting right there, in the form of a $12.5 billion acquisition. What is Google waiting for?
A version of this article appeared in the November 2012 issue of Fast Company magazine.