Google’s Motorola layoffs signal the future of hardware

It should come as a surprise to no one that Google is laying off 4,000 employees at its Motorola Mobility subsidiary.

The Chicago-based telecom vendor has lost money in 14 of the last 16 quarters. It once defined the market with its then-revolutionary RAZR flip phones, but failed to update the devices quickly enough as smartphones began to eat into the feature phone segment. The company regained some footing with the 2009 launch of the first of its Android-powered Droid smartphones, but was unable to break out of the pack of similar offerings from other partners in Google's mobile operating system universe. Continued losses led to growing speculation that the company was inevitably headed for acquisition or bankruptcy.

The anniversary approaches

The cuts, one-third of which will target U.S.-based employees, come almost a year to the day since Google announced its blockbuster $12.5 billion U.S. acquisition of the struggling company, and a year-and-a-half after Motorola had split itself into two separate units, Motorola Mobility and Motorola Solutions, which was not included in the Google deal and continues to sell enterprise networking equipment as an independent, publicly traded company.

Google says the cuts, which will generate a $275 million charge, are necessary to turn things around, and warns things could get worse before they get better. In a statement filed with the Securities and Exchange Commission, Google said, "While lower expenses are likely to lag the immediate negative impact to revenue, Google sees these actions as a key step for Motorola to achieve sustainable profitability."

Although the deal represented one of the biggest gambles in the space in years, Google still hasn't made it clear how it intends to use Motorola Mobility to gain traction as a leading hardware vendor. While Google has released a series of self-branded smartphones under the Nexus banner since 2012, they have been little more than contract-production arrangements, with OEMs like HTC and Samsung building them and slapping the Google logo on the case. The just-released Nexus 7 tablet was manufactured by Android partner Asus. The Motorola Mobility acquisition could give Google its own native research, design and production capability, assuming it allows its new unit to move beyond producing its own legacy-branded devices.

Not so different after all

Google's challenge in expanding from its software and web services core competency into consumer-facing hardware is similar to that faced by Microsoft. The Redmond-based software vendor recently announced the Surface tablets and, in doing so, risked the wrath of hardware partners like Hewlett-Packard, Toshiba and Samsung that have long built computers running the Windows operating system. Microsoft's entry into the hardware market puts it in direct competition with its longtime partners — a similar scenario now faced by Google as its Google-branded devices push up against devices from other Android partners. It's still too soon to determine how the entry of formerly benevolent software licensee-partners as competitors will affect their respective ecosystems, but it's already clear that Google sees this path as essential to its long-term future.

After all, Apple, which wrote the book on vertically integrating the entire stack, from hardware and software to distribution and sales, continues to set the standard for establishing and leading high-margin growth markets. While hardware can be a minefield for even the best prepared organization — look no further than Dell for a case study in how intense competition and commoditization can kill a business — it can also be a crucial avenue to creating strong branding and relationships with consumers.

Google, at least initially, can't expect to make market-leading profit on devices like its Cupertino-based arch enemy. But controlling the design, sale and distribution of its own hardware would give the company Apple-like levels of control over the end user experience. In its current form, Android, with each manufacturer layering on its own so-called "skin" to customize the experience, is a fractured environment that frustrates consumers and developers alike and limits long-term platform growth. A strong Google-based hardware presence would reinforce standards across all vendors' products and drive further growth among users not interested in rolling up their sleeves to tweak their devices.

The time to move is now

Getting rid of 20 per cent of Motorola Mobility's workforce is a good start for a company intent on whipping its most expensive, most critical acquisition into shape. But the clock is already ticking as Apple prepares its next blockbuster phone for launch and Android vendors accelerate their already aggressive product release schedules. Google can't afford to wait for Motorola Mobility to be completely stable before it primes the pipeline with its first wave of truly homegrown phones and tablets.

Beyond the obvious hardware categories, Motorola Mobility brings a legacy of innovative hardware/software integration that fits with Google's goal of making its services universally accessible. The faster it moves to convert the unit into a captive supplier of self-branded products, the faster it can prepare for the building integrated-vendor showdown with Apple and Microsoft.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca