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November 18, 2013

Can Google Commoditize Hardware?

Android is dominating the mobile space. The latest estimates show that in the second quarter of 2013, 79% of newly purchased smartphones ran the open source operating system. This massive growth has largely been driven by the free nature of the OS: Google doesn’t charge upfront because it makes money delivering ads to consumers while they use Search, Maps, Gmail, and other essential applications. But despite these impressive gains, Apple remains a resilient, and in some ways stronger, competitor. iOS enjoys a healthy percentage of the market in regions that matter most. While Android might have millions upon millions of cheap phones being activated yearly in emerging Asian markets, the iPhone is dominating consumer sales among affluent individuals.

Why is this happening? It’s hard to argue that either offers a superior operating system. Both enjoy huge app ecosystems and most of the advanced software features one would expect to find in industry leaders. Deciding which OS has access to superior hardware is a much more trivial discussion: iPhone industrial design still consistently blows away the top end Android counterparts.

Google’s purchase of Motorola last year was seen as an attempt to beef up their patent portfolio by many, but other industry observers speculated this was also driven by their desire to push Android hardware in the right direction. Almost a year later the world got to see the Moto X, Motorola’s first “Googley” phone. While the device is a quality piece of hardware, Motorola’s recent Project Ara announcement is far more telling about where Google’s hardware ambitions could be headed.

Ara is seeking to solve the problem every consumer faces a few years after buying a smartphone: the device gets slow, it feels outdated, and something new and shiny is announced that warrants an upgrade. Motorola is challenging this purchasing pattern and asking, “What if you could upgrade individual aspects of your phone as you go?”

A modular smartphone would allow consumers to build a completely unique experience; customization could even change based on context. Going on a hike and worried you won’t have access to any outlets for a while? Swap out one of your “slots” for an additional battery pack. Want to take professional looking photos at an event? Upgrade your camera to something a little bit bulkier with zoom capabilities. The ability to swap components could lead to an industry where your phone isn’t made by one manufacturer, but many. Google doesn’t want consumers to be tied to a particular piece of hardware: as long as the smartphone is running Android, they profit.

This could spell trouble for Apple. Their recent decision to give OSX’s Mavericks update to consumers as a free upgrade and to bundle their productivity software, iWorks, with all new Mac and iOS products is a statement about how Apple views its future as a business: profiting off the purchased device, and bundling excellent software for free. To remain competitive they need continue leading the gadget market with innovative products like the iPad and iPhone. If consumers latch on to the idea of mixing and matching components to build customized phones, the tight integration found in Apple’s products could change from competitive advantage to liability.

But they shouldn’t be worrying yet. The concept of a modular phone has plenty of issues associated with it. Modern smartphones are densely packed with all the necessary internal components to maximize functionality and minimize the physical footprint. Any platform that allowed for swappable components would struggle with additional weight and size. Purchasing individual components could also be considerably more expensive than buying all the components “in bulk” as a complete phone. The potential obstacles are sizable, but Ara’s chance of success is increased significantly by a key indicator: early consumer interest.

Phonebloks was a campaign launched on Youtube earlier this year to promote the idea of a completely modular smartphone. The video was so popular (18+ million views) it got the attention of many technology blogs/main stream news sources. Over 900,000 supporters voiced their interest in this type of phone. These supporters also signed up for an app that shared the Phonebloks website on their respective social networks all at once. This “social media bomb” resulted in an audience of over 380 million views. Motorola’s ambitious project had a fan base before it was even introduced.

When Motorola went public about Project Ara, it announced a partnership with Phonebloks. Google will be utilizing the passionate community to give feedback, beta test, and promote the concepts of the hardware platform. Because this project is open source, other manufacturers will be able to get involved and contribute their own modular components. With so much potential for collaboration between companies and consumers, the product stands a good chance of moving from concept to reality. Google took a very similar open source approach to Android, a strategy that led the OS to the powerful position it is in today. Will they be able to do the same with hardware?