Why Is Google Creating A New Hardware Division?

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Reports suggest that Alphabet Inc.’s subsidiary Google (NASDAQ:GOOG) has hired Rick Osterloh, the former president of Motorola to run its newly constituted hardware division which will bring Nexus, Chromecast,  OnHub, ATAP, Google Glass and the company’s other consumer hardware initiatives under one umbrella. For the past few years Google has been struggling to streamline its hardware initiatives and its hardware partners have been working with different divisions within company on various efforts, sometimes competing with each other. We believe the initiative to create a separate hardware division under a veteran leader should help the company get a stronger footing on its hardware projects and adapt its products according to consumer needs.

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Streamlining Multiple Hardware Initiatives

While Google has several ongoing hardware projects, some of these have been struggling to meet consumer expectations. Google Glass was a failure primarily due to bad execution and development of a great idea which can be attributed to lack of a clear “home” for this project. The company is working on enhancing features of its OnHub router. This device can now be used to automate certain behaviors based on things such as the device’s location, time of the day or some other event, triggering emails when that event occurs. As Google aims to make this a smart home device eventually, its inclusion in the newly formed hardware division should accelerate the pace of development.  The ‘Advanced Technologies and Projects’ (ATAP) lab at Google was also left without a head recently when Regina Dugan, who was running this division, left the company to join Facebook. Rick Osterloh handled the ATAP project when it was originated in Motorola prior to its acquisition by Google. This division is focused on Project Aura, a modular smartphone, and should benefit from the leadership of an old hand. While Google’s Chrome and Android divisions are more established and successful, the company is continuing its efforts on new developments in these products. Google is already working on two new Nexus handsets, the successors to Nexus 5X and Nexus 6P models, in a partnership with HTC. These products are aimed at showcasing the best Android experience for users and can boost revenues of Google’s Android division.

We believe integrating its various hardware projects under one umbrella can help Google in several ways. First, streamlining efforts under a common leadership can lead to synergies and avoid competing efforts between hardware arms. For instance Android TV and Chromecast both provide video solutions for the living room of the consumer and combing these under the same umbrella can benefit both divisions.  Second, it shouls allow managment to better evaluate products based on their profitability and potential for growth, weeding out or redesigning products which are unlikely to succeed.  Finally, combininng these disparate projects will allow management to provide strong leadership to some of its “orphan” projects, such as Google Glass and ATAP.

The new hardware division should allow Google to focus on its diverse initiatives in a unified fashion and rationalize its hardware efforts to meet long term goals.

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