Google Manufacturing

Our sister publication, theOpenSourcery.com, did a story on the day the Google buy out of Mototrola was announced. Unlike the markets which punished Google stock with a 3% drop that day, theOpensourcery was much more positive about Google’s buy of  giving the following five reasons:
1)Google is going to operate the company as is and not bring Mototrola into the Google fold – this means minimal disruptions and has later advantages;
2)Google has got its major other hardware partners on board – see here;
3)Google is reiterating its open pledge for Android – its chief selling point to hardware makers. Thus a major Linux influenced OS will remain an open player in smartphones and tablets;
4)Google now has a hardware arm where it can get fast feedback on software+hardware ideas and inventions. A Nexus like foundry to set minimum standards for Android hardware;
5)Google gets some key mobile patent protections that it would have had to pay $6B+++ for.
Point 4)”Google now has a hardware arm” is worth examining in more detail. This examination is inspired by MarketWatch’s John Dvorak who wrote that Google Had to Grow or Die back in February. The gist of the article was that Google had all its business eggs in one basket – Search and  Online Advertising. According to John Google needed to do an IBM and expand into more markets by creating 2 or more  competitive teams to enter those new markets[IBM could use some of their own medicine right now – see IBM Watson]. John appeared to ignore the important ChromeBook versus Android development teams within Google.

Even more telling has been the series of investment annoucements by Google:

Google+ – self investment in social media that has been a clear winner from day one
Dealmap – $6.5B  investment in its online advertising business, Group On 2nd try
Motorola – $12.5 B, a 63% premium, for mobile smartphone and tablet maker

The first two are largely designed to expand the Online Advertising side of Google’s business. But the Motorola buy seems at first glance a defensive move to get many early and key patents to counter Apple, Microsoft and Oracle among others  who have been attacking Google on the patent infringement front. However, ye Editor thinks the Motorola purchase is multifaceted well beyond getting all those patents and providing a standard mobile development platform although the latter is quite important to Google.

Google has been in the “search-engine appliance” manufacturing and retailing business making  its own Search Engine Appliance since  the early 2000’s. But it is also in the manufacturing business for all the servers it “customizes” for its huge Search Server Centers. Given the millions of servers and workstations involved, Google is on the frontlines of IT manufacturing. I suspect it does not like what it sees – as US vendors off-shore more design and manufacturing capability for the critical resources Google needs – see  the must read  Forbes articles by Steve Denning here and then here and the associated Harvard Business Review ideas here.

So investment in Motorola serves two major purposes beyond the patents. First, Google will be able to develop and deliver reference hardware like the Nexus series of Google smartphones to a)provide a base level of Android and Chromebook  implementation and innovation for its OEM competitors to match/exceed and b)it will allow Google to innovate in areas using Android and ChromeBook where its OEM developers have been slow or reluctant to go but which Google thinks are big market opportunities. Clearly the mobile marketplace is much bigger than smartphones and tablets.

But second, Google is concerned by the decline in electronic design and manufacturing capability in the US. Here is how Steve Denning describes the situation.

The U.S. has lost or is on the verge of losing its ability to develop and manufacture a slew of high-tech products. Amazon’s Kindle 2 couldn’t be made in the U.S., even if Amazon wanted to:

  • The flex circuit connectors are made in China because the US supplier base migrated to Asia.
  • The electrophoretic display is made in Taiwan because the expertise developed from producting flat-panel LCDs migrated to Asia with semiconductor manufacturing.
  • The highly polished injection-molded case is made in China because the U.S. supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China.
  • The wireless card is made in South Korea because that country became a center for making mobile phone components and handsets.
  • The controller board is made in China because U.S. companies long ago transferred manufacture of printed circuit boards to Asia.
  • The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.

An exception is Apple [AAPL], which “has been able to preserve a first-rate design capability in the States so far by remaining deeply involved in the selection of components, in industrial design, in software development, and in the articulation of the concept of its products and how they address users’ needs.”

Clearly after the Google China fiasco, Mountain View does not want to be dependent solely on Chinese or even broader Asian electronic design and wizardry. Google wants to be more like Apple but different. Mountain View wants a more robust domestic electronics development market. Will this also mean more domestic manufacturing? Yes, but not necessarily in large numbers. Rather, its a way to keep all its suppliers more innovative and “honest” rather  than a domestic employment scheme. So look at Google differently – it has always had a huge electronics customizing business – now with Motorola, its more than ever before Google Manufacturing – in the best sense of manufacturing:  all phases of hardware design, development, production, support and services. Google is doing a reverse IBM.

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