Google really wants you to know that as early as spring of 2013, something big is coming from Motorola, the mobile phone manufacturer Google acquired in May 2012. And while Google executives didn’t mention it in today’s earnings call, that thing is very likely to be the Google “X Phone,” a mobile device as advanced as Google can possibly make it.
At this point its existence and capabilities are pure speculation—rumored features range from a bendable screen and a ceramic case to advanced gesture recognition technology—but whatever it is, it will be the first true “Google phone,” where everything from its hardware to its software will be under Google’s complete control. (Past efforts at creating Google-branded devices, as in Google’s Nexus line of phones and tablets, have always been partnerships with a variety of manufacturers outside Google.)
Twice during today’s earnings call, Google executives emphasized that when the company bought Motorola, Motorola already had a 12 to 18 month “product pipeline” in the works, which Google is still “working through.” Google could have shut down Motorola’s work on existing handsets, but that would have involved bigger short- and long-term losses than the company was apparently willing to take. It also means that all of the devices that Motorola has released since it was acquired were already in the works, and the same is likely to be true until at least spring of this year. (A good example is the Motorola Motogo! phone, which looks like a dated BlackBerry and doesn’t even run Android.)
In today’s call, Google CEO Larry Page said that “In today’s multi screen world, the opportunities are endless… battery life is a huge issue… when you drop your phone it shouldn’t go splat. There’s a real potential to invent new and better experiences.” Page also mentioned phone recharging as a pain point for people. This is speculation, but the obvious interpretation of these comments is that Google is working on—or at least thinking about—phones with extra long battery life, some kind of novel (perhaps wireless) recharging capability, and a case that won’t break when the phone is dropped. (Which is possibly a reference to earlier rumors about Google’s X Phone using an extra-hard case that incorporates ceramics.)
Motorola lost $152 million in the fourth quarter of 2012 but, insists Google CFO Patrick Pichette, “We’re not in the business of losing money with Motorola or even cross subsidizing it.” He did warn that as Motorola is restructured, it could suffer more losses.
“On the financials themselves, Motorola was hindered by a portion of amortization of intangibles by the acquisition [by Google],” added Pichette. “So, all in all, when we look at the losses like this quarter, of $150 million, when we take out the amortization these are not consequential losses either to Google or to the momentum we’re seeing [at Motorola].” Translation: Motorola can lose money in the short term, because long term it’s a very important strategic asset for Google.
At other points in the call, Page and other Google executives emphasized that products like Google Maps, which don’t generate much revenue on their own, are still essential to keeping users searching on Google.
“The component of queries that are geographically related, it’s a huge number and always has been,” said Page, who also called maps “critical” to people’s search experience. To drive the point home, he mentioned that while Google is in the early stages of making money on maps, “on the search side we have significant revenue already.”
Google appears to be pursuing a similar strategy with mobile. Advertising on Google search continues to be the primary way that Google makes money. And Android-powered devices built by Google are one more way to guarantee that users will continue to use Google’s services, and especially Google’s search.
One risk for Google is that smartphone makers adopt its open source operating system software but don’t include Google’s apps and search when they install it on devices at the factory. Another issue is that the big smartphone makers such as Samsung instead use rival operating systems. Already, Samsung appears to be inching away from Android as the primary operating system on its mobile devices.
Making its own devices is a way for Google to make sure Android is on as many smartphones as possible, along with Google search and apps. It’s also a way for Google to finally profit directly from Android, since it does not charge manufacturers a license fee to use it.