Don't believe the hardware hype: Google's still an ad company

Google doesn't need to make money from hardware, but it does need hardware to make money from its services. That's why it designs new hardware.

The big event at every Google I/O conference is the Oprah moment, when the keynoter tells the throngs of developers what gear they'll be taking home. That's when the audience usually goes wild. And so they did again this year, when developers heard they'd be taking home three shiny Google devices -- two of them so new you can't even buy them yet. A fourth gizmo was added during the second-day keynote.

With the focus so much on the new toys, it sometimes feels like Google is shifting its focus to hardware, eyeing, perhaps, Apple's primary business model. 

But Google is not a hardware company and is not becoming one. It is still an information company. Its main product is still its search engine. And it still makes 96% of its revenues from advertising.

Hardware, for Google, is an avenue for that business, and it's likely to remain so. It's not dissimilar to Amazon -- also not a hardware company, per se, no matter how much money it makes from its line of Kindle readers and tablets.

Is this the new face of Google? No. Sarah Tew

But Google needs to push the state of the art with hardware -- or, if we look at things from the company perspective, let's call them "Google access devices." That's because the old model of providing browser-based search and advertising is increasingly challenged by the mobile revolution, and Google, in this technological transition, has an opportunity to guide a generation of hardware makers into creating Google-friendly devices.

Mobile users don't have the real estate nor the attention to search the Web the old way nor will they divert their attention to old-fashoned advertising links. But Google's revenues still come from advertising. The company doesn't even get a tithing from smartphone manufacturers that use its mobile operating system, Android. Instead, it makes its money from ads in its own mobile apps and from mobile ads running in third-party Android apps.

Google's doing extremely well in pushing Android into the smartphone market. It's done less well with tablets, but that's not a battle it can afford to lose. Hence the Nexus 7, which is Google's attempt to re-launch its own tablet user base. Google needs developers and influencers to be aware of and excited by Android on tablets. That's why it gives tablets away at Google I/O (in 2011, it also gave out Galaxy Tab 10.1 tablets).

The Nexus Q, likewise, is not about Google selling living room media streamers (and it's not going to; that product is far too expensive). Again, Google needs users in this space, and by putting Google's media store in 5,500 developer living rooms, it's trying to light up this new space.

Whether or not that effort is successful is another question; Google is battling Amazon, Apple, Netflix, Spotify, and several other focused businesses that have their services on multiple hardware platforms already. But Google has the resources to kick-start a business unit with big giveaways. So why not do it?

Google's not pushing all this hardware into developers' hands because it's a hardware company. Hardware companies don't give away hardware. That wouldn't prove anything but that people like free hardware.

Hardware companies sell hardware and give away software (or content). Services and software companies, like Google, do what they can to get people to user their products, which makes them money, in any way they can. If they can afford giving users the products to access their services, why not do it?

Google is in the position to make gigantic bets on hardware that ultimately are designed to get people to use its information services. Even its self-driving cars fit this model. 

If you're driving a car, you cannot (or should not) access the Internet or consume media. Not if you want to stay alive. The way this problem is solved by almost everyone: Make it illegal to message or view streams while driving. The way Google solves this problem: Make driving unnecessary so people can use the Net while they're on the move.

It's an extremely big bet, but the payoff is Google-scale: If the company can free up the time people spend driving so they can use it instead to be online, guess who wins?

 

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