Early in 2012 Google made it clear that it would launch a Google-branded tablet. Underneath the kimono of the announcement lurk both Asus and Samsung as early OEM partners for Google on this project. What is the end result likely to be? Many analysts simply expect to see the same results Google has to show for its Google Nexus - a nice, not brilliant smartphone design with no market share or end user cachet. Is a Google Nexus really a Nexus or just another version of a Samsung Galaxy?
It isn't clear to us why Samsung - the legitimate number two tablet player in both the enterprise and consumer markets in terms of brand recognition and market share - would want to help Google bring a competitor to the Samsung brand into the market. In fact, it has us stumped. OEM revenue from such a deal is not likely to result in a measurable uptick in Samsung's already huge revenue stream but might easily result in creating Samsung brand tablet confusion amongst potential tablet buyers.
It makes more sense for Asus to get involved with Google. Relative to Samsung Asus is not a big player and an association with Google is likely to not only produce tangible revenue but also a tangible bump in name recognition and brand values (if the brand is good enough to play with Google, then it's good enough for me). Asus does have a strong design sense, especially as demonstrated by its line of ultrabooks and its Transformer Prime tablet. We do not see any other upside for Asus, but we do see a very real danger that the company may become distracted from its own brand.
Current rumors suggest that a Google Nexus Tablet being built with Asus may launch in July 2012. It will be interesting to see what this device actually will end up being. It is not slated to be a high end machine. Rather it will likely target the Kindle Fire's market segments.
And Motorola Mobility Is…
Adding to the head-scratching there also remains the question of Google's imminent acquisition of Motorola Mobility (the consumer side entity of the Motorola breakup from early in 2011). Motorola Mobility has its own tablet designs of course - including its new Droid Xyboard 10.1 and 8.2 models, and as a Google entity it would be best positioned to deliver a true top to bottom tablet design and suite of products, across a range of price points and deeply and fully integrated with Google's latest internal versions of Android.
There are still plenty of unknowns surrounding Google's motivations for acquiring Motorola Mobility. Of course there are the patents, which are very valuable but hardly worth the $12B bid for Motorola itself. The Motorola smartphone designs are of value to an independent company but Motorola continues to struggle with revenue - even following the relative success of its Droid phones in their various incarnations. Will Google tolerate losses or only minor increases to its revenue through Motorola?
To find an answer to the need for a Google tablet we need to look at several of Google's key competitors. First, there is Facebook. Then there is Amazon. Facebook, despite its enormous pool of 850+ million users (or rather, its 850+ million people who have Facebook accounts - the actual percentage of regular users is a far less dramatic number). Interestingly, ahead of its pending IPO Facebook has just reported a slowdown in profitability (although revenue is up).
Google necessarily has to view Facebook as an 800 pound gorilla - an interesting position for another 800 pound gorilla to be in. Facebook is still in the very early stages of its growth, yet it possesses enormous potential in terms of advertising capabilities. As the Wall Street Journal has recently pointed out, the right acquisitions for Facebook may very well prove to be media companies - by which we mean entities such as ABC, NBC, CBS - you get the picture. What Facebook needs are significant avenues of opportunity to apply the wealth of data it continues to gather on its 850+ million users. Such a combination, properly and expertly executed, could prove devastating to Google in the longer term.
Meanwhile, at the other end of the spectrum Amazon is the defacto retail giant. And Amazon has done an exemplary job of delivering a sub-$200 Kindle Fire using Google's operating system (albeit a heavily modified version of it). The Kindle doesn't exist to be a tablet for general use. It exists solely to function as a portal for users to find their way to Amazon and buy "stuff." It's a great strategy and Google has noticed that the strategy is very effective.
Google needs to do two things - it needs to protect its advertising revenue and "faces" a Facebook that could conceivably diminish the Google advertising model substantially. While Google seeks to find ways to protect its advertising revenue streams, it is also painfully obvious that the company needs to find substantial new revenue streams that are not attached to advertising or to keywords. On this front Amazon is the prohibitive favorite to dominate. As the dominant player it can create all sorts of roadblocks for Google to expand its revenue streams.
So Can a Tablet Help?
As the ultimate owner of Android, Google does have certain advantages in terms of what it can do with it. For one, it can find ways to tightly integrate Google+ with its own unique version of Android, and in turn tie it to a Motorola tablet design. And it can seek to build a $125 - $150 tablet on the low end, with the right mix of functionality to serve as a highly optimized portal into Google retail efforts.
Such a set of tablets become weapons to fend off Facebook on the advertising side and Amazon on the retail side. We're not suggesting that tablets are going to suffice as complete lines of defense. But we do believe that Google needs to have a tablet arsenal as one plank of a larger scale platform to not only defend against Amazon and Facebook but to also eventually be able to regain an offensive capability - which, it is very clear to us, Google currently lacks.
As it has gotten larger, it has suffered the same fate as Microsoft to a large degree - slower moving, too many existing multi-billion dollar revenue streams to protect and defend, and no direct path to easy innovation. Tablets can prove to be interesting attention getters. Apple certainly continues to demonstrate that hardware is still fascinating to consumers (as its newly posted and enormous quarterly numbers demonstate), and we believe that Google is now on the hunt to figure out how to capture that fascination through its own tablets. Once it does this - or rather if it can even come close to doing so - the company will be better positioned to go head to head with Amazon and Facebook.
A key problem for Google is that the acquisition of Motorola Mobility is taking a long time to come together, and time is of the essence. Even so, we remain somewhat befuddled by the Asus direction Google has taken. To be honest about it we don’t anticipate anything earth shattering to come from the partnership.
It is the Google-Motorola entity that really needs to deliver for Google. It is curious that the owner of Android finds itself behind the curve here. It lags Amazon - a hardened and highly experienced player. And it is directly threatened by Facebook simply because Facebook is still young and has a singular focus (not to mention that behind the scenes lurks a Facebook-Microsoft relationship as well).
So, should we care about a Google tablet? Google certainly hopes so!