What is Google thinking with $1.1bn HTC acquisition?

(c) Sky News 2017: <a href="http://news.sky.com/story/what-is-google-thinking-with-11bn-htc-acquisition-11046355">What is Google thinking with $1.1bn HTC acquisition?</a>
 

It’s not clear whether it was Albert Einstein, Mark Twain, Benjamin Franklin or even an unknown Chinese philosopher who was the first to say that the definition of insanity was doing the same thing over and over again and expecting different results.

Yet it was a quotation that sprang to mind on learning that Google is paying $1.1bn for parts of the Taiwanese handset maker HTC (Shenzhen: 200771.SZ - news) .

Because it seems like only yesterday - in fact, it was in 2011 - that Google was spending $12.5bn for Motorola Mobility.

The deal was a flop and the business was offloaded to Lenovo, the Chinese technology company, for just $3bn only four years later.

So what is Google up to? Well, in a word, renewing its efforts to take on Apple (NasdaqGS: AAPL - news) .

Apple dominates the global smartphone market and, in order to keep up with it, Google appears to have concluded it simply has to have a meaningful presence in hardware.

Android, devised by Google, is the world's most popular mobile operating system.

It is in getting on for two-thirds of phones, tablets and related devices worldwide, twice the market share of Apple's iOS, yet it is Samsung - which of course uses Android - that is the primary competitor to Apple.

So having its own manufacturing capability and being able to develop hardware and software together will be a major attraction to Google.

Android has been a profitable product for Google - but licensing it out to other handset and tablet manufacturers, like Samsung, has led to a lack of consistency in the way it is used and, possibly, has prevented all of Android's strengths and benefits from being showcased in one product.

This is understood to have been a cause of frustration to Google.

Accordingly, if Google can build up its own handset operation, it can have more control over Android's destiny, even if this does along the way put at risk its relationships with other companies, such as Samsung, ZTE (Xetra: A0M4ZP - news) , Huawei and LG (KSE: 003550.KS - news) .

One of Apple's strengths, which Google will hope to replicate, has been the way it has been able to develop hardware and software alongside each other, even if it has contracted out the manufacturing of its devices to Foxconn, the Chinese company.

The 2,000 people being acquired by Google as part of this deal includes the team that helped develop Google's Pixel smartphone - which, the company will now be hoping, will now be further differentiated from other smartphones on the market using Android.

This transaction will also have the added benefit of lessening Android's reliance on Samsung which, if the latter builds up its own presence on software, will be essential.

There is a view that, with the likely growth of Artificial Intelligence (AI) and other tech trends such as Augmented Reality (AR), it is going to be ever more important to be able to knit together hardware and software development.

This was highlighted when, at the launch of Apple's new iPhone X last week, the new gizmo's AR capabilities were showcased.

Then there is the price. At $1.1bn, this acquisition is clearly less expensive and less of a financial gamble for Google than Motorola Mobility was, even if HTC's share of the global handset market has fallen from 9% just six years ago to less than 1% by the end of last year.

The other big contrast with the Motorola Mobility deal is that, with the benefit of hindsight, that transaction was really all about Google seeking to get its hands on a lot of Motorola patents.

So, while this does on the face of it look like doing the same thing and hoping for a different result, Google genuinely is up to something quite different this time around.

Or so its investors must hope.

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