Google and Microsoft are shifting long-standing strategies as they chase the success of Apple’s best-selling iPad. Both companies have made their names by providing the software that powers devices made by others, but they are now following Apple’s lead and releasing their own hardware.
Google jumped into the fray Wednesday with its Nexus 7 tablet. Made by Asus, the tablet bears the Google brand name and is made specifically to showcase Google’s content. This approach has worked fairly well for Google’s Nexus smartphones, which are aimed at Google’s most dedicated users. At $199, the seven-inch tablet will also compete with Amazon’s Kindle Fire.
Microsoft announced last week that it was releasing Surface tablet, a 10.6-inch device designed to compete with the iPad and other high-end laptop replacement tablets — a rare hardware push from a company whose focus on software is in its very name.
The moves give the companies more control over their products, providing a straightforward way to get their software and entertainment offerings into the hands of consumers.
“Apple showed everyone that the best end-to-end product is one that you design yourself,” Motley Fool technology analyst Joe Magyer said. Magyer, who owns stock in Google and Amazon, said that it’s pretty clear that other companies are “copycatting Apple into hardware.”
Google, which finalized its acquisition of hardware partner Motorola Mobility last month, has also taken a small step toward manufacturing its own devices. In addition to the Nexus 7, Google announced a media streaming device called the Nexus Q — its first in-house hardware product.
Google and Microsoft declined to comment further on their device strategies.
The companies’ hardware partners should be watching the product announcements with a wary eye, analysts said.
“I’m worried if I’m Nokia or other critical Microsoft partners on mobile, because it shows Microsoft is willing to go it alone,” Magyer said, adding that the same is true for top Google Android partners such as Samsung.
Still, it’s unlikely that Google or Microsoft will scale back their relationships with other manufacturers as they try to get their devices in the hands of as many consumers as possible.
“Google and Microsoft will hope that manufacturers will say, ‘Yes, we want to support Play and Windows,’ ” Forrester analyst James McQuivey said. “But if they decide that they don’t want to support them, then Microsoft and Google have a way to move the market forward.”
Technology watchers should expect more hardware products from Google, said BGC analyst Colin Gillis.
“This is Google’s first toe in the water for tablets under their own flagship moniker, and there’s going to be more to come,” he said.
Analysts say it’s clear that while hardware is a key piece of Google’s strategy, its endgame is to hook users into buying its apps, video, music and e-books, looking to emulate Apple’s success with its App Store and iTunes store.
That was clear from Google’s focus during its product announcement how seamlessly the Nexus 7 will connect to things Android users have already bought through the system. Android engineer Chris Yerga said that the device has been optimized for the Play Store, and Google users will be able to access their Android content on the tablet right out of the box.
“The real competition is not about the devices in the long run but about Google Play versus iTunes,” McQuivey said.
By pricing the device at $199, Google can target the market that is shut out by Apple's higher prices — as Amazon’s Kindle Fire has — and make its money on the revenue it pulls in from its entertainment content, analysts said.
In the long run, under that model, Google could be competing not only with its fellow technology companies but with media companies, too. For now, Google doesn’t have the breadth of content to compete with traditional cable companies, McQuivey said. But it is a sign that cable companies will face more competition going forward.
“This is yet another major company to take away people’s attention from cable,” he said.