With buzz building about Google's newest project, the build-it-yourself smartphone known as "Project Ara," it's worth noting that some company observers are concerned about what Google's side projects are doing to its profit margins.
The tech giant is set to report earnings for the first quarter of 2014 on Tuesday, and while analysts expect that it will post solid revenue, a growing number of voices are asking whether the company is spending its money wisely.
Google is, primarily, a search and advertising company. But it's clearly happy to invest in a variety of other projects that aim to tackle big problems and new challenges. These, in turn, offer Google new ways to make money -- something that's particularly important as the average cost of an online ad drops, and Web users shift more heavily to mobile devices, where the ads aren't as lucrative.
And Google thinks big. For evidence, look no further than its recent acquisition of Titan Aerospace, a drone maker developing vehicles that Google could use to provide Internet connectivity to remote parts of the world -- that is, those unconnected parts of the world it may not be able to reach with the giant, helium balloons it has developed for the same reason. Other Google projects announced in the past year include the purchase of a slew of robotics firms, the smart thermostat company Nest, and investment in projects, such as smart contact lenses that can be used to help monitor glucose levels.
Brian Wieser, analyst for Pivotal Research Group wrote in a note cited by CNBC that "operating margins should continue to fall due to the company's expansion into activities beyond self-service paid search."
In a note of his own, BGC Financial analyst Colin Gillis also questioned Google's acquisition of a robotics firm. "While one might say that it’s a natural fit for Google to have a robot army, we question how owning these businesses inside Google make sense," he wrote.
Analysts expect Google to report earnings per share of $6.39 on $15.5 billion in revenue. Estimates are expected to be particularly good given the fact that Google's now moved all operations from its money-losing Motorola hardware unit into "discontinued operations," after buying and re-selling the firm, all in less than two years.
Project Ara started at Motorola, and essentially aims to apply an Ikea-like model to the smartphone -- you have to build it yourself. As outlined at the company's first Ara Developers Conference Tuesday, the smartphone is imagined as a first step into a mobile world where users are able to pick components for their smartphones almost as easily as they pick up the apps to use on those devices.
The "Gray Phone" -- so-named, CNET reports, because it's purposefully boring to encourage customization -- will go on sale in January for around $50. The basic part of the smartphone, a metal exoskeleton, will last for between five and six years, the report said. But users will be able to swap out the parts that they want to upgrade as desired, meaning that there could be a steadier stream of revenue for Google as enterprising users buy smaller, custom parts for their devices.
Oddly enough, the company's own mobile operating system, Android, doesn't yet work on Ara smartphones, but that's not expected to last long.
The firm is going to put in the necessary drivers for Android support in December, project leader Paul Eremenko said in a presentation Tuesday.