Why Google And Microsoft Are Following Apple Into The Hardware Game

(3:11 pm PDT, Feb 22nd)

chromebookpixel

Google announced its first computer yesterday, the ChromeBook Pixel. Yes, they’ve had ChromeBooks for a few years now, but this is the first computer product that was made solely by Google.

Over the past few years we’ve seen service and software oriented companies like Google, Microsoft, and Amazon venture into hardware development. It’s left many people scratching their heads, as we wonder why these companies want to shift their focus to hardware when they’ve dominated by just offering great services? Asymco’s Horace Dediu is pretty sure he knows the answer, and it all comes down to money.

You see, even though Google, Amazon and Microsoft are all very successful, their profits are nothing compared to Apple and Samsung’s. The company making the most off Android isn’t Google right now, it’s Samsung.

“Apple and Samsung tower over the fortunes for software only Microsoft or service-oriented Google and Amazon. Although all companies are growing, the value, as defined by the buyer, resides in the whole product. Putting aside all the theory, the numbers are staggering.”

googleprofitvssamsung

Google, Microsoft and Amazon aren’t particularly good at generating profits the way Apple and Samsung are. In order for those companies to dominate the tech world, they need to start pushing their own hardware. It’s why Google introduced the ChromeBook Pixel yesterday. It’s why Amazon has moved the Kindle from a cheap eReader, to a high quality tablet over the last few years. And why Microsoft is feeling the pressure to make a great tablet of their own.

If Google and Microsoft want to catch up to Apple’s profits, they’re going to have to start operating more like them and offer completely integrated products. Come to think of it, those rumored Google Stores are starting to make a lot more sense after all.

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  • http://www.facebook.com/people/Steffen-Jobbs/100001574843303 Steffen Jobbs

    I don’t get it. Although Google, Amazon and Microsoft need to catch up to Apple’s profits, then why is Wall Street saying Apple is doomed? What makes Apple doomed despite it making the most profits? Does it make sense for Google, Amazon and Microsoft to chase a doomed company? There are too many contradicting stories to fully comprehend who’s telling the truth. Hey! Just because Google starts putting up retail stores, does that necessarily mean that consumers will be buying from them? Anyone can put up stores.

    • McRCN

      There is a a bit of irony that all these companies want to be like Apple. However, all of their die hard customers hate Apple. However, at the end of the day Amazon is a retailer, Google is an advertising company and Microsoft is surviving off of legacy products.

      • http://www.facebook.com/profile.php?id=1197157112 Christopher Iwan

        You hit the nail on the head.

      • http://www.facebook.com/profile.php?id=1197157112 Christopher Iwan

        I don’t believe all those people really hate Apple. I think they hate the fact that they haven’t bought into the right eco-system. There is no way they can hate a company that their company is trying to mimic. Don’t get me wrong, Google does some great stuff and Amazon provides great services; Microsoft, well they are becoming increasingly irrelevant in the consumer market.
        Mimicing is the greated form of flattery.

    • NutjobNumber1

      Microsoft makes more gross margin by making software. Since Software is about 90% gross margin, Microsoft’s reasoning is that their OEM partners haven’t been able to make a decent tablet. The other thing is that Microsoft probably thinks they can make it up in content and software sales. I don’t know what Microsoft is going to end up doing since the Surface RT isn’t selling that well, and I don’t know what the final Surface Pro numbers actually look like. To early to tell. The thing is Microsoft has these retail stores and while they can sell other brands of hardware, they can’t really service them very well and it looks kind of dumb. The other thing is internally, employees were buying iPads to use and that pissed off Ballmer and I think they wanted to make a Microsoft labeled product because they didn’t like any of the 3rd party models and the Surface RT/Pro is Microsoft’s way of supplying hardware for their employees with the Microsoft brand.

      All of these companies are trying to make money in a market where Apple is selling product and making a profit. The only problem is making a product, charging enough money that yields a decent profit. The problem with Google and Microsoft is they are competing against their OEMs and THEY will cut price to sell product, hence there goes the profit margin.

      Amazon should stick to their internet store concept and figure out how to make money without playing the hardware game, they obviously do NOT have the financial and engineering resources like Apple. Amazon has about $11 Bil, Apple has about $135 to $150 BIl in short/long term investments and cash to play with and they’ve been hiring more engineers daily.

      Either way, I think there are too many players making too many products and the customers get confused, the quality goes down as the prices go down because they have to cut corners to be competitive, while Apple just doesn’t play that game, they have higher standards they want to adhere to.

    • NutjobNumber1

      Google, Amazon, and Microsoft have the same disease. It’s called Apple-Envy.

    • mahadragon

      I think Goog would be very successful in making their own stores, but they need to offer the good customer support for their products which might be hard to do because so many different vendors make their products.

      A Google store would look just like a Microsoft store just chock full of great products. You would have all the different Chromebooks by all the different vendors, Samsung, HP, Acer, etc. You would have all the good Android smart phones for example: Nexus 4, Samsung Galaxy S3, Note 2, HTC, Motorola Droid, etc. You’d have all the good Android tablets like the Nexus 7, Asus Transformer, Acer, Samsung Galaxy Tab, etc.

      Of course the store would have to include all the accessories like smart phone cases, tablet covers, USB plugs, charging cables, etc. There’s no question in my mind Google could do very well with a retail store with all their offerings, they just need to be smart about it and offer good customer support.

  • http://twitter.com/Josh5803 Josh Vazquez

    ChromeBook Pixel Shame, Weird how similar these two spots are!! http://t.co/b8XhGRCRX2

  • http://twitter.com/BST3R Buster Heine

    @McRCN:disqus immitating Apple’s business model does not make a company just like Apple. Even if Google’s users really hate Apple (which i don’t think they do), they won’t start hating google if they make a computer and a phone and a tablet and open up a store. Those aren’t the reasons why people don’t like Apple.

    @facebook-100001574843303:disqus Wall Street is selling Apple’s stock at a lower price right now because they believe that the company is close to reaching its plateau. Wall Street doesn’t think Apple can grow much larger. You trade based on projected growth, not current profit or size. Apple is a very healthy company and Wall Street realizes that, but many don’t think Apple can grow exponentially anymore. If you look at Amazon and Google though, they’re two of the best tech companies in the world, but they don’t have nearly as much profits as Apple does. The reason behind that is because they both don’t sell hardware. They can grow a lot more and reach profits like Apple has if they start making their own hardware. Because of that, those two companies still have room to grow exponentially over the next few years, which makes them pretty good investments right now.

    • NutjobNumber1

      Wall Street doesn’t understand that Apple had a “SUPPLY” issue last quarter so Wall Street is being ignorantly stupid about Apple’s potential. Wall Street obviously only looks at one or two quarters rather than looking at trends. Apple has tripled their US desktop/laptop sales in the last 6 years. That trend is a linear trend, the sales in Asia for those devices is ramping up at a faster rate. Microsoft is losing market share about the same rate as Apple is gaining market share in the laptop/desktop market. iPads and Smartphones have been ramping up. The thing that Wall Street doesn’t understand is that Apple doesn’t release their smartphones and tablets in all of their markets all at once nor does Apple sell in every country with every carrier, YET. They still have lots of carriers to sign on and they still have more countries to open up, and they are ramping up with more models to choose from. Apple is also working on new versions of most of their software titles as well as new devices to open up new markets. Apple’s got a LONG way to go and they are doing quite a bit of investing in R&D for new products and technologies.

  • MacAdvisor

    “Horace Dediu is pretty sure he knows the answer, and it all comes down to money.”

    Really? Profit making companies are motivate by money? Does Mr. Dediu know things fall because of gravity? Yes, Microsoft and Amazon are motivated to make money. I am not sure the motivation is all that strong at Amazon as it has been more or less a non-profit service for its customers based on its actual profits, but perhaps it is thinking about getting with the rest of the capitalists and seek a profit.

    Still, as an insight, this is dog bites man.

  • NutjobNumber1

    A rumored Google store with basically on overly expensive sort-of laptop, a smartphone (I’m assuming they’ll announce a new one), a couple of tablets (I’m sure they’ll releasing some Nexus replacements), some dumb Bluetooth camera/video display/earpiece/microphone, and what else???? T-shirts?

    What devices does Apple have to sell in their stores? A TON of third party hardware/software, 6 different model laptops with lots of configurations, two models AIO with lots of configurations, mini desktop and server with lots of configurations, a tower line with lots of configurations, a TV table top box, a line of media players, tablets, smartphones, along with training and setup areas, along with a service dept. Hmmm.. One company is doing basically nothing in terms of hardware sales and the other is doing about $150 Billion a year in hardware sales.

    Google, I think you’re stores should probably be about the size of a popup Kiosk, that’s about how many products you have to sell. Judging from the amount of foot traffic your Google store within a store is getting at Best Buy, I think you guys are WAY over your head.

  • David Colley

    At least Dell and HP have some experience in making computers and they have never made anything worthwhile. Google and Microsoft have zero experience and their users expect quality that’s kind of funny.

  • David Colley

    That’s why there is a low end and a high end of the market. The low end will buy anything.

  • austin sagan

    Amazon doesn’t profit as much because they keep spending a lot of money to better there company by creating new warehouses and other things. They have a ton of revenue though.

About the author

Buster HeineBuster Heine is Cult of Android's Social Media Editor. Hailing from Roswell, New Mexico, but now spending his days in Phoenix, Arizona, he wastes most of his time eating burritos and reading spanish romance novels.  Twitter: @bst3r.

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