Ben Bajarin is the Director of Consumer Technology Analysis and Research at Creative Strategies, Inc, a technology industry analysis and market intelligence firm located in Silicon Valley.
It’s not every week that two major industry announcements happen that could change the technology playing field forever. But the fact is that the industry is undergoing drastic change and Google buying Motorola and HP killing their tablet and spinning out their PC business is part of this industry change and disruption.
The analysts at my firm Creative Strategies have been observing and analyzing several fundamental market shifts taking place. And there are two I would like to highlight. The first is the trend to vertical integration.
The Google-Motorola Deal and the Vertical Trend
You can segment the technology industry into three major parts: hardware, software and services. Most companies only play in one, and in some cases two, of these segments. Apple, for example, plays in all three business segments. Apple is vertically integrated, meaning that they are not dependent on anyone but themselves to deliver their own proprietary hardware, software and services. Apple controls every critical part of the value chain in order to preserve the experience they believe their customers demand.
(MORE: Google to Acquire Motorola Mobility)
On the surface, Google’s acquisition of Motorola appears to be mostly about patents. However, I believe Google will inevitably get more involved in the hardware business because they understand that by being vertically integrated they have the best shot to compete with Apple in the long term.
By integrating Motorola into their business, Google, like Apple, would also control the hardware, software and services related to their platform. This would allow them greater control of their destiny as well as allow them to be more innovative with products across the board.
There is no guarantee to this strategy though. RIM, for example, is also vertically integrated but is declining in market share. Vertical integration is lucrative if done right. It is disastrous if not done well.
(MORE: The Tragic Decline of BlackBerry)
When HP purchased Palm and webOS, it signaled their intent to become more vertically integrated. Statements from executives highlighted the key point that HP believed they needed to control their own destiny and they needed to own their own software platform to do so.
As I pointed out however, vertical integration is disastrous if not done well, and now HP has decided to get out of the consumer hardware business entirely. A host of things hit HP that led to their exit of the PC business.
The board brought in an enterprise-focused CEO. They could not move fast enough to keep up with the pace of innovation from competition. They couldn’t match costs with Acer or Asus. They couldn’t sell premium PCs because of Apple. This leads to the next major industry trend.
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