Episode 45: HTC, Google and the Future of Mobile

[0] Well, this is nuts.

[1] It's like leaking out as we speak.

[2] Yeah, coming at you live.

[3] Welcome back to episode 45 of Acquired, the podcast about technology acquisitions and IPOs.

[4] I'm Ben Gilbert.

[5] I'm David Rosenthal.

[6] And we are your hosts.

[7] Today we are live covering the leaks as they come out.

[8] Well, Google is apparently about to acquire HTC or at least a part of.

[9] of HTC.

[10] And David and I are hitting refresh on our browsers while recording this on the evening of Wednesday of September 20th, around 8 p .m. Pacific time.

[11] And even since we decided a few hours ago to shift course and dive into this episode instead of one that we will do next week that is less time sensitive, there's been new information.

[12] Yeah, we're coming at you alive here on Acquired.

[13] So we decided that there's the way we want to structurally do this is we'll sort of state our assumptions about what we know because Dave and I were talking about it and we're pretty sure that we know the majority of the information that will be announced tomorrow.

[14] And so we'll sort of state what we know and then, you know, if we need to pop in and revise at the beginning of the episode or something, which you will have already heard if you're listening to this, then we will.

[15] So everything, everything that you'll hear is based off.

[16] of some assumptions that we'll introduce.

[17] Yeah, there's like, there's some serious time travel going on in this episode because you guys will be listening to this in the future, obviously.

[18] We're here in the evening Pacific time on September 20th.

[19] It's already morning in Asia.

[20] And so the official news is, is starting to come out over in Taiwan.

[21] And of course, the leaks were coming out yesterday in Taiwan, which is still today, here in here in Pacific Time.

[22] Yeah, and the most obvious one that's not a leak, that's a public announcement, is that HTC will not be trading tomorrow because of a large announcement that is likely to significantly impact shareholders.

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[37] Thanks, ServiceNow.

[38] Now, David, before diving into these acquisition history and facts of of HTC.

[39] Let's throw out for the audience what we know and what we believe now.

[40] Right.

[41] So tomorrow, September 21st, it's looking like it will be announced that Google is going to acquire a large portion of the engineering team at HTC.

[42] So they are not acquiring the whole company is the best information we have thus far.

[43] but they are paying just over a billion dollars to acquire about half of the employees, and specifically the group of hardware employees, and I believe that's also along with the manufacturing plants and supply chain assets that worked on the Google Pixel phones that they released last fall that HTC made for them.

[44] So that is current state of play.

[45] They're acquiring about half of the people in the company.

[46] but the HTC as a company itself and all of its brands and its own operations are still remaining independent fascinating and other products right so the you know the Vives yes yeah not just yeah not just the Vive other products but HTC's own non -Google smartphone efforts so very confusing they are going to continue to be a smartphone handset manufacturer on their own.

[47] But sort of the A team that was working directly with Google on the pixel phones and other devices is now coming over to be directly part of Google.

[48] Yeah.

[49] And we say the A team, you know, there's there can be furious debate about the HTC and who's prioritizing what and who they put on which projects.

[50] But one thing that you cannot deny is it was, it was very, very widely publicized and covered that, you know, the Google Pixel was the best Android phone ever made and set the new standard.

[51] And it's that team that, you know, worked on an amazing product.

[52] And obviously, Google did lots and lots of the design there.

[53] But we are getting ahead of ourselves.

[54] So, David, tell us a little about HTC.

[55] Yeah, let's dive into history and facts and rewind the clock.

[56] And HTC is not, you know, it's a household name in the U .S. but only recently, however, has been involved in many products over the years that our listeners will probably recognize.

[57] So the company was founded in 1997 in Taiwan.

[58] It's a Taiwanese company.

[59] And they began life.

[60] And for most of their initial life, were just an.

[61] an OEM, so an original equipment manufacturer.

[62] They were essentially a contract manufacturer for other tech companies.

[63] They didn't have their own brand.

[64] And then over time, they built their own brand, but obviously just like the Google Pixel and other devices, they continued to build products for other brands.

[65] And when they first started in 1997, they right out of the gate worked on on laptop computers, but then pretty quickly transitioned to cell phones.

[66] And this was before, you know, smartphones as we know them today.

[67] But back then, smartphones and smart mobile devices were PDAs, personal digital assistance.

[68] So HTC, actually, this was a blast from the past, was the manufacturer.

[69] and I believe also involved in elements of the design for the HP and Compaq IPAC Windows, you know, personal assistant.

[70] Do you remember that one?

[71] And then also a pretty popular device, the Palm Trio 650, which I think, if I'm remembering right, was one of the first Palm, you know, slash handspring trio devices that was also a cell phone.

[72] Huh.

[73] Huh.

[74] Yeah, that's crazy.

[75] In thinking about this, you know, I always think about there are the few manufacturers that actually made their own stuff.

[76] And Palm always occupied that space in my head, you know, as did Nokia.

[77] And, you know, apparently Palm didn't make all their own stuff.

[78] And I don't know.

[79] I'm not actually sure if, did they manufacture other products?

[80] Do you know?

[81] Yeah, I don't know.

[82] And Palm itself, that'll be an episode, a fun episode someday.

[83] It was, you know, a darling kind of startup tech company in the valley in the 90s and then ended up getting acquired by three com, right?

[84] Is that right?

[85] Palm?

[86] Which it's, yeah, it wasn't Palm part of threecom at one point?

[87] Well, eventually they ended up going to HP and getting bought by HP after the Palm Pre, which was, that was a shame.

[88] Like WebOS was an absolute pioneering product, and the Palm Pre was a controversial yet well -designed device.

[89] And I think, you know, to absolutely languish at HP.

[90] But yeah, totally.

[91] That's for another day.

[92] Let's definitely do an episode on that.

[93] Another day.

[94] Okay, okay.

[95] I just looked it up quickly.

[96] Palm was acquired by U .S. Robotics Corp in 1995, and then U .S. robotics was acquired by three -com.

[97] So it was part of three -com.

[98] So then the founders.

[99] left uh three com because they were you know unhappy and uh and started handspring and that's why handspring and pom it was always that confusion i remember yeah anyway back to the topic at hand so htc uh is in the middle of all of this i mean they've they are like the o g players in the smartphone game here um and uh and even going back to the founding of the mob smartphone game.

[100] Obviously, they weren't involved with Apple and the iPhone, although they did own beats at one point in time, which we'll get into.

[101] We also covered this in our Android episode, Episode 20, which is very relevant here.

[102] This should really be like the CODA to that episode.

[103] But HTC was one of the founding members of the Open Handset Alliance, which if you might recall from that episode, was Google's.

[104] initial smartphone efforts that turned into Android.

[105] And so HTC, when what became Android, the artist that would become Android, finally launched in 2008, the very first and only for a long time, quote unquote, Google phone was the HTC Dream, which in the U .S. was the T -Mobile G1.

[106] And that was made by HTC.

[107] And that was the very first, and again, only Android phone for quite a long time.

[108] Yeah.

[109] Man, I remember playing with prototype hardware of that in like 2007 -ish.

[110] And I think that's right.

[111] And that was, maybe it was just very early hardware.

[112] But that was like, it was hard to believe that that was the future.

[113] I mean, I know everyone was all excited about it.

[114] And it's in a lot of ways, the same way now that people are showing off like an extremely crummy experience in iot and being like iot is the future and you're just like eh okay okay like this thing you know i i don't think i've ever actually used one in person i've certainly seen them um but this thing we'll try and link to it remember to link to it in the show notes but uh so it had like a track ball on it right it had a track ball and then it also had a slide up physical keyboard this was like, you know, the sort of unholy marriage of like a Blackberry, an iPhone, and like one of those super old school 80s trackball, you know, mouse, mice for a computer.

[115] Well, yeah, I mean, this was like when, um, when Android was still basically kind of a open source, um, copy or perhaps inspired by Blackberry, before they spent, um, the better part of a decade doing, you know, becoming that, that of iOS.

[116] And it was, you know, at that point in time, like, it seemed like that, that Blackberry physical keyboard, you know, have a little cursor on screen, it seemed like that was the form factor, right?

[117] Like that, if you're going to, that's what a smartphone looks like.

[118] If you're going to go make a smartphone.

[119] Yep, yep.

[120] And of course, there was danger and the, uh, the sidekick at the time, too, that was also inspiring all this.

[121] And, I think back on the Android episode, we gave a shout out to that entourage episode where Turtle gets a sidekick and all this is like so dated now.

[122] Absolutely.

[123] Always fun.

[124] So HTC, again, like right in the middle of all this, the very first Google phone, very first Android phone.

[125] And then they really stay at the cutting edge for.

[126] for quite a while in the early sort of modern smartphone period, they built and launched one of, if not the first 4G phone that was available in the U .S., I think it was on sprint.

[127] And I'm forgetting right now what it was called, but it was like, they marketed the hell out of this thing.

[128] I think it had probably like an hour and a half long battery life.

[129] But it was the first, the first mobile.

[130] phone and network in the U .S. that you could really, like, use it and it felt like broadband.

[131] I mean, before that, there was 3G, of course, but like, it was sort of not that much faster than the old dial -up days.

[132] So they were, they really were, you know, pioneers of a lot of firsts.

[133] They were.

[134] And, and, you know, still, you know, you could argue that the, the Vive is really, um, Valve's innovation and in a lot of ways it is and a lot of the control rests with with Valve and we can talk about just like Android was you know Google and well Andy and Android and Andy Rubin's innovation yeah yeah but the fact remains like absolutely a pioneering device and HTC you know largely responsible yep yep um so that was kind of the the high point and I think that was right around trying to remember like 2010ish I think when when that phone came out.

[135] And in 2010, 2011, like, HTC was really on the rise and people thought, you know, that they were going to be a really credible competitor to Samsung and a dominant device maker in the smartphone era.

[136] Unfortunately, since 2011 at its high point, that has not happened over the last five to six years.

[137] and the stock is down 90 % since then.

[138] So HTC now, well, as of yesterday before they halted trading, had a market cap of just under $2 billion in U .S. dollars, which is down significantly from where they were at that peak.

[139] I think they were around somewhere between $20 and $30 billion at their peak.

[140] Yeah.

[141] Yeah.

[142] And I'll embarrass myself a little bit here.

[143] I was texting David earlier, and I looked up their market cap just on Google Finance, and I was like, whoa, David.

[144] I mean, this is going to be a really splashy, David, a $58 billion market cap.

[145] And then, like, a few hours later, as you're doing your research, you texted me back.

[146] You were like, that market cap is in Taiwanese dollars, and it's only about $1 .9 billion in U .S. dollars.

[147] And, like, thinking about, you know, know what what htc was and in my head they still occupied a large brand you're like oh yeah htc's a 60 billion dollar company for sure no unfortunately for that and aOL was 150 billion dollar company yeah and again you know we like i i mentioned this earlier a minute ago and and we talked about it back on the on the android episode but um just like you can't make this stuff up so So in 2011, right at its peak, HTC acquired, I believe, a 51 % stake in Beetz.

[148] So this was back when Beetz was just the headphones, was Dr. Dre and Jimmy Ivine, and they were going to buy this brand and this great audio technology integrated into their design and manufacturing and supply chain expertise.

[149] And basically what happened was for about a year to 18 months, every HTC product across their whole line, which wasn't just smartphones, but mostly smartphones, had beats branding plastered all over it.

[150] So you can still go on Amazon and eBay and get HTC beats Android phones.

[151] Beats by HTC by Apple.

[152] totally so um you know what did steve jobs think at the time well i mean if this co -branding stuff like apple is not immune from this if you remember the first um the original ipod had a second version come out it was hp oh i'm sorry so they had the motor rocker also but there was an ipod that came out that It was an iPod HP edition.

[153] Yeah, that's right.

[154] And it had like an HP brand on the back above the Apple brand.

[155] It was the weirdest thing.

[156] Oh, man. Apple, you know, for all that they really, we're going to talk much more about Apple in this episode.

[157] But as we have always on this show, for all that they really are so often at the top of their game, sometimes they just do things that you look back on them and you're like, what were you thinking?

[158] So HTC in 2013 divested their stake in Beats, sold it back to the company.

[159] I believe, I want to say Carlisle came in and did a big private equity infusion into Beats.

[160] And they bought back the steak.

[161] And then, of course, it was just about a year, year and a half later, I think, that Apple acquired the company.

[162] So that was, that's our sidebar.

[163] HDC, of course also, as we've talked about in 2016, in partnership with Valve, created the vibe, which still, I think, is probably arguably the best virtual reality experience out there, better than, better than Oculus still, I believe.

[164] Yeah, I think so.

[165] We can certainly, fanboys will argue that.

[166] You can argue in the comments or in the slack, but I guess, really, you know, they, it's really interesting the approach that HTC has taken to innovation.

[167] They've sort of been at the forefront of every tech wave that's come over the last, you know, 15 years, 15 to 20 years, really.

[168] But they don't do it themselves.

[169] They always do it in partnership with other companies.

[170] Yeah, and they can't seem to strategically position themselves to hold on to the most valuable asset as it grows.

[171] I mean, that, yeah, over and over and over failing as a company to do that.

[172] Yeah.

[173] So speaking of, let's bring Google into the story here.

[174] And we'll pick back up again right around 2011 when HTC is sort of at its height.

[175] And Google at that point, Samsung was really, Google sort of had a problem that Samsung had take an Android, they were by far the most successful, powerful OEM out there.

[176] And they did that basically by taking Android as an operating system, but then in every other aspect from hardware design and all the skins and modifications that they made to the Android operating system and software, they just copied the iPhone.

[177] And so Samsung phones were, if either you were on a carrier that didn't have the iPhone, which was still a thing at that time, or for whatever reason, you weren't part of the Apple ecosystem, but you wanted something that felt like an iPhone, you went with Samsung.

[178] And Google, of course, was threatened by this for many reasons.

[179] They decided to acquire Motorola.

[180] Now, this was for two reasons.

[181] The primary reason and what they said at the time, and in retrospect, probably continue to justify, was for patent reasons.

[182] There was a lot of litigation happening in the smartphone world, and in particular in the smartphone operating system world at this point.

[183] And Android, of course, was open source.

[184] So they needed patent protection.

[185] Motorola had a large patent portfolio.

[186] But they did actually acquire all of their smartphone manufacturing business as well.

[187] And they spent a lot of money for it.

[188] They operated Motorola for about two and a half years.

[189] And they released, you know, a number of devices, smartphones, kind of at all ranges from low end to high end, weren't particularly successful.

[190] And then they sold it to the Chinese company, Lenovo, in 2014, for about $3 billion.

[191] So they paid $12 .5 billion for it.

[192] They kept the patents.

[193] They also sold another piece of Motorola's business, which makes the cable boxes for your house, so for Comcast or Time Warner or whatever um they sold that off for i believe about two and a half billion right after they did the transaction so let's say they paid 10 billion uh net for Motorola uh and then two and a half years later they sell it for three billion under three billion so so not a good not an auspicious beginning to google's efforts in the smartphone no no so i mean if you're a shareholder right now like you need a little bit of an explanation like i mean i mean today like if you at first glance just here, and I know the details are a little bit different than this, but like Google's buying HDC or Google's buying the arm that manufactures the phones of HDC or even Google, you know, whatever it is.

[194] Like, okay, like we've tried this once.

[195] So how is it going to be different this time?

[196] Yep.

[197] Well, and we'll see how it's different.

[198] Ben and I will speculate on how it's different, but there's one thing that is the same history repeating itself.

[199] And that's that there was an executive within Google Motorola named Rick Osterly Osterlo and he ended up by the end of Google's ownership, stewardship, if you will, of Motorola becoming the head of that unit and then when they sold it to Lenovo he continued running that unit under Lenovo last year in 2016 he left and came back to Google and so he is now running Google's quote unquote hardware business reporting to Sundar and and so he that division is responsible for everything that they launched last year the Google Home the Google Pixel which we've referenced and we'll talk more about the daydream their their VR headset adapter for smartphones all of that so it's it's really they are in many ways with the same people executing the playbook all over again.

[200] Yeah, but, uh, you know, we'll get to this, but times are different now, you know.

[201] Indeed they are.

[202] And I want to pause real quick.

[203] So times are, well, a few things.

[204] Times are different now.

[205] The mechanics of this deal are completely different.

[206] Um, and on top of it, um, you know, it's probably worth talking about the patent portfolio, uh, Motorola had.

[207] And, um, you know, there's, there's a lot of speculation and you can read plenty of think pieces about this.

[208] about the real value of that acquisition being the IP and Google retained a lot of that IP, I believe, when they sold Motorola off.

[209] And so then it's, you know, highly protective for Android.

[210] So there's more to this than meets the eye.

[211] And, you know, it's just worth calling out how big of a player or how big of a deal IP was as part of that Motorola transaction.

[212] It absolutely was.

[213] But what's super interesting is, like, again, that was.

[214] the story.

[215] And then when they sold Motorola, that was the real emphasis that they said on the story, hey, this was really an IP thing.

[216] And we dabbled in hardware.

[217] We decided it didn't make sense.

[218] We were, you know, I'm sure in tech themes, we will get into the, you know, vertical versus horizontal approach to a company.

[219] Didn't make sense as a horizontal provider of Android to also be a vertical provider and compete with our partners.

[220] But now they're doing the same thing all over again.

[221] Yeah.

[222] Yeah, yeah.

[223] And it's worth pausing here for a second.

[224] So listeners, I think this came out right before we started recording.

[225] Google has confirmed the news.

[226] Google signs agreement with HTC continuing our big bet on hardware and written by none other than Rick Osterlo, who David just mentioned.

[227] And the key sentence in this blog post is, let's see here.

[228] With this agreement, a team of HTC talent will join Google as a part of the hardware organization.

[229] These fellow Googlers are amazing folks we've already been working with closely on the Pixel smartphone line, and we're excited to see what we can do together as one team.

[230] The deal also includes a non -exclusive license for HTC intellectual property.

[231] And they're calling this an agreement.

[232] So it's not, you know, no one's saying acquisition, no one's saying purchases.

[233] is, it's an agreement.

[234] And of course, it's for $1 .1 billion of cash that goes over to HTC.

[235] But, okay, so we have definitive news that it's basically, you know, exactly as all the speculation was about that, specifically that hardware engineering team.

[236] And the other interesting thing here is they have a non -exclusive license to HTC's IP.

[237] So does that mean like all of HTC's patents are, you know, available for Google right now and obviously HDC can do other things with them and license them as well, but that's kind of interesting too.

[238] I mean, that definitely bolsters the value of the deal.

[239] Yeah, and it's interesting.

[240] I mean, like we were talking about earlier, how much of the innovation that was happening in these products, you know, even going back to the G1 and the HTC dream, the first Android phone, like how much of that IP was HTCs, how much was Google's, impossible to know right now.

[241] I'll be curious if this comes out in the filings when they, when they happen.

[242] Yeah.

[243] Yeah, me too.

[244] And I think, I can't, you know, I'll say this now, I'll probably talk about later.

[245] Google, you can definitely sense the, we've been burned once, and now we're going to be very methodical about this approach here.

[246] Like, it's a smaller price tag, $1 .1 billion.

[247] It's just the hardware engineering team.

[248] You know, it's, yeah, yeah.

[249] And I mean, if you look at it, it's really only exactly what they needed.

[250] And they spent, you know, years first engaging with this team, doing a try before you buy.

[251] I mean, this is a highly calculated, highly risk mitigated transaction by Google.

[252] Yep.

[253] And yet at the same time, well, we'll get here in tech themes.

[254] But they're still, again, deciding to be both a horrors.

[255] and a vertical player in this space so David just plug yours and la la la la la la yeah right right right right okay acquisition category yeah yeah yeah well uh go ahead it's it's quite literally a people like a talent acquisition i mean it's a team it's a let's not call it an acquisition ben it's a it's an agreement it's an agreement it's an agreement yeah um an agreement to make 2 000 of htc's 4 ,000 people, Google employees.

[256] Yes.

[257] I'm actually quite curious how the mechanics of this work.

[258] I hope there's kind of filings about this.

[259] And David, you might actually have good insight.

[260] But do those people all go into a sub -entity temporarily along with the license to the IP?

[261] And then Google buys that sub -entity for one point.

[262] billion or can they actually just give a bunch of cash and then say all right you you know these employees all work for us now well i mean i got to assume that most if not all of that cash is going to htc because htc had had huge losses as we've talked about yeah for the last few years and um you know their market cap before today was was less than less than twice that 1 .1 billion dollar figure.

[263] So that amount of cash is in the bank is going to be, was desperately needed by the HTC folks.

[264] Yeah, totally.

[265] And this is actually great segue.

[266] So instead of what would have happened otherwise this time, we're going to do what will happen now that hasn't happened before or what will happen in the future that isn't happening now because of this transaction.

[267] And we'll talk a lot about the Google side, but it's an interesting thing on the HTC side.

[268] Like, they've had mounting losses.

[269] This gives them $1 .1 billion of a capital infusion to do something with their business.

[270] They're still making handsets.

[271] They're the hardware partner for manufacturing the Vive.

[272] Like, if you're HTC and you're trying to sort of like steer the ship and trim down, and I mean, I guess maybe you look at it like, well, whatever revenues we were making from Google isn't going to be the long -term strategy.

[273] So let's just jettison this team.

[274] get all the cash flows from that up front now and do something else with it.

[275] But what is that something else?

[276] Yeah.

[277] What is that?

[278] I mean, that is the $64 ,000 question here, right?

[279] Like, or a lot more money than that.

[280] Given their history of, as we've talked about thus far on this episode, how they operate the type of innovation they do.

[281] I mean, they really are like they are at their best.

[282] when they're a contract shop.

[283] And again, that's what they were doing with Google and the pixel.

[284] And that worked well, right?

[285] Like Google ended up buying that whole team.

[286] You know, they did that for a long time.

[287] And then they tried to build a brand on their own, on top of that.

[288] They had some success, but it wasn't sustainable.

[289] And part of that, I think, was probably because they, you know, they were still writing on, you know, Google's platform.

[290] I think it's very hard as an Android manufacturer to build a real brand.

[291] Even Samsung is very vulnerable, as we've seen in the last couple years.

[292] But so now what are they going to do, right?

[293] Do they go back to square one and say, you know, there really is an opportunity, be it in smartphones or other emerging devices and categories to be a great contract manufacturer?

[294] Do they use the resources to go back and do that and build up that team again?

[295] Do they create their own real IP?

[296] I don't know.

[297] It'd be very interesting to see what happens.

[298] So maybe this is one place where I'm a little out of my element, but if you're a contract manufacturer, how much different is that than being Foxcon or is that the same thing as being Foxcon?

[299] Like could HTP pivot purely into a B2B company shed their brand and just start doing manufacturing to spec?

[300] And, like, when you think about it, like, is that effectively what the team was doing that was doing the pixel manufacturing?

[301] Or is there actual, like, you know, engineers there are on the HTC side doing design work?

[302] I don't know.

[303] I'm not totally clear on how much different the HTC contract sort of manufacturing was than what Foxcon does for Apple.

[304] yeah i don't i don't know the delineation either um but certainly foxcon you know has built a very very large business um on on just that strategy of we are a b -to -be company yeah and what i was going to suggest is like maybe maybe go for it well i was going to say you know two in other uh adjacent industries in particular the semiconductor industry like this is also a very sound strategy If you're TSMC, which is Taiwan semiconductor company, it's interesting that these businesses, of course, tend to be particularly thrive in Taiwan and in Hong Kong where Foxcon is because of the proximity to China and the ability to do business there, you know, you can build a great business and being a foundry for semiconductors where you don't do the design.

[305] there are lots of fabulous semiconductor companies that are either independent companies doing their design or, you know, folks like Apple, which again, we'll get into later in this show, it can be a very sound strategy.

[306] Yeah.

[307] And I was going to work myself into a corner a little and say, well, maybe what HTC should do is, you know, start shedding their consumer brands and really just be this contract manufacturing shop.

[308] But if they do that, then companies like Google will come along and just buy them so they don't have to contract them.

[309] But clearly that's a model that works.

[310] Apple hasn't tried to buy Foxcon or bring any of that in -house.

[311] The fabless semiconductor companies, I mean, granted, maybe if they took a huge hunk of capital, then it would actually make sense to fab them themselves.

[312] But sort of being a horizontal manufacturer seems to work.

[313] And HTC could sort of move into that.

[314] Yeah.

[315] And I wonder if I think the key is we just don't know enough right now and haven't been able to do the research in a few hours since this announcement happened or since the rumors swirled to know for for HTC like where where did they play in that value chain.

[316] Like it was this is the question you asked like how much were they the conscious just the manufacturer?

[317] How much were they involved in the design?

[318] How did that change over time?

[319] And and it's interesting.

[320] that like sort of counterintuitively I think in the world we're in right now in tech when you're competing against Apple in really every category but also you know companies like like Samsung and increasingly Google themselves design is really not valued it's it's sort of you know back to Ben Thompson's smiling curve you know either you're at one end of the spectrum where you're just the contract manufacturer you are the semiconductor foundry or you are really controlling the user experience like Apple does and like Google is clearly trying to do now with Android and with this acquisition but if you're in the middle there like that's a bad place to be yeah I completely agree well switching over to the Google side what does this allow Google to do that they're not currently doing it's so there's a there's a couple that let's presume they were just going to go forward with the pixel line no matter why and really start doubling down on that and in tech themes we can talk about why so this presumably makes it so the teams can work more efficiently together being under one roof so you don't have sort of that weird contractor arm's length thing that has to happen not to mention sort of if you're an engineer over there who's collaborating with Google, you sort of have two bosses, you're the business interests of HTC and then shipping the best product you can with Google.

[321] So that gets eliminated a little bit.

[322] For Google, you know, they can, so there's those inefficiencies where they can move faster.

[323] But what is it by them?

[324] I mean, I'm sure they had some kind of agreement where they had access to HTC's IP before, and they were going to keep working with this team anyway.

[325] and they were basically just going to defer the payments to some kind of, like, you know, contract that was, that paid HTC over time.

[326] Like, what else do you think this buys Google?

[327] Well, I think one thing, if trying to imagine myself in Google executive shoes and in Rick Hosello's shoes, you know, I think it's a little easy from the outside looking in to dismiss supply chain as, like, oh, you.

[328] yeah, Foxcon will take care of that or whatever.

[329] But like, I think this buys them a meaningful amount of supply chain expertise and assets.

[330] I mean, I think about, I think about Apple and how much they have invested, you know, both monetarily, you know, billions and billions and billions of dollars, but also human capital wise and expertise and know -how in their supply chains.

[331] And part of that is internally at Apple and their people, but part of it also is their relationships with Foxconn and and other manufacturers.

[332] I mean, right, like this is Tim Cook, right?

[333] Like, Tim Cook is the CEO of Apple and this was his job.

[334] Like, this is so important at Apple and has been for the last, you know, decade plus that that's why Tim Cook is the CEO, you know, not Johnny Ive.

[335] And that's the DNA that Google really had zero of, you know, they maybe thought they were getting it with Motorola, but Motorola was headquartered in Chicago.

[336] You know, you can't make iPhones or pixel phones in Chicago for a lot of reasons.

[337] Yeah, great point.

[338] But you can in Taiwan and you can in China.

[339] Great, great point.

[340] I remember even when, you know, a few years before Tim transitioned into CEO, people sort of realizing that one of Apple's major competitive advantages is, and this is before they were making it on Silicon, too, that they had bought up like a year or two.

[341] of the entire world's supply of many of the components in iPhones because they knew they could justify the demand for it and so no one else could get that generation of whatever the thing was even you know even processors to some extent for like many months after Apple shipped something that's a huge competitive advantage yeah I mean I'm thinking about was it right after the Apple event last week where they announced the iPhone 10 not X the iPhone 10.

[342] Will there ever be an iPhone 9?

[343] I mean, that is the question, right?

[344] I don't understand.

[345] Let me take a quick aside here.

[346] So I think Apple blew it.

[347] To me, it's like you should have this iPhone X or whatever.

[348] It's an iPhone 10, but like have it be this thing that's like not part of your numerical line that's like a side step to a new thing.

[349] So when you want to start building your generations, like when Adobe decided that they were going to go from like Photoshop 7 to Photoshop CS and now you're in like this creative suite.

[350] world like they had the opportunity to sidestep and start a new thing now and like they didn't um but they half did right because it's like an x not a 10 so okay so all that's totally weird because with ipad they they to my mind like they did what made sense with the iPad they went just got ditched the numbers and we're like there's iPad there's iPad pro you know why isn't there just like iPhone iPhone and if it's going to be a 10 and it's going to continue just do a 10 like it's really so confusing and And here's the funniest thing.

[351] I was listening to everyone should go listen to Derry Fireball if you're like an Apple nerd, or I'm sorry, the talk show with John Gruber.

[352] Okay, so this is what I was going to reference.

[353] We'll bring it back to topic in a minute, but go ahead.

[354] So John bumps into Phil Schiller at, you know, after the event because they get these press briefings and stuff.

[355] And Phil, the first thing, Phil looks at him and he just says, hi, John, we spent a lot of time on the name.

[356] Sorry about that.

[357] Sorry about the 10 thing.

[358] Which is crazy.

[359] The sorry about the 10 thing was crazy.

[360] because like Gruber wrote this piece like two hours before Phil Schiller stepped on stage to announce it.

[361] So like he knew he had read Gruber's piece or been alerted to it.

[362] And and Gruber called that it was going to be an iPhone X. And of course it was an iPhone 10, which, you know, he ate some crow on.

[363] But like, like, I don't understand why though.

[364] I believe you that everyone spent a bunch of time on this.

[365] I just like, I'd killed another rationale because it does make sense to me. It does not make sense.

[366] Like, why would you release an eight and a 10 at the same point?

[367] Anyway, we've gotten way off topic.

[368] But Gouber also, of course, had Craig Federigi on a special episode of the talk show.

[369] And I remember, if I'm remembering this right, Craig was saying, you know, John was asking him about face ID and like everything that went into creating that.

[370] And I remember Craig saying in response, like, oh, you know, it was, it was of course the engineering team and the hardware team and the software team working together.

[371] But it was more than that.

[372] It's more than that at Apple.

[373] was the security team working with them and I remember I'm saying it was also the ops team and our supply chain was a big part of that.

[374] You can't make the iPhone and you can't have all the stuff that Apple can do with the iPhone by integrating everything that leads to features like Face ID that ops and supply chain is a critical part of that.

[375] Yeah, totally true.

[376] And man, after seeing that episode, I'm sorry, after seeing that Apple keynote, like to think, that's such a great lens to think about doing this episode because the amount of things that were launched that only work as well as they do because of the integration of like, not only hardware software and the way that we used to think of it.

[377] Like, cool, you like assemble all your own components into a PC and you build the hardware, I'm sorry, and you build the operating system.

[378] Like, the notion that, they control to the finest grain all of the power management and core switching in the CPU and how that works with the secure enclave to do the security stuff and how like they can do the swipe up from the bottom of the iPhone while the face ID thing is still reading your face and then get the signal at the last second to unlock like all the timing and all the user experience stuff it's really starting to become so much more than just just being the component integrator and the software maker.

[379] It's really like the component may, like the, you have to create the components in order to get some of these really incredible sort of micro -optimizations that in aggregate create a whole new class of product as possible today.

[380] Yep.

[381] And that is, you know, supply chain is critical to that.

[382] And, you know, before, before this partnership that, that agreement that Google just reached with HTC, they were really hugely behind.

[383] I mean, they're still hugely behind on that, on that dimension.

[384] But I think it, you're absolutely right.

[385] And I think as, as the smartphone slash whatever the smartphone evolves into, be it, you know, AR glasses or wearables and watches, I think it'll be probably all of these things, as that technology platform matures, the, table stakes for that level of supply chain and ops integration to be able to do these things just gets higher and higher and higher.

[386] You know, and I think like the Apple keynote again is the perfect lens to see that through where, of course, there was face ID and all the things happening there between the sensors, software and security working together.

[387] And then, of course, ops to have all of that sourced and available in, you know, billions or hundreds of millions of units.

[388] But also in the processor, again, you know, throwing back to our PA semi and authentic episode, that was not one of our more popular episodes, but I think is a really critical one to also understanding this.

[389] Like the A -11 chip, you know, bionic, quote unquote.

[390] It's crazy.

[391] I mean, Apple's, I don't know what's going on with the people who name stuff at Apple right now.

[392] like keep it simple.

[393] It's like you can randomly throw biotic on something.

[394] They threw bionic on something else too.

[395] There was like some part of, I forget if there was something else later in the keynote that was also arbitrarily bionic.

[396] I think it had to do with face ID.

[397] I remember what is part of the iPhone 10 announcement?

[398] I'm like, what is bionic and what is not?

[399] What is biotic?

[400] Seriously, seriously.

[401] But like that chip is a beast, right?

[402] It is like it's benchmarking at the same level or higher as chips that are in MacBook Pro's, not like old MacBook Pros, like MacBook Pros that you go and you spend $2 ,000 in an Apple store today for.

[403] And that's in a phone on your pocket that is not connected to power that's running on a battery.

[404] Like that is what when you make these types of investments, and that's controlling the whole stack from the chip design, you know, through the PA semi acquisition, you know, all the way down through the supply chain.

[405] And, and and the software coupled with that, like that enables you to do this kind of stuff.

[406] And so I got to imagine like you're Google and your Sundar and looking at this.

[407] And you're like, okay, we've got the software.

[408] Like Google is our core competency is software.

[409] And services.

[410] Like Android has gotten great and integration with - And great services.

[411] Yep.

[412] We are software and services, but like hardware, supply chain, ops.

[413] Like, we have none of that.

[414] And I think as the world moves more towards all of these things that really are about making the devices themselves to disappear into the background, if you don't have that expertise, like you're just, you're going to lose.

[415] Yeah, the best way I can summarize this is, of course, as with many other episodes, where we're talking about someone of Apple's competitors, we drift into talking about Apple and then just like laughing about how far ahead they are.

[416] But it really is like Apple's playing a very different game than everybody else.

[417] And so, you know, in making their own silicon and having done this for years now and controlling the operations and supply chain in this way that no one else is doing because nobody else is, yeah.

[418] Well, I think that's what's really interesting about it, though.

[419] People say Apple makes their own silicon.

[420] That's not true.

[421] They design their own silicon.

[422] TSMC.

[423] And then they control all of the supply chain.

[424] but TSM and Samsung and others, you know, they're the ones who actually fab the silicon.

[425] That's a great point.

[426] That's a really great point.

[427] And so then at what point did you have to go deeper and integrate that?

[428] I mean, is that the next step?

[429] Like, is there some optimization that happens between design and manufacturing where it's beneficial to actually start owning the manufacturing?

[430] Yeah.

[431] Well, it's interesting.

[432] I don't know.

[433] I mean, they haven't, you know, with Foxcon, they haven't with TSM and Samsung when they own the foundries.

[434] I wonder if it's just like, you know, those services are pure commodities.

[435] They're very, very capital -intensive commodities.

[436] Apple certainly could make those investments if they wanted to.

[437] But there's not a lot of differentiation within them.

[438] Yeah.

[439] Yeah, that's a great point.

[440] Okay, so it would be, you know, we'd be kidding ourselves to say we're not already in tech themes.

[441] But it is interesting to think about like, you know, The features that are now expected in phones, an AR kit is a really great example of new stuff that's going to be available on iOS 11 that takes advantage of AR kit, especially on all the new Apple hardware that's kind of purpose built for AR kit.

[442] All of these new phone experiences require a new level of design and integration with the hardware that really wasn't necessary before.

[443] And so the way, that I am viewing this acquisition is like acquisition agreement is Google is still a horizontal company and they need to you know they make money 80 plus percent of their money from or maybe it's even 90 plus percent of their money from uh ads and specifically from search ads and so you know that going back to our Android episode the reason that they create Android is to um reduce the amount of licensing fees that they need to pay iOS or need to pay Apple to make Google the default search in iOS.

[444] Like that's when it really comes down to it, you know, I think what did we determine that number was like a billion dollars a year that it saves them?

[445] A billion dollars a year, yeah.

[446] A billion dollars a year that they're paying to Apple even still.

[447] That's right.

[448] Well, but it's interesting.

[449] And when they started Android, that was the strategy.

[450] But, you know, you replace Apple with Microsoft.

[451] They thought Microsoft was going to down.

[452] mobile operating systems like they did on desktop they didn't want to be beholden it turned out they were right strategically but they just had the wrong competitor yeah interesting yeah so yeah so for listeners who didn't listen to the android episode um you know the the core play with android is uh own the front door to the the user so control the browser that they're on control the operating system that they're on so that they don't have to pay uh pay basically affiliate fees for every search that's conducted and every ad that's clicked on Google to the browser creator.

[453] And so when you start putting that lens on, then you start to have to think, like, okay, so Google needs to sort of be Switzerland because they need to be ubiquitous and have everybody use them.

[454] But if this Android strategy is to, you know, make sure that for some significant number of people, they're controlling the whole experience, like Android has to be credibly on par with iOS.

[455] And if the table stakes have now risen the level where you need to do like ridiculous hardware integration and potentially even like manufacture your own stuff to enable the types of features that people expect from their phone experiences now or will expect in a few years when some of the stuff, you know, face ID, uh, AR kit, um, a lot of the performance and power management stuff.

[456] Like when that becomes completely commodity, like Google's going to be hosed on this whole Android strategy if they, you know, they don't have that.

[457] And so this thing that they've been doing forever of like, hey, guys, like, we're not going to, you can all, Samsung, you can make money on Android phones by making them and we'll just produce the operating system.

[458] Like that could be falling apart because that's no longer competitive with Apple in this new world.

[459] Could be falling apart and could be falling apart quickly.

[460] And it's interesting also to think about, go back to our our episode on the snap IPO and the narratives around snap and it's I think it's still too early to make a call on on them as a company but but what we decided was their fate is going to lie with do they you know can they essentially paddle over to this wave that is what we're talking about call it AR call it wearable you know whatever it is but it's a essentially devices receding into the background and technology just being part of your ambient life, you know, what is Snap investing in?

[461] What are they doing?

[462] Like, spectacles, you know?

[463] What room is there for Google and Android in that world?

[464] Not a lot.

[465] Basically, in a spectacle's world, whether it's spectacles that win or don't win or whatever, there is no room for Google anymore.

[466] Both either at a hardware level or a platform level or at an advertising level.

[467] Yeah.

[468] Anyway, I look at that differently.

[469] Like for Google's core business is making money off of people who are looking for information.

[470] And I just don't think Snapchat.

[471] I mean, Snapchat is more, I don't think it's apples to apples enough.

[472] I mean, I agree with you where, It's clear that Snapchat is making an investment and trying to become a little bit more of a hardware company and now Google's following in suit.

[473] Oh, yeah.

[474] I didn't necessarily mean that as like Snapchat itself is going to dethrone Google, but like think about this, right?

[475] Like take the iPhone event last week or the Apple event last week.

[476] You've got the iPhone 10, which clearly, whether it's this year or next year or two years, like, they are laying the groundwork for an AR slash ambient future that the iPhone is part of or a hub of.

[477] You've got you've got the Apple Watch Series 3, which I'm super excited about, by the way, which is like there is no, you know, there is no phone.

[478] There is no, you know, device really.

[479] It's a thing that sits on your wrist and like all the computing is just around you.

[480] You know, then you've got you've got snap and where you've got spectacles uh not to mention the snap chat experience then you've got facebook um and you've got everything they're doing with oculus and then and the core facebook platform itself like you can start to see a world where like all of those devices and services all work together really nicely um and like where's google in that world yeah i see we're going there this actually this dovetails nicely with I don't know if I've talked about this on the show before, but I think, so Google is in many ways their own existential threat.

[481] And I think, so follow my logic on this for a minute.

[482] So Google, their core competency as a business is making money off of showing you a list of things and then charging somebody to be in that list.

[483] and their core competency from an engineering perspective is recently machine learning but dating back to their beginning sort of distributed computing distributed storage all these things that are sort of stepping stones to becoming like the best company at machine learning and that leads in many ways to them being the best company in this voice world where the Google Home and Google Assistant is a really, really, you know, pioneering fantastic voice service relative to all these others.

[484] And so Google's engineering, the things that they make them good in engineering are pushing them toward a future where they don't really show you a list of things anymore because voice is, when it's an output, is not a really good way to ever list off stuff.

[485] It's a good way to, like, just do one thing.

[486] So you tell it to do a thing and it does a thing.

[487] and like imagine if you're no longer searching getting a bunch of blue links and getting one blue link that's paid for and it's more like you just yell something at it and then it gives you the answer and like where do they start charging for things in that world like do they start blending paid and organic results where sometimes you're getting a sponsored one or do they start shifting their business model where they're realizing that well actually you know we're about to be best in class at this new form of hardware and new form of experience that people want, maybe we just double down on that and actually own the full, you know, user experience at the hardware level.

[488] Yeah.

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[509] maybe we should officially move into tech themes here and this is this is where right like i think google's in a challenging spot because they're sort of being forced to compete on this playing field that we've been describing for the last you know 40 minutes here um but uh 40 45 minutes um but they are fundamentally a horizontal company and the playing field we just described is a vertically integrated playing field.

[510] I guess what I'm saying is I think the horizontal company may be at risk.

[511] And that business may not be something they can keep riding for the next decade.

[512] And they may, I mean, it's hard to say this yet because they're so dominant.

[513] But like you could imagine a world in a few years where like search revenues start declining.

[514] because they're getting the best user experience that wins in search is providing you one answer and like they need to do something dramatic.

[515] And this really sets them up to try and shift to a vertical company.

[516] Yep, yep.

[517] But again, they're really far behind.

[518] I mean, they have to do it.

[519] Like this is for all the money and resources Google has and all of the threats that we've been talking about.

[520] And again, we're probably being dramatic given where we stand here.

[521] in September 2017.

[522] But, you know, like, if there's one constant in the tech world, it's that it changes and it changes fast.

[523] I mean, even as we've been talking through this episode and the timelines, thinking back on some of these devices, like, it was not that long ago.

[524] You know, like 2011, though, six years ago, HTC was on top of the world and like coming out with the first true broadband, you know, smartphone.

[525] That feels like ancient history.

[526] now.

[527] So anyway.

[528] Yeah, I mean, I guess the interesting thing is like, how fast will we get to a post -search world?

[529] And is there anybody who can beat Google to that punch?

[530] Yep.

[531] And if so, then they got to verticalize quickly and try and beat whoever that is.

[532] I don't know.

[533] I mean, the counterargument to that is search is an incredibly hard problem.

[534] They have so many years of doing it.

[535] They have so much data.

[536] They've built all these incredibly really well -oiled systems that give them a, you know, many, many, many -year headstart against anybody who's trying to do anything similar.

[537] Yeah, that's true.

[538] But I think it's also getting, it's, they're getting attacked on all sides, right?

[539] It's getting chipped away bit by bit, vertical by vertical as well.

[540] We, you know, in our booking episode, right?

[541] Like, booking .com, trying to remember, what was the figure that we talked about that they spend, is it three, three and a half billion a year in AdWords like an insane amount right but then Airbnb spends like I'm sure they spend a little bit of money in AdWords but like a tenth of that at most you know at most because they've actually established that they are the place to go because when you're looking for a place to stay you go to Airbnb .com you don't go to google .com right Or you go to Airbnb's, you know, experience, whether that's Airbnb .com or their app or whatever, or, you know, you're looking for transportation.

[542] You don't go to Google and search for, you know, a car rental in whatever city you're visiting.

[543] You just go there and you open your Uber app.

[544] Yep.

[545] And it's happening.

[546] And will more Zillow's get started, right?

[547] Where, like, that was Google's business to lose.

[548] They should have just had an amazing search for homes thing.

[549] And they could have integrated it nicely with, like, Google Maps or Google Earth.

[550] And then the ads next to that could have been for real estate agents, but they didn't.

[551] And then the whole rise of Zillow.

[552] So, like, what other companies will get started?

[553] Well, and at the same time, like, where, you know, where's Google's biggest bread and butter?

[554] It's like, you know, it's buying stuff, right?

[555] And, like, you know, you search on Google for something and there's something you want to buy and you buy that, right?

[556] But now there's Amazon.

[557] I mean, there's been Amazon for a long time.

[558] but like there's there's those true i don't know what any of the figures are but i've seen crazy graphs where it's like the shift of um people starting their search on amazon instead of starting their search on google for products that's very real yeah yeah i think it's super real the question is and this gets back to the culture question is can you actually change the DNA of a company and shift it to a vertical products focus company um and and they need to be good at so many things because like just being good like apple needs to get better at services right because what you actually need to be good at now and in this if we're postulating that Google needs to be sort of in a vertical good in a vertical sense it's it's good at all the things right it's like all the way down to silicon and hardware manufacturing and design and software and services like all the things that they're good at now also yep well I'll tell you I mean this is just purely based on surface level reading into what's going on here but I think if I if I saw this and I felt that these threats were real what I wouldn't do is go in one fell swoop by 2 ,000 engineers who I sort of know but don't really know and didn't hire and aren't part of my culture and go graft to them onto my company right like I would go find a Tim Cook and give him 10 years to build this capability organically within the company right we don't have time for that we don't have time the world's on fire or it's about to be it is it is right but uh like culture it's a thing yeah yeah okay this is kind of an interesting before we go into grading even though you're hinting at it uh has any company ever successfully done this and is there like a high -profile example of someone that shifted from from being horizontal to being vertical in a big way like a bet the company way I mean you get like that your best transitions and your best save the company things ever tend to be like knowing that one market is drying up and entering another market like when you have Intel leaving memory and going into CPUs or you have Apple betting with the big with the iPhone but does anyone Well, actually, Disney's sort of doing it, or Disney's about to sort of be doing it, right?

[559] Like, with this announcement of a Disney only streaming service and starting to pull their content off Netflix, like they're saying, we need to be the best content creators and we need to be the best user experience for viewing it.

[560] It's going to be hard.

[561] Yeah.

[562] Maybe IBM.

[563] So IBM made and sold devices and products, and then they shifted to purely services.

[564] but is that really vertical and horizontal in the same way?

[565] I think people usually go the other way, right?

[566] Like they get, it's like I, to me, IBM made like a, you know, they were a vertical company that made and sold these mainframes and they made and sold PCs and now they're like horizontally selling consulting services to anybody that, you know, cares to hear about Watson.

[567] Well, like, I mean, as you know, right, like we all know, but you, you lived it, right?

[568] like Microsoft tried to go from horizontal to vertical and then I was like oh you know fortunately kind of in in time realized that was a terrible idea and went back hardcore to horizontal which was totally the right move yeah yeah that's interesting listeners if you've got ideas acquired dot FM we'd love to talk to you in the slack because I think that's an interesting topic and I think it actually could be a whole new podcast that someone should start is like companies that manage to make that shift and like individual case studies on on how that happened yeah I mean well man I all this discussion and I haven't normally I like form a little bit of a thesis on what to grade and I'm uh I don't have one so if you want to start I'll probably just well I mean I'm gonna I was I was I was hinting at this earlier and I know when we started recording this episode I didn't have a grade in mind going through it but going into it.

[569] But through the discussion, I don't think this is going to work out well for Google.

[570] You know, I, again, we're being dramatic on this episode, but this particular, like, this is their second bite at the apple.

[571] And so what they chose to do was to buy 2 ,000 engineers.

[572] Does the nest count?

[573] Can we call this their third bite at the apple?

[574] Well, yeah, maybe.

[575] Literally bite at the apple here.

[576] I mean, that's what's going on.

[577] But, yeah, I don't think this is going to work, right?

[578] Like, buying 2 ,000 engineers from HTC halfway around the world that aren't part of your culture, even though you've been working together with them on the pixel for a year, you know, whatever, but that's better than nothing.

[579] But having that go up against, like, the Apple, you know, what they've built in everything we've been talking about on this show for the last, what really the whole life of the company the last 40 years.

[580] I don't think that's going to work.

[581] Well, wait, let me play devil's advocate real quick here.

[582] So the pixel product is going quite well.

[583] I mean, I don't know, the unit's sold, but it's a great product that's getting lots of love.

[584] Do you think by three?

[585] Yeah, okay, how many pixels have you seen in the wild?

[586] Yeah, I don't actually know.

[587] And figures seem hazy.

[588] It's in the low single digit millions, I believe, of number that they sold.

[589] But my question is, do you think it could get any worse?

[590] Like, do you think by this team in house, like, it could get worse?

[591] Well, I mean...

[592] Presumably, if they just kept doing the same thing, each of these prizes would get better, more people would start to buy this phone over time.

[593] And it has to do at least that by bringing them in house, right?

[594] Yeah, well, but at the end of the day, it's a culture problem, right?

[595] like this is you've talked about it on the show before like this when you were at Microsoft right like and Microsoft was trying to be a go to being a vertical company and you're like but we should just ship office for iPad because that's what we do you know the like that's that's the problem that Google is going to face here they're bringing in these 2 ,000 people who are um is it 2 ,000 yeah 2 ,000 people who are, you know, hardware and supply chain and device people, and they're coming into a Google culture where the crown jewel of, you know, Google's mobile strategy is Android.

[596] And Android is predicated on being horizontal.

[597] And so, like, eventually there's going to be, you know, a fight of like, are we going to prioritize our new, you know, hardware and vertically integrated team?

[598] And then, like, what are the people running Android who probably have a lot more?

[599] juice within the company going to say about that um you should say your grade so i can then disagree okay i'm going with a d oh wow all right well i don't know uh what i'm going with yet but i'm going to start talking and see where i land um the uh the counterpoint i want to make to that is um i think they're deciding like i think if you're not if you're if you're an android oem right now you better figure out what your strategy is because i don't think it's putting android on your anymore like to me I don't think they're they are conflicted internally anymore like I think they've decided and I think so they're willing to go to war with Samsung that's that's what I'm looking at here hmm I mean I think their bet is we're gonna start creating experiences that like you just have to be in -house to you got to be bundled to be able to make hmm like I think they that they're seeing what Apple is doing and saying yep we're bought in on that.

[600] Well, okay, interesting.

[601] I mean, maybe they can do that because, like, Samsung doesn't really have any leverage and they can't go anywhere else.

[602] Like, what are they going to do?

[603] Make their own operating system?

[604] They can't do that.

[605] They tried that.

[606] Tysen?

[607] Was that the...

[608] Yep.

[609] Yep.

[610] It didn't work.

[611] So, okay, like, yeah, Google could play hardball with Samsung and say, like, you're just coming along or you're dead.

[612] Can Google make enough phones?

[613] Like, that's another interesting question.

[614] it's like how many people buy Samsung phones does Samsung make their own phones are they their own manufacturer uh I believe so I believe so yeah so like or even if they're not they have enough a deep enough relationship with the fox cons of the world that like I mean that that's the thing right like pixels a great phone but I've never seen one in public and I've seen millions and millions of iPhones and galaxies I think two years from now we'll revisit this and go wow, Google's ecosystem of OEM partners dried up fast.

[615] Yeah.

[616] That's a heck of a transition.

[617] But who's going to make the phones then?

[618] I mean, well, there's going to be all this capacity, right?

[619] Like if Google starts to shift this way, like, there's a lot of people that need to make a lot of phones that are suddenly going to be available.

[620] Yep.

[621] Hmm.

[622] You know, and I mean, maybe, maybe Samsung does and Google, just commoditize the Samsung even further or maybe maybe Apple just like really continues to dominate in this world like they have capacity like um their supply chain is the best in the world yeah well so here's this kind of a funny thing is this is the same price that of instagram right so it's it's funny to like make this little apples to apples comparison of like which would you have rather bought um yeah but and one other lens that i want to look through it as is um if you you UR