AI Alexa, which is based on AWS’s cloud infrastructure.
Combined with Alexa’s machine learning algorithms, the ITPRO reviewers say, “the sheer scale of AWS’ compute power means that the potential for Alexa to adapt to users’ habits and increase its skillset means it could be a more promising option in the long run.”
(It should be said here: the reviews don’t touch on the important question of device cybersecurity. Connected consumer devices have become a vulnerable gateway for malicious hackers, and security concerns may become a major factor in product sales.)
Papadopoulos says Google is in the pole position in terms of integration with a vast swath of Web apps and devices, because its Android operating system and its services, such as Search, Maps, and AdWords, are embedded in so many of them.
I asked Papadopoulos whether Google, a unit of parent company Alphabet (NASDAQ: [[ticker:GOOGL]]), really needs to become a consumer electronics powerhouse as well as a giant in Internet advertising. After all, mobile device makers are under pressure to deliver ever-growing reams of data instantly while accommodating new features such as virtual reality, video streaming, and voice interaction. At the same time, manufacturers such as Samsung have taught consumers they can find these devices at lower prices. Papadopoulos says he does expect that hardware will yield lower profit margins than Google’s AdWords.
Judging by revenues, consumer electronics still occupies a minuscule portion of Google’s business, though its $12 billion research budget funds projects from connected cars to virtual reality.
In 2015, the giant global company reaped $75 billion in revenues, with more than $67 billion of that coming from advertising. While revenue growth was 14 percent higher than in 2014, the growth rate of ad revenues has been declining, in part due to the consumer shift from desktop and tablet computers to mobile phones, where the margins from advertising revenues tend to be lower, the company said in its annual report for the fiscal year ending Dec. 31, 2015. However, Google expects further expansion as more ex-U.S. populations come online.
Google took in $7 billion in non-advertising revenue in 2015, mainly stemming from sales of apps and other content through the Google Play store, though hardware sales of products including video streaming device Chromecast contributed in this category. Sales of mobile-controlled thermostats and cameras from Alphabet subsidiary Nest, which Google acquired in 2014, fall into the emerging category called Other Bets, which scored revenues of $448 million in 2015. The category also includes Internet and TV services.
While Papadopoulos predicts a bright future for Google in consumer electronics, he says he isn’t attempting a detailed analysis of the company’s business plan. But Papadopoulos says Google need not establish itself as a sales volume leader with its Pixel smartphone or other hardware products in order to remain a dominant company in the consumer electronics sphere.
As it continues to develop its software, Google could instead influence the evolution of technology hardware the way Microsoft influenced the design of personal computers, Papadopoulos says.
“A really high-volume play doesn’t make sense for Google as a company,” Papadopoulos says. But by leaving other companies to offer low-margin devices, Google could develop flagship products that help set the pace for new features, he says.
“That’s a powerful place to be,” Papadopoulos says.
