Google is out of the (consumer) hardware market

There’s plenty of comment around on the implications of Google’s announcement about China. Some of these are pretty big geopolitical issues. (For a route in, you can’t do better than John Naughton’s recent posts on what it reveals about business ethics, censorship, and the Chinese Government.)

There’s also the impact on technology specifically. Much has been made of the possibility that Google taking a stronger moral stand on censorship will reflect well on it outside China.  There’s also been some commentary considering what the likely impact will be on the future of Google’s phone – the Nexus One – in the growing Chinese market, and on Google’s place as a search engine in China (summary: probably pretty bad). As the more informed commentators have noted, the way Google is behaving might be seen as reasonable hardball negotiating tactics in the West, but is far more damaging as an approach to the Chinese Government. I think it’s safe to say that Google will henceforward find it very, very hard to negotiate with them.

However, I’ve not (yet) seen any commentary pointing out what seems to me the obvious impact of that relationship breakdown: the likely end of Google’s future as a hardware manufacturer.

Any complex electronic device these days is very largely made in China. That certainly applies to the Nexus One. And the Chinese Government sees it as its duty to intervene in any business in China to ensure the interests of the Chinese People are met – they are still Communists, and will have none of this ‘the state should simply let the capitalists get on with it’ idea that obtains elsewhere. At worst, Google might be proscribed entirely.  And even if the Government takes no direct action against Google, few businesses in China are going to be keen to supply a company that the Government doesn’t like.

So I think it’s pretty safe to predict that Google will – at minimum – experience a series of supply problems for hardware. (It’s probably not good news for HTC – who make the Nexus One on Google’s behalf, as well as other smartphones – either.)

Of course, the Chinese Government can’t stop Google getting its hands on Chinese-manufactured technology without stopping production entirely, which I doubt they want. It might be possible to design a smartphone around a ‘use no Chinese components’ requirement, if you’re a very clever designer, with excellent intelligence about the entire supply chain, and are targetting the low-volume/high-value-added segment of the market.  But the Chinese Goverment can certainly make it very hard – and very expensive – for Google to make custom hardware. And almost certainly will.

(There might even be problems for Google getting its hands on hardware for the vast server farms it needs – but I suspect there won’t, because I imagine that’s sourced more indirectly and not built to Google-specific spec. But I don’t know enough about the hardware involved to give a clear prediction there.)

The Nexus One’s initial reception has been – shall we say – mixed at best. Estimates of early sales are very low, there are the inevitable teething issues with any new hardware, and there are clear signs that Google’s approach to customer support – which works and scales excellently for stuff people get for free – isn’t really workable when customers are shelling out premium prices.

So I think it’s almost certain that Google is out of the consumer hardware game. And that’s probably a Good Thing.

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