Google’s Rick Osterloh joined the company for the second time in 2016 Credit: Getty Images
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Rick Osterloh’s second stint at Google has been happier than his first. Six years ago, when he first joined the company, it was amid one of the most disastrous acquisitions in its history.
In 2012, Google spent $12.5bn (£9bn) on Motorola Mobility, the iconic American mobile phone maker where Osterloh was a senior executive, in an attempt to enter the cut-throat world of smartphones. But it floundered under Google ownership, failing to compete with Apple and sharper Asian rivals, and was sold two years later for $2.9bn.
The episode was far from the company’s proudest moment, but Osterloh, who took charge of Motorola shortly after Google elected to sell it, clearly made an impression. Two years ago, he was brought back with a new aim: turning a company rooted in software and the internet into a hardware powerhouse.
Google has since released a dozen devices, from smartphones to speakers and virtual reality headsets. In a statement of intent, last year it spent $1.1bn buying most of HTC, the Taiwanese smartphone maker. “The company wasn’t ready at that stage to go all in on hardware,” Osterloh says of his first stint. “Now it is. The context has changed a lot.”
Google has become one of the world’s most profitable companies on the back of computer science: algorithms, data and code. Success in the physical realm has always eluded the company, most notoriously in the case of Google Glass, the wildly hyped but ultimately doomed hi-tech headset. Nest Labs, the smart thermostat maker Google paid $3.2bn for in 2014, is widely seen as having failed to live up to potential.
This time, there are signs things are different. Osterloh does not look like a computer programmer for one thing. He is tall and athletic: unlike many of his fellow alumni at Stanford University in the Silicon Valley heartland, he enrolled to play basketball, not to write software. In contrast to many of the senior “Googlers” that have been with the company for a decade or more, Osterloh – white-haired and with a Cheshire Cat grin – has come to the company via Deloitte, Amazon and Skype, where he spent two years in London before its sale to Microsoft.
Google’s “Pixel” smartphones, announced in October 2016 and updated last year, has been embraced by critics, although supply setbacks have limited sales. Google Home, its line of voice-controlled smart speakers, is a strong second in the market behind Amazon’s Echo. The company’s hardware line also spans headphones, laptops and Wi-Fi hubs. Its latest gizmo, a camera that uses artificial intelligence to automatically take pictures at opportune moments, went on sale last week.
Osterloh says the key difference from previous hardware initiatives at Google is that the division is now fully supported by the company, rather than being an afterthought (Motorola was run at arm’s length, an attempt not to upset other phone-makers using the Google-designed Android software). “Our team works very closely with all aspects of the company, on behalf of the user, in trying to get our best technology out to them,” Osterloh says. “That’s a subtle difference, but I think it’s a very important one.”
But there’s little getting away from the fact that the releasing of its own smartphone marks something of an about-turn for Google. The mobile war of the past decade has been defined by diametrically-opposed philosophies. Google gives away its Android operating system, leaving the complex and expensive business of designing, making and selling mobiles to Samsung, Huawei and others.
Apple makes both the iPhone and its software itself from the ground up, ensuring strict control over the process. Both have profited handsomely – 85pc of phones sold around the world run Android, while Apple dominates the lucrative high-end of the market – but Google has often positioned itself as open and free, in contrast to the “walled garden” of Apple. What has changed?
sterloh says Google needed to make its own hardware in order to fully show off the limits of its technology. “Fundamentally we wanted to be able to innovate quickly and get the best of Google technology and user experience to [the] market. “I think everyone’s coming to realise you have to build a full solution if you really want to be on the cutting edge, and that’s certainly what we believe.”
Google’s phones, for example, come loaded with the company’s voice assistant. Its camera uses the company’s AI expertise to turn shoddy smartphone photos into professional-looking ones. Its speakers’ algorithms are designed to automatically judge which room they are in to create the best sound. The result has been a flurry of five-star reviews, but the strategy raises an awkward question: does it not mean that its arch-rival Apple had the right idea all along?
Osterloh pauses, before laughing off the question. He counters that while Google may have picked up the playbook a little later, it is Apple that is now falling behind when it comes to the advances in AI that permeate throughout Google’s phones. In particular he suggests Siri, the iPhone’s AI-powered voice assistant, is not the sharpest knife in the drawer.
“They’re missing a huge part,” Osterloh says. “Kudos to Apple for bringing an assistant to market early, but it’s been quite remarkable to me how much better Google’s assistant is. AI and machine learning are so fundamentally different from old software; these are things that are truly going to transform user experience.” The snipe may seem premature. Apple sold 216m iPhones last year. Google does not disclose its figures, but independent research has pinned the figure at 3.9m.
This was partly due to manufacturing issues, but Google will have to match critical acclaim with commercial success to justify the money and time it has invested. “We really want to scale,” Osterloh says. “We are definitely new to this space [but] we’re growing quickly, and we expect that to continue. We are running this like a business.”
Google has positioned itself as combining hardware, software and artificial intelligence Credit: Bloomberg
Google is not used to growing pains. “Hardware businesses don’t experience explosive growth in the same way that an app or web service could,” Osterloh says. “It takes a long time to have a proper supply chain, planning, channel reach, inventory.” He says much of this expertise has come on board with the 2,000 HTC staff who joined Google in January. “It gives us a lot of engineering capacity to develop what is coming next.”
He says Google could target more price-conscious consumers by releasing cheaper phones, and plans to expand by seeking tie-ups with mobile operators and sales in more countries (it sells in just six countries).
Osterloh’s brief was recently expanded when his division assumed control of Nest. The business, which makes smart thermostats, cameras and smoke alarms, had been separated from Google under its parent company Alphabet, but reports of infighting and the exit of its founder suggest the $3.2bn it paid may not have been well spent. Its new boss insists Nest has been a good acquisition. “Last year they sold more products than in the prior two years combined.”
What next? The Fitbit on Osterloh’s wrist suggests an interest in wearable technology, although he insists he has tried it on just to count his steps at the enormous Barcelona trade show, where we meet. Augmented reality glasses is one of a number of new areas the company is exploring, suggesting Google Glass could one day return.
Google may be late to the smartphone party, but Osterloh insists it has a handle on the future. “Those spaces are going to evolve over a long period of time,” he says. “We’ve just scratched the surface.”
