HTC, Google and the Future of Mobile

Acquired is back and live on the scene! After months of speculation, Google announces today their acquisition (err, "Cooperation Agreement http://www.htc.com/us/about/newsroom/2017/2017-09-21-htc-google/”) of a large portion of HTC’s hardware division. What does this mean for the future of mobile? Can Google transform itself into a vertically integrated device company and compete directly with Apple? Most importantly, when will we see more Beats Android handsets https://www.cnet.com/news/htc-sensation-xe-is-a-beats-by-dre-android-phone/??? (We hope never) Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Topics Covered Include: The origins of HTC as a Taiwanese OEM, dating back to the Compaq iPAQ https://en.wikipedia.org/wiki/IPAQ and Palm Treo 650 https://en.wikipedia.org/wiki/Treo_650! HTC’s long history with Google, starting as the manufacturer of the first Android phone, the HTC Dream / T-Mobile G1 https://en.wikipedia.org/wiki/HTC_DreamHTC’s ownership of Beats, for a hot minuteGoogle’s own winding history in hardware, with its Motorola acquisition in 2011 and divestiture in 2014Google & HTC’s joint work on the Pixel smartphones in 2016And much analysis and speculation on what this means for Google, Apple, Samsung, vertical vs horizontal business models and more! The Carve Out: Ben: Odesza’s new album A Moment Apart https://pitchfork.com/reviews/albums/odesza-a-moment-apart/David: Bruce Springsteen on Fresh Air http://www.npr.org/2017/09/15/551112185/bruce-springsteen-on-jersey-masculinity-and-wishing-to-be-his-stage-persona

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Well, this is nuts. It's like leaking out as we speak.

• 0:04Speaker 01

  Yeah, coming at you live.

• 0:16Speaker 00

  Welcome back to episode 45 of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

• 0:24Speaker 01

  I'm David Rosenthal.

• 0:26Speaker 00

  And we are your hosts. Today, we are live covering the leaks as they come out. Well, Google is apparently about to acquire HTC or at least a part of HTC. And David and I are hitting refresh on our browsers while recording this on the evening of Wednesday, September 20th, around 8:00 PM Pacific time. 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, we, there's been new information.

• 1:03Speaker 01

  Yeah, we're coming at you live here on Acquired.

• 1:08Speaker 00

  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. 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. So everything, everything that you'll hear is based off of some assumptions that we'll introduce.

• 1:38Speaker 01

  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. We're here in the evening Pacific time on September 20th. It's already morning in Asia and so the official news is, is starting to come out over in Taiwan. And of course, the leaks were coming out yesterday in Taiwan, which is still today here in, here in Pacific time.

• 2:07Speaker 00

  Yeah, and the most, the most obvious one that's, 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.

• 2:21Ben Gilbert?

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• 2:40David Rosenthal?

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• 3:01Ben Gilbert?

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• 3:41Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you. Now, David, before diving into these acquisition history and facts of HTC, let's throw out for the audience what we know and what we believe now.

• 4:21Speaker 01

  Right, 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. So they are not acquiring the whole company is the best information we have thus far. But they're 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.

• 5:05Speaker 01

  So that is, that is current state of play. They're acquiring about half of the people in the company. But HTC as a company itself and all of its brands and its own operations are still remaining independent.

• 5:21Speaker 00

  Fascinating. And other products, right? So the, you know, the VIVE stays at HTC.

• 5:26Speaker 01

  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. 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.

• 5:53Speaker 00

  Yeah, and we say the A-team, you know, there's, there can be furious debate about HTC and who's prioritizing what and who they put on which projects. But one thing that you cannot deny is it was, it was very, very widely publicized and covered that, you know, the, the Google Pixel was the best Android phone ever made and set the new standard. And it's, it's that team that, that, you know, worked on an amazing product. And obviously, Google did lots and lots of the design there. But we are getting ahead of ourselves. So.

• 6:27Speaker 00

  David, tell us a little about HTC.

• 6:30Speaker 01

  Yeah, let's dive into history and facts and rewind the clock. And HTC is not, you know, it's a, it's a household name in the US, but, but only recently, however, has been involved in many products over the years that, that our listeners will probably recognize. So the company was founded in 1997 in Taiwan. It's a Taiwanese company and, and they began life and for most of their initial life, were just an OEM, so an original equipment manufacturer. They were essentially a contract manufacturer for other tech companies. They didn't have their own brand. And then over time, they built their own brand, but obviously just like the Google Pixel

• 7:15Speaker 01

  and other devices, they continued to build products for other brands.

• 7:22Speaker 01

  And, 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. And this was before, you know, smartphones as we know them today. But back then, smartphones and smart mobile devices were PDAs, personal digital assistants. So HTC actually, this is a blast from the past, was the manufacturer. And I believe also involved in, in elements of the design for the HP and Compaq, iPac Windows, you know, personal assistant. Do you remember that one?

• 8:06Speaker 01

  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 cellphone.

• 8:22Speaker 00

  Huh huh. Yeah, that's crazy. You know, I in thinking about this, you know, I always think about there are the the few manufacturers that actually made their own stuff and Palm always occupied that space in my head. You know, as did Nokia and you know, I apparently Palm didn't make all their own stuff and I don't know. I'm not actually sure if did they manufacture other products? Do you know?

• 8:48Speaker 01

  Yeah, I don't know. And Palm itself, that'll be an episode, a fun episode someday. It was, you know, a darling kind of startup tech company in in the valley in the 90s and then ended up getting acquired by 3com, right? Is that right?

• 9:05Speaker 00

  Palm?

• 9:06Speaker 01

  Which it's, yeah, wasn't Palm part of 3com at one point?

• 9:10Speaker 00

  Well, eventually they ended up going to HP and getting bought by HP after the Palm Pre. Which was, that was a shame. Like WebOS was an absolute pioneering product and the Palm Pre was was a controversial yet well-designed device. And I think, you know, to absolutely languish at HP. But yeah, that's that's for another day. Let's let's definitely do an episode on that.

• 9:34Speaker 01

  Another day. Okay, okay. I just looked it up quickly. Yeah. Palm was acquired by US Robotics Corp. In 1995 and then US Robotics was acquired by 3com. So it was part of

• 9:45Speaker 00

  Did it like spin out then?

• 9:47Speaker 01

  Yeah. So then the founders left 3com because they were, you know, unhappy and and started Handspring. And that's why Handspring and Palm, it was always that confusion, I remember. Yeah. Anyway, back to the topic at hand.

• 10:05Speaker 01

  So HTC is in the middle of all of this. I mean, they they are like the OG players in the smartphone game here. And and even going back to the founding of the modern smartphone game. 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. We also covered this in our Android episode, episode 20, which is very relevant here. This should really be like the the coda to that episode. But HTC was one of the founding members of the Open Handset Alliance,

• 10:46Speaker 01

  which if you might recall from that episode was Google's initial smartphone efforts that turned into Android. 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, Google phone, was the HTC Dream, which in the US was the T-Mobile G1. And that was made by, that was made by HTC. And that was the very first and again, only Android phone for quite a long time.

• 11:22Speaker 00

  Yeah, man, I remember playing with prototype hardware of that in like 2007-ish. And I think that's right. And that was, that, or maybe it was just very early hardware, but that was like, it was hard to believe that that was the future. I mean, I know everyone was all excited about it. And it's in a lot of ways, the same way now that people are, are showing off like an extremely crummy experience in IOT and being like, IOT is the future. And you're just like, eh, okay.

• 11:52Speaker 01

  Yeah. This thing, you know, I don't think I've ever actually used one in person. I've certainly seen them, but this thing, we'll, we'll try and link to it. Remember to link to it in the show notes, but so it had like a trackball on it, right? It had a trackball 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 eighties trackball, you know, mouse mice for a computer.

• 12:26Speaker 00

  Well, yeah, I mean, this was like when, when Android was still basically kind of a open source copy or perhaps inspired by BlackBerry, before they spent the better part of a decade doing, you know, becoming that, that of iOS. 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? Like that, if you're gonna, that's what a smartphone looks like. If you're gonna go make a smartphone.

• 12:59Speaker 01

  Yep, yep. And of course, there was Danger and the Sidekick at the time, too, that was also inspiring all this. 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.

• 13:22Speaker 00

  Absolutely.

• 13:23Speaker 01

  Always fun. So HTC, again, like right in the middle of all this, the very first Google phone, very first Android phone. And then they really stay at the cutting edge 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 US. I think it was on Sprint. And I'm forgetting right now what it was called, but it was like, they marketed the hell out of this thing. I think it had probably like an hour and a half long battery life.

• 14:04Speaker 01

  But it was the first, the first mobile phone and network in the US that you could really like use it and it felt like broadband. 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. So they really were, you know, pioneers of a lot of firsts.

• 14:27Speaker 00

  They were. And, you know, still, you know, you could argue that the Vive is really Valve's innovation, and in a lot of ways it is. And a lot of the control rests with Valve. And we can talk about that.

• 14:43Speaker 01

  Just like Android was, you know, Google and Android and Andy Rubin's innovation.

• 14:49Speaker 00

  Yeah, yeah. But the fact remains, like, absolutely a pioneering device, and HTC is largely responsible.

• 14:55Speaker 01

  Yep, yep. So that was kind of the the high point. And I think that was right around, trying to remember, like 2010 ish, I think, when when that phone came out. 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 in the smartphone era. Unfortunately, since 2011 at its high point, that has not happened over the last five to six years and the stock is down 90% since then.

• 15:38Speaker 01

  So HTC now, well, as of yesterday, before they halted trading, had a market cap of just under $2 billion in in US dollars, which is down significantly from from where they were at that peak. I think they were, I think they were around somewhere between 20 and 30 billion dollars at their peak.

• 16:02Speaker 00

  Yeah, and I'll I'll embarrass myself a little bit here. I was texting David earlier and I looked up their market cap just on on Google Finance. And I was like, whoa, David, I mean, this is going to be a really splashy 58 billion dollar market cap. And then like a few hours later, as you're doing your research, you texted me back. You were like, uh, that market cap is in Taiwanese dollars and it's only it's only about 1.9 billion in US dollars. And like, thinking about, you know, what what HTC was and in my head, they still occupied a Yeah. A large brand.

• 16:39Speaker 01

  You're like, oh, yeah, HTC is a $60 billion company for sure. No, unfortunately for them.

• 16:46Speaker 00

  And AOL was 150 billion dollar company.

• 16:48Speaker 01

  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 just like you can't make this stuff up. So in 2011, right at its peak, HTC acquired, I believe, a 51% stake in Beats. So this was back when Beats was was just the headphones, was Dr. Dre and Jimmy Iovine. And and and they were going to buy this brand and this great audio technology integrated into their design and manufacturing and supply chain expertise. And basically, what happened

• 17:33Speaker 01

  was for about a year to 18 months, every HTC product across their whole line, which wasn't just smartphones, but but mostly smartphones, had Beats branding plastered all over it. So you can still go on Amazon and eBay and get HTC Beats Android phones.

• 17:53Speaker 00

  Beats by HTC by Dre by Apple.

• 17:56Speaker 01

  Totally. So, you know, what did Steve Jobs think at the time?

• 18:04Speaker 00

  Well, I mean, if if this co-branding stuff like Apple is not immune from this. If you remember the the first, the original iPod had a second version come out. It was HP. Oh, I'm sorry. So they had the Motorola also, but there was an iPod that came out that was an iPod HP edition.

• 18:22Speaker 01

  Yeah.

• 18:23Speaker 00

  And it had like an HP brand on the back above the Apple brand. It was the weirdest thing.

• 18:29Speaker 01

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

• 18:51Speaker 01

  So HTC in 2013 divested their stake in Beats, sold it back to the company. I believe, I want to say Carlyle came in and did a big private equity infusion into Beats and they bought back the stake. And then, of course, it was just about a year, year and a half later, I think, that Apple acquired the company. So that was, that's our sidebar. HTC, of course, also, as we've talked about in 2016, in partnership with Valve, created the Vive, which still, I think, is probably arguably the best virtual reality experience out there, better than Oculus still, I believe.

• 19:36Ben Gilbert?

  I think so.

• 19:37Speaker 01

  We can certainly, fanboys will argue that. You can argue in the comments or in the Slack. But again, really, you know, they, it's really interesting, the approach that HTC has taken to innovation. They've sort of been at the forefront of every tech wave that's come over the last 15 years, 15 to 20 years, really. But they don't do it themselves. They always do it in partnership with other companies.

• 20:06Ben Gilbert?

  Yeah, and they can't seem to strategically position themselves to hold on to the most valuable asset as it grows. I mean, that, that, yeah, over and over and over failing as a company to do that. All right, listeners, now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

• 20:33Speaker 01

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• 20:47Ben Gilbert?

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• 20:57David Rosenthal?

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• 21:14Ben Gilbert?

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• 22:07Speaker 01

  So let's bring Google into the story here. And we'll pick back up again right around 2011 when HTC is sort of at its height. And Google, at that point, Samsung was really, Google sort of had a problem that Samsung had taken Android. They were by far the most successful, powerful OEM out there. 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. And so Samsung phones were, if either you didn't, you were on a carrier that

• 22:52Speaker 01

  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. And Google, of course, was threatened by this for many reasons. They decided to acquire Motorola. Now, this was for two reasons. The primary reason and what they said at the time and in retrospect, probably continue to justify was for patent reasons. There was a lot of litigation happening in the smartphone world and in particular in the smartphone operating system world at this point. And Android, of course, was open source. So they needed patent protection.

• 23:34Speaker 01

  Motorola had a large patent portfolio, but they did actually acquire all of their smartphone manufacturing business as well. And they spent a lot of money for it. They operated Motorola for about two and a half years 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. And then they sold it to the Chinese company Lenovo in 2014 for about $3 billion. So they paid 12 and a half billion for it. They kept the patents.

• 24:15Speaker 01

  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. They sold that off for, I believe, about $2.5 billion right after they did the transaction. So let's say they paid $10 billion net for Motorola. And then two and a half years later, they sell it for $3 billion, under $3 billion. So not a good, not an auspicious beginning to Google's efforts in the smartphone hardware business.

• 24:45Speaker 00

  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 HTC or Google's buying the ARM that manufactures the phones of HTC or even Google, you know, whatever it is, like, uh, okay, like, we've tried this once, so how is it going to be different this time?

• 25:06Speaker 01

  Yep. Well, and, and we'll see how it's different. Ben and I will speculate on how it's different, but there's one thing that is the same history repeating itself. And that's that there was an executive within Google Motorola named Rick Osterle, Osterloh. And he ended up by the end of, 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

• 25:49Speaker 01

  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.

• 26:22Speaker 00

  Yeah, but you know, we'll get to this, but times are different now, you know?

• 26:27Speaker 01

  Indeed, they are.

• 26:28Speaker 00

  And I want to pause real quick. So times are, well, a few things. Times are different now. The mechanics of this deal are completely different. And on top of it, you know, it's probably worth talking about the patent portfolio Motorola had. And, you know, there's, there's a lot of speculation and you can read plenty of think pieces about this, about the real value of that acquisition being the IP and Google retained a lot of that IP, I believe, when they sold, sold Motorola off. And so then it's, you know, highly protective for Android. So that there's more to this than meets the eye. And, you know, it's just worth

• 27:08Speaker 00

  calling out how big of a player or how big of a deal IP was as part of that Motorola transaction.

• 27:15Speaker 01

  It absolutely was. But what's super interesting is like, again, that was the story. And then when they sold Motorola.

• 27:23Speaker 01

  That was, that was the, the real emphasis that they said on the story. Hey, this was really a, you know, an IP thing and we dabbled in hardware. We decided it didn't make sense. We were, you know, I'm sure in tech themes, we will get into the, you know, vertical versus horizontal approach to, to a company. Didn't make sense as a horizontal provider of Android to also be a vertical provider and compete with our partners.

• 27:49Speaker 01

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

• 27:51Speaker 00

  Yeah, yeah, yeah. And it's worth pausing here for a second. So, uh, listeners, um, I think this came out right before we started recording. Uh, Google has confirmed the news. Um, Google signs agreement with HTC, continuing our big bet on hardware. And, uh, uh, written by none other than Rick Osterloh, who David just, uh, just mentioned. And the key, uh, sentence in this blog post is, um, uh, let's see here. With this agreement, a team of HTC talent will join Google as a part of the hardware organization. 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. The deal also includes a non-exclusive license for HTC intellectual property.

• 28:35Speaker 00

  And they're calling this an agreement. So it's, it's not, you know, no one's saying acquisition, no one's saying, um, purchases. It's, it's an agreement. And of course it's for $1.1 billion of, of cash that, that goes over to, um, to HTC. But, okay, so we have definitive news that, that it's basically, you know, exactly as, as all the, um, speculation was, uh, about that, specifically that hardware engineering team. Um, and the, the, the other interesting thing here is they have a non-exclusive license to HTC, HTC's IP. So does that mean like all of HTC's patents are, you know, uh, available for Google right now? And obviously HTC can do other things with them and license them as well. But, um, that's kind of interesting too.

• 29:18Speaker 00

  I mean, that, that definitely bolsters the value of the deal.

• 29:21Speaker 01

  Yeah, and it's interesting. 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, uh, the HTC Dream, the first Android phone, like how much of that IP was HTC's? How much was Google's?

• 29:40Speaker 01

  Impossible to know right now, but I'll be curious if this comes out in the filings when they, when they happen.

• 29:46Speaker 00

  Yeah, yeah, me too. And I think, um, it, I can't, you know, I'll say this now, probably talk about it later. Google, uh, you can definitely sense the, um, we've been burned once and now we're going to be very methodical about this approach here. Like it's a smaller price tag, 1.1 billion. It's just the hardware engineering team, you know, it's, it's, yeah, yeah. And I mean, if you look at it, um, it's, it's really only exactly what they needed. And they spent, you know, years first engaging with this team, doing a try before you buy. Um, I mean, this is a highly calculated, highly risk mitigated, um, transaction by, by Google.

• 30:32Speaker 01

  Yep. And yet at the same time, well, we'll get here in tech themes, but they're still again, deciding to, uh, be both a horizontal and a vertical player in this space. So.

• 30:44Speaker 00

  David, just plug yours and la, la, la, la, la.

• 30:47Speaker 01

  Yeah, right, right, right.

• 30:49Speaker 00

  All right, let's go to acquisition category.

• 30:51Speaker 01

  Yeah.

• 30:52Speaker 00

  Yeah.

• 30:52Speaker 01

  Well, uh, go ahead.

• 30:54Speaker 00

  It's, it's quite literally a, a people, like a talent acquisition.

• 30:57Speaker 01

  I mean, it's a team. It's, it's, let's not call it an acquisition, Ben. It's a, it's a, it's an agreement.

• 31:03Speaker 00

  It's an agreement. It's an agreement. Yeah.

• 31:07Speaker 01

  An agreement to make 2,000 of HTC's 4,000 people, Google employees.

• 31:14Speaker 00

  Yes. Um, I'm actually quite curious how the mechanics of this work. Like, I hope there's kind of filings about this and David, you might actually have, have good insight, but, uh, like, do those people all go into a sub entity temporarily along with, uh, the license to the IP and then Google buys that sub entity for 1.1 billion? Or can they actually just?

• 31:42Speaker 01

  Yeah, I don't know.

• 31:43Speaker 00

  Give a bunch of cash and then say, all right, you, you know, these employees all work for us now.

• 31:49Speaker 01

  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

• 32:00Speaker 00

  Yeah.

• 32:00Speaker 01

  For the last few years and you know, their market cap before today was was less than, less than twice that $1.1 billion figure. So that amount of cash is, is in the bank is going to be, was desperately needed by the HTC folks.

• 32:17Speaker 00

  Yeah, totally. And this is actually a great segue. 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, what will happen in the future that isn't happening now because of this transaction. And we'll talk a lot about the Google side, but it's an interesting thing on the HTC side. Like they've had mounting losses. This gives them $1.1 billion of a capital infusion to do something with their business. They're still making handsets. They're, they're the hardware partner for manufacturing the Vive. Like if you're HTC and you're trying to sort of like steer the ship and trim down and I mean,

• 32:59Speaker 00

  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. So let's just jettison this team, get all the cash flows from that upfront now and do something else with it. But what is that something else?

• 33:15Speaker 01

  Yeah. What is that? I mean, that is the, the $64,000 question here, right? Like, we're a lot more, a lot more money than that. Given their history of, as we've talked about thus far in this episode, how they operate, the type of innovation they do. I mean, they really are like, they are at their best when they're a contract shop.

• 33:42Speaker 01

  And again, that's what they were doing with, with Google and the Pixel and, and that worked well, right? Like Google ended up buying that whole team.

• 33:51Speaker 01

  You know, they, they did that for a long time and then they tried to build a brand on their own. On top of that, they had some success, but it wasn't sustainable. And part of that, I think was, was probably because they, you know, they were, they were still riding on, you know, Google's platform. I think it's very hard as an Android manufacturer to, to build a real brand. Even Samsung is, is very vulnerable as we've seen in the last couple of years.

• 34:21Speaker 01

  But so now, what are they gonna do, right? Like, are they, 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? Do they use the resources to go back and do that and build up that team again? Do they create their own real IP? I don't know, it'd be very interesting to see what happens.

• 34:44Speaker 00

  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 Foxconn? Or is that the same thing as being Foxconn? Like, could HTC pivot purely into a B2B company, shed their brand and just start, you know, making, doing manufacturing to spec? And like, when you think about it, like, is that effectively what the team was doing? That was doing the pixel manufacturing? Or is there actual, like, you know, engineers there on the HTC side doing design work?

• 35:25Speaker 00

  I don't know, I'm not totally clear on how much different the HTC contract sort of manufacturing was than what Foxconn does for Apple?

• 35:35Speaker 01

  Yeah, I don't, I don't know the delineation either. But certainly Foxconn, you know, has built a very, very large business on, on just that strategy of, we are a B2B company.

• 35:48Speaker 00

  Yeah. And what I was gonna suggest is, like, maybe, maybe, go for it.

• 35:53Speaker 01

  Well, I was gonna say, you know, too, in other 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 Foxconn is, because of the proximity to China and the ability to do business there. You know, you can, you can build a great business in being a, being a foundry for, for semiconductors, where you don't do the design. There are lots of fabless semiconductor companies that are either independent companies

• 36:35Speaker 01

  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.

• 36:44Speaker 00

  Yeah, and I was gonna 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. But if they do that, then companies like Google will come along and just buy them. So they don't have to pay to contract them. But clearly, that's a model that works. Apple hasn't tried to buy Foxconn or bring any of that in-house. 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. But sort of being a horizontal manufacturer seems to work. And HTC could sort of move into that.

• 37:25Speaker 01

  Yeah, 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 the few hours since this announcement happened or since the rumors swirled, to know for HTC, like where did they play in that value chain? Like, this is the question you asked, like, how much were they, just the manufacturer? How much were they involved in the design? How did that change over time? And it's interesting 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,

• 38:07Speaker 01

  but also, you know, companies like Samsung and increasingly Google themselves, design is really not valued. 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, you know, 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.

• 38:44Speaker 00

  Mm-hmm. Yeah, I completely agree.

• 38:47Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 39:00David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 39:17Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 39:32David Rosenthal?

  And that's how you get features that customers love, like Tabular Review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 39:56Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 40:15David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 40:45Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you.

• 41:10Speaker 00

  Well, switching over to the Google side,

• 41:13Speaker 00

  what does this allow Google to do that they're not currently doing? It's...

• 41:18Speaker 00

  So, there's a couple... Let's presume they were just gonna go forward with the pixel line no matter what and really start doubling down on that. And in tech themes, we can talk about why.

• 41:28Speaker 00

  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 arms-length thing that has to happen. Not to mention, sort of,

• 41:42Speaker 00

  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. So, that gets eliminated a little bit.

• 41:56Speaker 00

  For Google, you know, they can... There's those inefficiencies where they can move faster. But what is it by them? I mean, I'm sure they had some kind of agreement where they had access to HTC's IP before, and they were gonna keep working with this team anyway. And they were basically just gonna defer the payments to some kind of like, you know, contract that paid HTC over time. Like, what else do you think this buys Google?

• 42:25Speaker 01

  Well, I think one thing...

• 42:29Speaker 01

  Trying to imagine myself in Google executive shoes and in Rick Hostel's shoes.

• 42:36Speaker 01

  You know, I think it's a little easy from the outside looking in to dismiss supply chain as like, "Oh yeah, Foxconn will take care of that," or whatever. But like, I think this buys them a meaningful amount of supply chain expertise and assets. I mean, 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. And part of that is internally at Apple and their people, but part of it also is their relationships with Foxconn and other manufacturers.

• 43:17Speaker 01

  Right? Like this is Tim Cook, right? Like Tim Cook is the CEO of Apple and this was his job. 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. And that's the DNA that that Google really had zero of, you know, they maybe thought they were getting it with Motorola, but Motorola was headquartered in Chicago. You know, you can't make, you can't make iPhones or Pixel phones in Chicago for, for a lot of reasons.

• 43:49Speaker 00

  Yeah, great point.

• 43:51Speaker 01

  But you can in Taiwan and you can in China.

• 43:55Speaker 00

  Great, great point. 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 around silicon too, they had bought up like a year or two 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.

• 44:33Speaker 01

  Yeah, I mean, I'm thinking about, was it right after the Apple event last week where they announced the iPhone 10, not X?

• 44:42Speaker 00

  Dare we say.

• 44:43Speaker 01

  Will there ever be an iPhone 9? I mean, that is the question, right?

• 44:46Speaker 00

  Like, I don't understand, like, let me take a quick aside here. So I think Apple blew it. Like, to me, it's, it's like, you should have this iPhone X or whatever iPhone, 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 sidestep to a new thing. So when you want to start building your generations, like how 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 world, like they had the opportunity to sidestep and start a new thing now. And like they didn't, but they have did, right? Cause it's like an X, not a 10. So, okay.

• 45:20Speaker 01

  It's totally weird because with iPad, they, they, to my mind, like they did what made sense with the iPad. They went, just ditched the numbers and were like, there's iPad, there's iPad Pro, you know, why isn't there just like iPhone, iPhone Pro?

• 45:34Speaker 00

  And if it's going to be a 10 and it's going to continue, just do a 10. Like, it's really, ah. So confusing. And here's the funniest thing is so you're, I was listening to everyone should go listen to Dairy Fireball if you're like an Apple nerd, or I'm sorry, the talk show with

• 45:47Speaker 01

  Yeah. Okay. So this is what I was gonna reference. We'll bring it back to topic in a minute, but go ahead.

• 45:51Speaker 00

  So John bumps into Phil Schiller at, you know, after the event, because they get these press briefings and stuff. And Phil, the first thing Phil, Phil looks at him and he just says,

• 46:03Speaker 00

  "Hi, John. We spent a lot of time on the name. Sorry about that. Sorry about the 10 thing." Which is crazy. The sorry about the 10 thing was crazy because like Gruber wrote this piece like two hours before Phil Schiller stepped on stage to announce it. So like he knew he had read Gruber's piece or been alerted to it. 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, he ate some crow on, but like, like

• 46:27Speaker 01

  I don't understand why though.

• 46:29Speaker 00

  I, I believe you that everyone spent a bunch of time on this. I just like, I'd kill to know the rationale because it does make sense to me.

• 46:36Speaker 01

  It does not make sense. Like, why would you release an eight and a 10 at the same point? Anyway, we've gotten way off topic. But Gruber also, of course, had Craig Federighi on a special episode of the talk show. And I remember if I'm, if I'm remembering this right, Craig was saying, John was asking him about Face ID and like everything that went into creating that. And I remember Craig saying in response, like, oh, you know, it was, it was of course the engineering team and the hardware team, the software team working together, but it was more than that. It's more than that at Apple. It was the security team working with them. And I remember him saying it was also the ops team and our supply chain was a big part of that. Like you can't make the iPhone

• 47:21Speaker 01

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

• 47:34Speaker 00

  Yeah. Totally true. And man, after, after seeing that episode, I'm sorry, after seeing that, 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, like, cool, you like assemble all your own components into a PC and you own the, and you build the hardware, I'm sorry, and you build the operating system. 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

• 48:19Speaker 00

  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 being the component integrator and the software maker. It's really like the component, like you have to create the components in order to get the, some of these really incredible sort of micro optimizations that in aggregate create a whole new class of product as possible today.

• 48:57Speaker 01

  Yep. And that is, you know, supply chain is critical to that. And, and, you know, before, before this partnership that, that agreement that Google just reached with HTC, they were really hugely behind. I mean, they're still hugely behind on that, on that dimension. But I think it, you're absolutely right. 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

• 49:42Speaker 01

  Supply chain and ops integration to be able to do these things just gets higher and higher and higher. 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, the software and security working together. And then of course, ops to have all of that sourced and available in, you know, billions or hundreds of millions of units. But, but also in, in, 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

• 50:24Speaker 01

  understanding this, like the A11 chip, you know, bionic quote unquote. It's crazy. I mean, Apple's, I don't know what's going on with people who name stuff at Apple right now, like keep it simple.

• 50:39Speaker 00

  You can randomly throw bionic on something. They threw bionic on something else too. There was like some, some part of, I forget if there was something else later in the keynote that was also arbitrarily bionic. I think it had to do with Face ID. I remember it was part of the iPhone 10 announcement. I'm like, what is bionic and what is not?

• 50:55Speaker 01

  What is bionic is seriously, seriously. But like that chip is a beast, right? Like it is like it's benchmarking at the same level or higher as chips that are in MacBook Pros, not like old MacBook Pros, like MacBook Pros that you go and you spend $2,000 in an Apple store today for. And, and that's in a phone on your pocket that is not connected to power that's running on a battery. 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 and the software coupled with that, like that enables you to do this kind of stuff.

• 51:40Speaker 01

  And so I got to imagine like you're Google and you're, you're, you're Sundar and, and looking at this and you're like, okay, we've got the software. Like Google is our core competency is software.

• 51:52Speaker 00

  And services, like Android has gotten great.

• 51:54Speaker 01

  And services and great services. Yep. We're your software and services, but like hardware, supply chain, ops, like we have none of that. And, and I think as, as the world moves more towards all of these things that really, really are about making the devices themselves to disappear into the background. If you don't have that, that expertise, like you're, you're just, you're gonna lose.

• 52:20Speaker 00

  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. But it really is like, like, Apple's playing a very different game than everybody else. And so, you know, in, 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, because nobody else is, yeah.

• 52:52Speaker 01

  Well, I think that's what's really interesting about it, though. That people say Apple makes their own silicon. That's not true. They design their own silicon.

• 52:59Speaker 00

  That's right, TSMC.

• 53:00Speaker 01

  And then they, and they control all of the supply chain. But TSMC and Samsung and others, you know, they're the ones who actually fab the silicon.

• 53:09Speaker 00

  That's a great point. That's a really great point. And so then at what point did you have to go deeper and integrate that? I mean, is that the next step? Like, is there some optimization that happens between design and manufacturing where it's beneficial to actually start owning the manufacturing?

• 53:25Speaker 01

  Yeah, well, it's interesting. I don't know. I mean, they, they haven't, you know, with Foxconn, they haven't with TSMC and Samsung when on the foundries. I wonder if it's just like, you know, those services are pure commodities. They're very, very capital intensive commodities. Apple certainly could make those investments if they wanted to. But, but there's not a lot of differentiation within them.

• 53:52Speaker 00

  Yeah.

• 53:54Speaker 00

  Yeah, that's a great point. Okay.

• 53:55Speaker 01

  Getting back to...

• 53:56Speaker 00

  Okay, well, go ahead. You know, we'd be kidding ourselves to say we're not already in tech themes. But it is interesting to think about like, you know, the, the features that are now expected in phones. An AR kit is a really great example of, of, you know, new, new, 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. It's all of these new phone experiences require a new level of design and integration with the hardware that, that really wasn't necessary before. And so the way that I am viewing this acquisition is like, or acquisition, agreement, is

• 54:41Speaker 00

  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 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 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. Like that's as, 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?

• 55:16Speaker 01

  A billion dollars a year, yeah.

• 55:17Speaker 00

  A billion dollars a year.

• 55:19Speaker 01

  A billion dollars a year that they're paying to Apple, even still.

• 55:23Speaker 00

  That's right. That's right.

• 55:24Speaker 01

  Well, but it's interesting. And when they started Android, that was the strategy. But, you know, you replace Apple with Microsoft. They thought Microsoft was going to dominate 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.

• 55:42Speaker 00

  Yeah, interesting.

• 55:43Speaker 01

  Yeah.

• 55:44Speaker 00

  So yeah, so for listeners who didn't listen to the Android episode, you know, the core play with Android is own the front door to 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, basically affiliate fees for every search that's conducted and every ad that's clicked on Google to the browser creator. And so when you start putting that lens on, then you 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. But if this Android strategy is to, you know, make sure that for some significant

• 56:26Speaker 00

  number of people, they're controlling the whole experience, like Android has to be credibly on par with iOS. And if the table stakes have now risen to 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, AR kit, a lot of the performance and power management stuff, 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.

• 57:08Speaker 00

  And so this thing that they've been doing forever of like, hey, guys, like, we're not gonna, you can all, Sam Song, you can make money on Android phones by making them and we'll just produce the operating system. Like, that could be falling apart because that's no longer competitive with Apple in this new world.

• 57:26Speaker 01

  Could be falling apart and could be falling apart quickly. And it's interesting also to think about, you know, go back to 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 them as a company, but what we decided was their fate is gonna 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 essentially devices receding into the background and technology just... Being part of your ambient life, you know, what is Snap investing in?

• 58:09Speaker 01

  What are they doing like spectacles, you know? What room is there for Google and Android in that world? Not a lot, basically in a spectacles world, whether it's spectacles that win or don't win or whatever, there is no room for Google anymore.

• 58:26Speaker 00

  Hmm.

• 58:27Speaker 01

  Both either at a hardware level or a platform level or at an advertising level.

• 58:32Speaker 00

  Yeah, I look at that differently, like for Google's core business is making money off of people who are looking for information.

• 58:42Speaker 00

  And I don't, I just don't think Snapchat, I mean Snapchat is more.

• 58:49Speaker 00

  I don't, I don't think it's apples and apples to apples enough. 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.

• 59:03Speaker 01

  Oh yeah, I didn't necessarily mean that as like Snapchat itself is going to dethrone Google, but like, think about this, right? Like, take the iPhone event last week or the Apple event last week. 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. 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, there is no, you know,

• 59:46Speaker 01

  device, really, it's a thing that sits on your wrist and like all the computing is just around you. You know, then you've got, you've got Snap where you've got spectacles, not to mention the Snapchat experience. Then you've got Facebook 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. And like, where's Google in that world?

• 1:00:16Speaker 00

  Hmm. Yeah, I see where you'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, I think, so Google is in many ways their own existential threat. And I think, so follow my logic on this for a minute. 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. And their core competency from an engineering perspective is recently machine learning, but dating back to their beginning, sort of distributed computing, distributed storage,

• 1:01:00Speaker 00

  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 pioneering, fantastic voice service relative to all these others. And so, Google's engineering, the things that 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 like list off stuff. It's a good way to like, just do one thing. So you tell it to do a thing and it does a thing.

• 1:01:44Speaker 00

  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 user experience at the hardware level.

• 1:02:22David Rosenthal?

  Yeah. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:02:31Ben Gilbert?

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• 1:02:41David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers, and how fast you can use that signal to guide what you ship next.

• 1:03:02Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:03:14David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:03:25Speaker 01

  Maybe we should officially move into tech themes here. And 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.

• 1:03:44Speaker 01

  But, 40, 45 minutes. But they are fundamentally a horizontal company, and the playing field we just described is a vertically-integrated playing field.

• 1:03:58Speaker 00

  I guess what I'm saying is I think the horizontal company may be at risk, and that business may not be something they can keep riding for the next decade. And they may, I mean, it's hard to say this yet because they're so dominant, but like, you could imagine a world in a few years where like, search revenues start declining 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. And this really sets them up to try and shift to a vertical company.

• 1:04:37Speaker 01

  Yep, yep. But again, they're really far behind. I mean, they have to do it. Like, this is for all the money and resources Google has and all of the threats that we've been talking about. And again, we're, we're, we're probably being dramatic, given where we stand here in September 2017. But, you know, like, if there's one constant in the tech world, it's that it changes and it changes fast. 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, you know, like, 2011, that was six years ago, HTC was on top of the world. And like, coming out with

• 1:05:18Speaker 01

  the first true broadband, you know, smartphone, that feels like ancient history now. So, anyway.

• 1:05:26Speaker 00

  Yeah, I mean, I guess, I guess the interesting thing is like, how fast will we get to a post-search world? And is there anybody who can beat Google to that punch?

• 1:05:36Speaker 01

  Yep.

• 1:05:38Speaker 00

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

• 1:05:44Speaker 00

  I don't know. I mean, the counter argument to that is, search is an incredibly hard problem. They have so many years of doing it. They have so much data. They've built all these incredibly, you know, really well-oiled systems that give them a, you know, many, many, many year head start against anybody who's trying to do anything similar.

• 1:06:03Speaker 01

  Yeah, that's true. But I think it's also getting, it's, they're getting attacked on all sides, right? It's getting chipped away, bit by bit, vertical by vertical as well. We, you know, in their, our booking episode, right? 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.

• 1:06:35Speaker 00

  Because they've actually established that they are the place to go.

• 1:06:38Speaker 01

  Because when you're looking for a place to stay, you go to Airbnb.com, you don't go to Google.com.

• 1:06:43Speaker 00

  Right.

• 1:06:46Speaker 01

  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, you don't go to Google and search for, you know, a car rental in whatever city you're visiting, you just go there and you open your Uber app.

• 1:07:03Speaker 00

  Yep.

• 1:07:03Speaker 01

  It's like it's happening.

• 1:07:04Speaker 00

  And will more Zillos get started, right? Where like that was Google's business to lose? They should have just had a amazing search for homes thing and they could have integrated it nicely with like Google Maps or Google Earth. And then the ads next to that could have been for real estate agents, but they didn't. And then the whole rise of Zillow. So like, what other companies will get started?

• 1:07:24Speaker 01

  Well, and at the same time, like where, you know, where's Google's biggest bread and butter? It's like, you know, it's, it's buying stuff, right? And like, you know, you're, you're, you search on Google for something and there's something you want to buy and you buy that, right? But now there's Amazon. I mean, there's been Amazon for a long time, but like.

• 1:07:43Speaker 00

  There's, there's those, I don't know what any of the figures are, but I've seen crazy graphs where it's like the shift of people starting their search on Amazon instead of starting their search on Google for products. That's very real.

• 1:07:55Speaker 01

  Yeah, I think it's super real.

• 1:07:58Speaker 00

  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 focused company? 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, if we're postulating that Google needs to be sort of in a vertical, good, 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.

• 1:08:32Speaker 01

  Yep. Well, I'll tell you, I mean, this is a, 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, buy 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 them onto my company, right? Like I would go find a Tim Cook and give him 10 years to build this capability.

• 1:09:12Speaker 00

  David, we don't have time for that. We don't have time. The world's on fire or it's about to be.

• 1:09:18Speaker 01

  It is. It is, right? But like culture, it's a thing.

• 1:09:24Speaker 00

  Yeah. Yeah. Okay. This is kind of an interesting, before we go into grading, even though you're hinting at it, 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

• 1:10:08Speaker 00

  about to sort of be doing it, right? 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.

• 1:10:21Speaker 01

  It's gonna be hard. Yeah. Maybe IBM. So IBM made and sold devices and products and then they shifted to purely services. But is that really vertical and horizontal in the same way?

• 1:10:38Speaker 00

  I'm not sure. People usually go the other way, right? Like they get, it's like, to me, IBM made like a, you know, they, 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. Well, like.

• 1:10:58Speaker 01

  Yeah, I mean, as you know, right? Like, we all know, but you you you lived it, right? Like, Microsoft tried to go from horizontal to vertical and then 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.

• 1:11:16Speaker 00

  Yeah.

• 1:11:18Speaker 00

  Yeah, that's interesting. Listeners, if you've got ideas, acquired.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.

• 1:11:36Speaker 01

  Yep.

• 1:11:38Speaker 01

  Hmm.

• 1:11:40Speaker 01

  Well.

• 1:11:41Speaker 00

  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, I don't have one. So if you want to start, I'll probably just.

• 1:11:50Speaker 01

  I mean, I was, I was, I was hinting at this earlier. And I know when we started recording this episode, I didn't have a great in mind going through it, but going into it. But through the discussion,

• 1:12:03Speaker 01

  I don't think this is going to work out well for Google. You know, I, again, we're being dramatic on this episode, but this particular like this is their second bite at the apple. And so what they chose to do was to buy 2000 engineers.

• 1:12:21Speaker 00

  Does the Nest count?

• 1:12:21Speaker 01

  In Taiwan.

• 1:12:22Speaker 00

  Can we call this their third bite at the apple?

• 1:12:23Speaker 01

  Well, yeah, maybe. Literally bite at the apple here. I mean, that's what's going on.

• 1:12:32Speaker 01

  But yeah, I don't think this is going to work, right? Like, buying 2000 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. But having that go up against like the Apple, you know?

• 1:12:52Speaker 01

  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? I don't think that's gonna work.

• 1:13:01Speaker 00

  Well, wait, let me, let me play devil's advocate real quick here. So the Pixel product is going quite well. I mean, I don't know the units sold, but it's a great product that's getting lots of love. Do you think by

• 1:13:15Speaker 01

  Yeah, okay. How many pixels have you seen in the wild?

• 1:13:18Speaker 00

  Uh, yeah, I don't, I don't actually know. And, and figures seem hazy. It's in the low, single-digit millions, I believe, um, of number that they sold. But my question is, do you think, uh, it could get any worse? Like, do you think by bringing these, this team in-house, like, it, it could get worse?

• 1:13:37Speaker 01

  Well, I mean,

• 1:13:40Speaker 00

  presumably if they just kept doing the same thing, each of these products would get better, people, more people would start to buy this phone over time. And it has to do at least that by bringing them in-house, right?

• 1:13:52Speaker 01

  Yeah, well, but at the end of the day, it's a culture problem, right? Like, this is, you, 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's gonna face here. They're bringing in these 2,000 people who are,

• 1:14:21Speaker 00

  Is it 2,000?

• 1:14:23Speaker 01

  Yeah, 2,000 people.

• 1:14:24Speaker 00

  Wow.

• 1:14:25Speaker 01

  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, and Android is predicated on being horizontal. And so, like, eventually, there's gonna be, you know, a fight of like, are we gonna prioritize our new, you know, hardware and vertically-integrated team? And then, like, what are the people running Android, who probably have a lot more juice within the company, gonna say about that?

• 1:14:58Speaker 00

  Um, you should say your grade so I can then disagree.

• 1:15:02Speaker 01

  Okay, I'm going with a D.

• 1:15:04Speaker 00

  Oh, wow. All right. Well, I don't know what I'm going with yet, but I'm gonna 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 on Android OEM right now, you better figure out what your strategy is because I don't think it's putting Android on your phones anymore. Like, to me, I don't think they're, they are conflicted internally anymore. Like, I think they've decided, and I think-

• 1:15:33Speaker 01

  So they're willing to go to war with Samsung?

• 1:15:35Speaker 00

  Uh, that's, that's what I'm looking at here.

• 1:15:39Speaker 01

  Hmm.

• 1:15:42Speaker 00

  I mean, I think their bet is we're gonna start creating experiences that like, you just have to be in-house to, you gotta be bundled to be able to make.

• 1:15:49Speaker 01

  Hmm.

• 1:15:50Speaker 00

  Like, I think they, they, that they're seeing what Apple is doing and saying, yep, we're bought in on that.

• 1:15:56Speaker 01

  Well, okay, interesting. I mean, maybe they can do that, because like Samsung doesn't really have any leverage and they can't go anywhere else. Like, what are they gonna do? Make their own operating system? They can't do that. They tried that.

• 1:16:08Speaker 00

  Ties in?

• 1:16:08Speaker 01

  It didn't work.

• 1:16:08Speaker 00

  Was that the-

• 1:16:09Speaker 01

  Yeah. Yep, yep, it didn't work. Um, so, okay, like, yeah, Google could play hardball with, with Samsung and say like, you're just coming along or, or you're, you're dead.

• 1:16:20Speaker 00

  Can Google make enough phones? Like, that's another interesting question. It's like-

• 1:16:24Speaker 01

  Well, but yeah, that's, yeah, right.

• 1:16:26Speaker 00

  Like, how many people buy Samsung phones? Does Samsung make their own phones? Are they, uh, their own manufacturer?

• 1:16:33Speaker 01

  Uh, I believe so. I believe so.

• 1:16:35Speaker 00

  Yeah, so like-

• 1:16:36Speaker 01

  Or even if they're not, they have enough, a deep enough relationship with the Fox cons of the world that like-

• 1:16:40Speaker 00

  Right.

• 1:16:41Speaker 01

  I mean, that, that's the thing, right? Like, Pixel's a great phone, but I've never seen one in public, and I've seen millions and millions of iPhones and galaxies.

• 1:16:50Speaker 00

  I think two years from now, we'll revisit this and go, wow, Google's ecosystem of OEM partners dried up fast.

• 1:16:58Speaker 01

  Yeah.

• 1:16:59Speaker 00

  Um, that's a heck of a transition.

• 1:17:01Speaker 01

  But who's gonna make the phones then?

• 1:17:03Speaker 00

  Uh, I mean, well, there's gonna be all this capacity, right? Like, if, if Google, 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 gonna be available.

• 1:17:14Speaker 01

  Yep.

• 1:17:16Speaker 01

  Hmm.

• 1:17:17Speaker 00

  Um, you know, and I mean, maybe, maybe, uh, Samsung does and, um, Google just commoditizes Samsung even further.

• 1:17:28Speaker 01

  Or maybe, maybe Apple just like really continues to dominate in this world. Like they have capacity, like their supply chain is the best in the world.

• 1:17:40Speaker 00

  Yeah. Well, so here's the 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?

• 1:17:52Speaker 01

  Yeah.

• 1:17:53Speaker 00

  But, and one other lens that I want to look through it as is if you are HTC, there's two other lenses. One is, I think it's about 500K per head.

• 1:18:05Speaker 00

  So that's kind of an interesting stat to look at. Lots of talent acquisitions are a million dollars an engineer, and obviously these aren't, aren't all engineers, but that's kind of an interesting, if it's 2000 people, then it's 500K per head and it comes with this access to the patent portfolio. So, so that's, that's an, it's interesting. It's not that expensive. The other thing is we have no idea what deal, what the deal looked like between HTC and Google going forward, but you have to assume that if you're HTC or, or, you know, what the terms of their, their contracting agreement was to, to make the phones. But you have to assume if you're HTC, then basically you're doing some kind of sum of future cash flows here and saying like, well, you know, over the next four years, you're going to make

• 1:18:47Speaker 00

  this much revenue from this thing. So yeah, we're fine with it being worth 1.1 billion. And impossible for us to know what the, the cash flow is, what it looked like, but you know, something tells me this actually isn't that expensive for Google.

• 1:19:07Speaker 01

  I, I. No, 1.1 billion to Google is nothing.

• 1:19:10Speaker 00

  Oh, and I mean, from the perspective of like, what the alternative was in terms of paying HTC out over time. Like I think HTC has so little leverage and needs cash that they're very willing to do a deal here. And I don't think they looked at the work they were doing for Google as their core competency anyway.

• 1:19:30Speaker 00

  And I'm speculating here, but I think Google, if they can do this integration well, got a pretty good deal on, on, you know, hiring 2,000 people that are strategically, you know, perfectly trained to do the thing that Google needs to do. And I really do think Google needs to do this and Android needs to become much more like, like the iPhone. So Android and Pixel phones kind of need to become, become one. And,

• 1:20:04Speaker 00

  you know, if, if that's the plan and if Google's going to actually execute that, I think this is, this is a great move. And, uh, you know, hard to grade because I think there's lots and lots of variance on, on where it could go.

• 1:20:17Speaker 01

  The question is, I don't think we're actually saying anything. Yeah, I don't think we're saying anything that different. I'm just super skeptical that this is gonna work.

• 1:20:26Speaker 00

  But do you think, uh, do you think they're actually gonna go the direction of, of dehorizontalizing Android to all the OEMs?

• 1:20:36Speaker 01

  Yeah, I don't know. I mean,

• 1:20:39Speaker 01

  they kind of have to, right? Like, you can't compete with what Apple's doing if you, in the current Android ecosystem.

• 1:20:48Speaker 00

  Yeah, unless you believe that doesn't, none of the things that they're doing to optimize matter. But I think that's the death by a thousand cuts if you don't.

• 1:20:56Speaker 01

  But I think also like Google has clearly shown that they do believe that like AR and ambient computing is the future. And if you believe that, then that doesn't work in the Android ecosystem as is.

• 1:21:09Speaker 00

  Yeah. And I mean, the fact that Google's doubling down with Google Home and they're doing Daydream and they're releasing their own phones, like they're becoming a hardware company and this is going to dramatically help them. So I'm going, it's gonna be somewhere between a B and a C, but I'm trending closer to a B at this point in time.

• 1:21:30Speaker 01

  All right, disagreement.

• 1:21:35Speaker 01

  Cool. Carvouts?

• 1:21:38Speaker 00

  Yeah, I'm a huge Odeza fan. If you're, if you're into sort of like ambient trap, like powerful, sit in a concert and bob your head. It's, it's, it's, it's awesome, awesome band, really great to listen to while you're working, while you're running. And they're actually from Bainbridge Island, which is pretty cool, from, from Seattle area.

• 1:22:02Speaker 01

  Cool. I didn't know that.

• 1:22:04Speaker 00

  They are, they are. And they just came out with a new album and it is, it is awesome. And I think there's this great

• 1:22:12Speaker 00

  pitchfork quote from the review that, that I want to read real quick, that describes the album very well. And you can choose, this may or may not appeal to you. But they nail it by saying, "It derives its power from its supersized subtlety, exaggerated gestures, a kind of weaponized softness." And the album is called A Moment Apart. So if that sounds like your jam, go check it out. It's a, it's a great listen.

• 1:22:39Speaker 01

  Wow. Weaponized softness.

• 1:22:41Speaker 00

  I know. That in itself is like an album name.

• 1:22:43Speaker 01

  Yeah. Wow. That's great.

• 1:22:48Speaker 01

  Well, you've inspired me. I'm gonna call an audible, do not what I wanted to, but music has inspired me. I

• 1:22:56Speaker 01

  listened to recently, this was actually, I think this was re-placed in the feed on Fresh Air, Fresh Air with Terry Gross on NPR, on their podcast, was they just re-released an interview that she did about a year ago with Bruce Springsteen. And it's great. Done in his studio, in his home studio in New Jersey, just talking about, you know, he'd written an autobiography that'd come out and, and he's now doing a one man show on Broadway. And that's, that'll be premiering soon, which I think is why they re-released this, this interview.

• 1:23:39Speaker 01

  And it's just really cool. He talks about, he talks about his, his persona of Bruce Springsteen. And that like, I always just assumed that like Bruce Springsteen is Bruce Springsteen. But like, the real Bruce Springsteen is not that much like, you know, the Bruce Springsteen that you see on stage. And, and he talks about like where that persona came from and how it's shaped his life. So really, really great interview. He's a very, very smart guy. And, you know, has lived an amazing life. So highly recommend.

• 1:24:17Speaker 00

  Wow. Very cool. Well, listeners, that's it. If you aren't subscribed and you want to hear more, you can subscribe from your favorite podcast client. And if you feel so inclined, we would love a review on iTunes. Feel free to join us in the Slack at acquired.fm. And that's all we've got. So thanks for listening and, you know, enjoy your own speculation. Drop us a link in the Slack if we miss anything.

• 1:24:41Speaker 01

  Great. We'll see you next time.

• 1:24:43Speaker 00

  Later.