Project Ara: GOOG Is Serious About Smartphone Disruption

A modular smartphone would spell trouble for SSNLF and AAPL and their yearly flagship releases

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Project Ara: GOOG Is Serious About Smartphone Disruption

Under the current smartphone business model, manufacturers like Samsung and Apple release new models every year. They rely on some users — the ones who must have the latest and greatest — to buy that new model every year. Many more are on contract with wireless carriers and upgrade to a new device every two years. Whether the consumer pays for the new hardware upfront, amortizes it over one to two years or has it subsidized as part of a contract, that new smartphone is still expensive: $650 or more shelled out every one to two years.

Project Ara provides a hardware framework for designing a modular smartphone. A Google-branded “endoskeleton” is the base and everything else is added as components that plug in to this base.

Of course, it runs Android.

Instead of having to replace their smartphone every year or two, consumers would have the ability to upgrade it component by component. If you wanted to take advantage of the latest new CPU, you could swap it out. If a new higher-resolution camera became available, that wouldn’t have to mean buying a whole new smartphone.

Under the Project Ara model, consumers would have far more choice in personalizing their smartphones to meet their individual needs too, going way beyond the customized case options Motorola is currently offering. For example, someone wanting a high-powered device with a relatively low price could balance the latest CPU’s cost by choosing a cheaper camera module, opting to skip the fingerprint scanner and installing minimal storage to keep the initial price tag down — after all, they could always add the components later. A road warrior could opt for a smaller display module and dual batteries.

The Project Ara concept takes advantage of smaller-scale manufacturing made possible through technology like 3-D printing, while also offering the big industry players the ability to plug in. Google sees modules being sold through Google Play, just like apps.

And just like the app market, once third-party developers sign on, the potential opens up for components with unique capabilities that are unlikely to show up on mass-market smartphones.

Staying on the app market analogy, those smaller developers are great — but the big players have to participate too if Project Ara is to be a success. Just as an app store that lacks a Facebook (FB) or Twitter (TWTR) app is in trouble, if GOOG fails to convince the likes of Qualcomm (QCOM) to make components, that modular smartphone is going to be a tough sell.

If the manufacturers that make some of the most important “guts” don’t play along, this ambitious initiative will be a nonstarter. You need QCOM to sell Snapdragon chips in a compatible component form factor, Sharp needs to make displays, and so on. No one will buy a modular smartphone using an unknown CPU.

Could third parties step in for the core components? Sure … but they’d be expensive. There’s a significant barrier to entry for chip fabrication, for example — and these imaginary third-party players will want to make a profit too. And they’d have a hard time guaranteeing supply.

Regardless of who comes to play, if GOOG can see Project Ara to fruition, it could disrupt the entire smartphone market, neutralize the Samsung threat and ensure that Android — pure Android with all Google’s services, not a forked version or one watered down by manufacturer user interfaces — remains the world’s dominant mobile operating system.

If all this still sounds like science fiction or fantasy (despite the Project Ara developer conferences taking place this year), think again. ExtremeTech points out that Google has a working Project Ara prototype … and it aims to begin selling the endoskelton (frame) as soon as 2015 for $50. Clearly, GOOG is serious about smartphone disruption.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2014/03/project-ara-goog/.

©2014 InvestorPlace Media, LLC

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