Fernando Fischmann

Google Home, And What Amazon Gets About Innovation That Google Doesn’t

12 October, 2016 / Articles

Amazon is beating Google at the connected-home game because of its radical approach to corporate innovation.

On Tuesday, Google GOOGL +0.15% parent company, Alphabet Inc., unveiled Home—its answer to Amazon Echo. So Google is now a player in the growing market of devices connecting the homes of millions of Americans.

According to estimates by BI Intelligence, the connected-home market will grow at a compound annual rate of 67% over the next five years, much faster than the smartphone or tablet market. The total devices shipped will eventually hit 1.8 billion by 2019.

Broadly speaking, connected-home devices include smart home appliances (such as washers, dryers, and refrigerators), safety and security systems (monitors, cameras, and alarm systems), and energy equipment (smart thermostats and smart lighting). This emerging market is so large that no technology company can afford to ignore it, especially not Google.

Despite much fanfare, Google Home is eerily reminiscent of last year’s Amazon Echo. Google Home bills itself as a Wi-Fi speaker and sort of Siri-in-a-tube that will answer users’ spoken questions. It weaves together a search engine and artificial intelligence in a funny exterior that looks like an air freshener. The voice assistant supports music streaming. It accesses your Google account for information about your daily schedule. It even reads the weather and traffic before you step out of the house.

“Google on paper is much better positioned to do something like this than Amazon,” said Jan Dawson, founder of Jackdaw Research, in a report published by the Wall Street Journal. Strangely enough, for all its financial success and world-leading technology, Google lags behind in smart home appliances for almost a year, in a growing market where it should have dominated. Why?

When Decentralization Works

One of the most admirable traits of Google’s structure has been its decentralization. Product groups, from online search to mobile Android, are given the freedom to work independently. Google’s legendary 20% time perk to work on side projects one day a week have resulted in numerous great products like Gmail and Google Maps. And yet, the only reason such tremendous variations did not lead to utter chaos is because Google has a clearly defined strategy: Give away products for free, rapidly expand the customer base, drive consumer usage, mine user data, and then sell advertisements.

Advertising revenue has been in fact the mainstay since Google was founded. At $60 billion a year, the company is the de facto world’s largest advertising firm by revenue, dwarfing News Corp ($6.9 billion), Hearst ($4 billion), and Time ($2.9 billion). Only $8 billion of Google’s 2015 revenue came from non-advertising activities. And any time Google has veered from this successful formula, it gets itself into trouble.

Back in 2012, Google bought Motorola for $12.5 billion in an attempt to enter the hardware business, but the company ended up fire-selling Motorola at $2.9 billion to Lenovo. Its Nexus tablet never took off. Nest, a start-up that Google bought for $3.2 billion, has basically stuck to its initial product—the learning thermostat. And the much-hyped Google Glass, which heralded the arrival of augmented reality, turned out to be a flop.

Even its pioneering autonomous-car project, which Google started early, is failing to gain traction, only to be surpassed by Uber and Tesla. It’s as if there’s an invisible hand at Googleplex that derails all initiatives that don’t fit its advertisement model: “If you can’t immediately sell ads on this thing, we’ll kill it immediately.” This is how decentralized innovation has slowed Google in building the smart connected home.

The Self-Appointed Adult At Amazon

Amazon also has its long list of failed projects, including Amazon Destinations (hotel booking), Endless.com (high-end fashion), and WebPay (peer-to-peer payment). But the chief fiasco is none other than Fire Phone, which employs a series of cameras to simulate a 3D screen, changing its image as the user moves the phone. This feature is at best a party trick, and all other features are designed around Amazon’s own services, with the phone’s biggest selling point was how easy it made shopping on Amazon. Adding to consumer skepticism was the small number of apps. One year on, CEO Jeff Bezos pulled the plug and took a $170 million hit, with some $83 million worth of unsold phones collecting dust.

What’s remarkable was that the CEO took personal responsibility to publicly justify those projects. “I’ve made billions of dollars of failures at Amazon.com. Literally,” Bezos recounted. “None of those things are fun, but also they don’t matter. What matters is companies that don’t continue to experiment or embrace failure eventually get in the position where the only thing they can do is make a Hail Mary bet at the end of their corporate existence. I don’t believe in bet-the-company bets.”

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.



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