Google Heightens Rivalry With iPad
By AMIR EFRATIGoogle Inc., GOOG -1.11% undaunted by a short-lived attempt to market and sell smartphones on its own, is now trying the approach with tablet computers in a quest to capture market share from Apple Inc.'s AAPL -1.69% iPad.
The Internet search company will sell co-branded tablets directly to consumers through an online store like rivals Apple and Amazon.com Inc., AMZN -1.03% according to people familiar with the matter. The move is an effort to turn around sluggish sales of tablet computers powered by Google's Android software.
Google went this route with Android-powered smartphones in 2010 when it offered a device called the Nexus One made by HTC Corp. 2498.TW -0.50% But the effort was scrapped after several months amid better sales of other Android-powered smartphones.
Like the Nexus One, some future Android tablets are expected to be co-branded with Google's name, said people familiar with the matter. The company is expected to sell devices from a variety of manufacturers. Google won't make the devices and its existing partners such as Samsung Electronics Co. and AsusTeK Computer Inc. 2357.TW +0.18% will be responsible for the hardware, these people said.
One co-branded tablet that may be sold in the online store is due to be released later this year by Taiwan-based Asus, said one of these people.
Details of the project remain unclear, including when Google plans to unveil the online store. Google is expected to release the next version of its Android software, called Jelly Bean, in the middle of this year, people familiar with the matter have said.
A Google spokesman declined to comment, as did an Asus spokeswoman.
By selling tablets directly to consumers, Google is upping the ante against Apple, which debuted its market-leading iPad two years ago. Android-based tablets made by Samsung and others have been slow sellers by comparison. Last fall research firm Gartner estimated Apple would capture 73% of the tablet market versus 17% for Android.
Google also faces competition from Amazon.com, which last year jumped into tablets with its $199 Kindle Fire, in a move to scoop up the less-expensive side of the market.
Google is seeking to increase adoption of its Android software so that its search, maps and other services—which generate the vast majority of its mobile revenue through the sale of ads—become mainstays in the mobile-device world.
While that revenue is small compared to PC-based ad sales, it's a fast-growing category for Google, and tablets can command better ad prices than smartphones. Google Chief Executive Larry Page said last fall the company was on pace to generate more than $2.5 billion in revenue from mobile devices, largely through selling online ads on smartphones.
Google believes the current model for selling tablets is broken, said people familiar with its strategy. Google has watched as wireless carriers, who helped Android become the No. 1 mobile operating system for smartphones, have struggled to replicate that success with tablets.
While some wireless industry executives said Google's Nexus One smartphone effort was a failure, Google Android chief Andy Rubin said previously that the company sold more than 100,000 of these phones in three months and "broke even" on its investment.
Mr. Rubin said Google stopped the effort because other new Android-powered phones were on par with or better than the Nexus One. Google also couldn't figure out how to sell the Nexus One online on a global scale, he said, and its resources would be wasted in trying to line up wireless carriers in foreign countries to sell plans for the phone.
This time, however, Google won't have to worry about pairing with wireless carriers because tablets are primarily used with WiFi connections in people's homes.
To boost the prospects of its new online tablet store, Google was considering subsidizing the cost of future tablets in order to compete on pricing with Amazon's Kindle Fire, said one person with knowledge of the effort.
In addition, Google will lend huge marketing support to the online tablet store, said people familiar with the effort. Since the Nexus One experiment, Google has honed its mass-marketing skills, spending heavily on TV ads and other marketing to promote services other than its Web-search engine.
The first tablet running Android software optimized for tablets, Motorola's Xoom, went on sale in February 2011, nearly 11 months after the first iPad arrived. Motorola has said it sold about one million Xoom tablets in 2011, below its expectations. Several other Android-powered tablets, including two versions of Dell Inc.'s DELL -0.03% Streak tablets, have been discontinued.
Other manufacturers have noted the disappointing results. "Honestly, we're not doing very well in the tablet market," Hankil Yoon, a product strategy executive for Samsung, said at the Mobile World Congress conference earlier this year.
Physical stores will still remain an important sales channel for Google.
Some U.S. retailers are anxious for an Apple rival to emerge in the market, said people familiar with the matter. Some retailers that sell iPads have chafed under Apple's rules that require stores to promote its products more prominently, these people said, and the retailers generate less revenue per sale of Apple products versus other electronic devices.
Google has taken other steps to be a consumer electronics brand. The company is directly overseeing the manufacturing of a Google-branded music and video streaming device, to be used in people's homes, which it is expected to sell to consumers later this year, people familiar with the matter have said. It is unclear whether Google will offer the device as part of its new online store.
Write to Amir Efrati at email@example.com