Google (NASDAQ: GOOGL ) just announced this week at the D11 conference that its subsidiary, Motorola Mobility, will release a new high-end phone later this year. The new phone will compete with Samsung's Galaxy S4 and Apple's (NASDAQ: AAPL ) iPhone -- two very tough competitors.
While the details of the new phone are still a bit murky, Google investors would be wise to keep an eye on the Moto X -- and how consumers respond to it.
A smarter smartphone
At the All Things Digital conference this week, Motorola Mobility CEO Dennis Woodside said the upcoming phone would anticipate what features a user is going to use next. The phone is expected to utilize the gyroscope and accelerometer to open a camera app before a user takes a picture, or display relevant information when the phone senses it's moving in a vehicle.
Woodside said at the conference that the phone, "is more contextually aware of what's going on around it. It allows you to interact with it more than other devices today. It anticipates my need."
That description seems to be on par with Google's latest push for anticipating smartphone users' needs with the Google Now app that recently launched for Android and in the Google Search app for iOS. But while Woodside's words are intriguing, all of that talk won't matter much unless it can truly compete against the iPhone and S4.
Competing against the best
To top Apple and Samsung, Google has a trick up its sleeve. The company's goal is to use the phone to drive down the price of high-end smartphones and erase some of the large margins that Apple enjoys with the iPhone. Woodside said Motorola doesn't have the same margin constraints that its competitors have, so it can afford to sell the phone at a cheaper price point.
That strategy -- at least in theory -- could work. But if Apple releases a cheaper version of the iPhone, then Google's plan would be slightly disrupted. Yes, there is room in the high-end market to lower smartphone prices, but a cheaper iPhone would give Apple more exposure to smartphone price points and likely still be a high-end device. The Moto X would then be competing against two iPhones, plus Samsung's latest Galaxy phone. That's not a great place for the Moto X to be considering Motorola doesn't exactly have the same mindshare in the smartphone space that Apple and Samsung have.
What this means for Google
An amazing new phone, set at the right price, could make big waves in the smartphone world -- or it could fall flat. Though Android is the mobile platform king, users don't associate Motorola with the must-have devices like they do with Samsung and Apple.
That's bad news for Motorola, and its something Google stock investors need to be aware of. Motorola will focus on just a few handsets instead of flooding the market with a plethora of phones, which is the right strategy for the company, considering that the smartphone market already has enough Android choices as it is.
But a public failure for Motorola could negatively impact Google's stock. Back in March The Wall Street Journal got its hands on a leaked internal Motorola letter talking about job cuts and the need to cut costs. Part of the letter said that Motorola's "costs are too high, we're operating in markets where we're not competitive and we're losing money." That information -- paired with a more than 20% reduction in staff -- didn't make Google investors confident the company made the right choice in purchasing Motorola.
Google paid $12.5 billion for Motorola in 2011 and the company has continued to lose market share in the smartphone and tablet space ever since. The new Moto X may be part of a new strategy to turn that around, but it's a big bet. In the ultra-competitive smartphone space, even Google is going to have to fight hard against its competitors.