Will Google Conquer the Smartphone Industry in 2015?

A new device from Google offers high customization and lower prices. Should Apple and Microsoft start worrying?

May 31, 2014 at 6:00AM

Early Ara

An early image from Project Ara. Source: Phonebloks

Google (NASDAQ:GOOG)(NASDAQ:GOOGL) plans to release a device in January that could revolutionize the smartphone industry. Should Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) start to worry as 3D Systems (NYSE:DDD) celebrates? 

The device has the codename "Project Ara" and originated from the lone surviving development team from when Google sold Motorola Mobility to Lenovo earlier this year. Why keep the Ara team? Because the customizable nature of the would-be smartphones represents a new innovation in widely available consumer electronics. Ara could point toward the future of the smartphone industry.

What do investors need to know about Project Ara? 

Project Ara basics 
Project Ara is developing modular smartphones with customizable aspects that click into a base model. The modules will include standard smartphone features such as cameras, keyboards, and extra batteries, with the potential to host more offbeat modules in the future. A base model is expected to launch in January for about $50. 

The barebones base model will have the frame, screen, a limited CPU, and Wi-Fi connectivity. Purchasable add-ons would build that base model into a highly personalized, fully functional phone. It would be a phone that can easily upgrade to new technologies, such as camera improvements, without having to pitch the base device. 

How will that work exactly? This video gives a general overview. 

The developer's conference in mid-April showed layout options for the various device sizes. Due to the screen space occupying the front, most of the customization options will happen at the rear of the device. 

Project Ara Views

Source: Project Ara developer conference 

3D Systems will create the miniature lock-in components. The company announced the creation of a higher-speed 3D printing process last month that could speed production up to meet increased demand. That system alone could revolutionize product creation as a whole and make 3D printing less of a novelty and more of a daily tool.

Could Project Ara also revolutionize the smartphone industry, though?  

What does this mean for the competition? 
There's one reason that Android phones have leaped over Apple in market share: device pricing. Android appears in smartphones that run the price gamut, while even the "cheap" iPhone 5c can start at $99.99 with a two-year contract. 

Android's current market share trounces that of the competition. According to research firm Gartner, Android devices held over 78% of the worldwide smartphone market last year. Compare that to a nearly 16% market share for Apple's iOS and a 3.2% share for Microsoft's Windows Phone. Microsoft completed its acquisition of Nokia's mobile operations last month to own both the OS and the phones, but that doesn't really help when no one's buying the devices. 

Android is ruling the smartphone world. Why would Project Ara have a place in the market?

How Ara could fit into the smartphone market
Ara devices won't appeal to every consumer. Some people would prefer to have an already-assembled phone, even if that means trading said phone in for a new model after the contract expires. A potentially large chunk of the market could take a chance on Ara, though, for the simple fact that the devices offer fast upgrade options at lower costs.

Consumers favor quick and initially cheaper purchases, as evidenced by the burst of device payment plans from mobile providers from AT&T to T-Mobile. Those plans aren't actually cheaper than a contract phone in the long run, and customers don't get to keep the first phone as a trade-in is required.

The proper market urges exist. Ara's innovative nature will appeal to technophiles, while the easy-to-use snapping system should seem simple enough for near-luddites. A base price of $50 is hard to beat, too, even though it would require a few component additions to become a proper smartphone. 

Foolish final thoughts 
It's impossible to predict exactly how consumers will react to an innovative new product. Project Ara devices could change the future of smarphones if customers are willing to deal with the assembly to have a highly personalized and easy-to-upgrade user experience, though. We should know which way the tide is turning by late 2015. 

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, Apple, and Google (C shares). The Motley Fool owns shares of 3D Systems, Apple, Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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