Google (NASDAQ:GOOG) (NASDAQ:GOOGL) recently announced that it will start testing Project Ara -- its "modular smartphone" which lets users swap out hardware components like Lego blocks -- in a pilot program this year in Puerto Rico.

The unique device, which Google acquired and retained through its purchase of Motorola Mobility, allows users to build their own custom smartphones. This means that consumers can fully control the price to performance ratio of their phones by buying cameras, processors, batteries, speakers or other modules separately from various manufacturers. When the pilot program launches, Google plans to launch 20 to 30 different modules for early adopters.

Project Ara. Source: Google.

Project Ara is certainly a unique take on the smartphone, and one that could appeal to tech enthusiasts and hobbyists. Unfortunately, the device also makes very little logical or financial sense for Google.

Why Google wants to make modular smartphones
The idea of modular computing isn't new. Desktop owners have swapped out PC "modules" -- processors, sticks of RAM, hard drives, and graphics cards -- for decades. Upgrading individual parts keeps costs down and extends the life of a device.

But as devices became smaller, they became harder to upgrade as their components became intertwined. For example, upgrading the processor or RAM on smartphones and tablets simply can't be done by consumers without voiding their warranties.

Google previously stated that it plans to launch Project Ara in emerging markets, since the base unit -- which only includes a frame, touchscreen, and a Wi-Fi module -- will only cost $50. Customers then buy the additional parts they need, so those with higher budgets can build beastly devices, while those with less money can build more spartan ones. Meanwhile, it will tether both low-end and high-end customers to its Android ecosystem.

Why Google's approach doesn't make sense
Unfortunately, that strategy neglects a key issue -- the plunging prices of smartphones.

Last June, Indian manufacturer Celkon launched a $50 Android smartphone. Two months later, Mozilla teamed up with Indian company Intex to launch a Firefox OS phone for $33. Earlier this month, Microsoft (NASDAQ:MSFT) launched the Lumia 435, its cheapest Windows Phone ever at $81. Google itself launched Android One, an initiative which aids the development of $100 Android smartphones for emerging markets.

However, customers who buy a $50 base Project Ara phone must buy several additional modules simply to match the specs of one of those low-end devices, which could make Ara phones much more expensive than their regular, non-modular counterparts. The reason is simple -- logic boards with embedded modules (camera, CPU, RAM) installed are generally cheaper than the sum of the individual components.

Moreover, the current smartphone upgrade cycle is heavily influenced by carrier contracts. Customers are now used to upgrading their phones to the newest devices every one or two years instead of simply swapping out the processor or camera.

Overestimating the geek appeal
Lastly, Google could be overestimating the appeal of DIY smartphones.

For example, Steve Jobs built Apple's (NASDAQ:AAPL) modern business by simplifying products that other companies invented -- MP3 players, smartphones, and tablets -- into user-friendly ones that "simply worked." With the iPod, iPhone, and iPad, Apple turned niche products into mainstream ones that even your grandparents could use, while "upgrading" devices became a simple matter of buying the new one with the higher number.

With Project Ara, Google turns Apple's strategy upside down by deconstructing a simple product into more complicated pieces. This might seem exciting to people who like to tinker with gadgets, but it can confuse and alienate mainstream consumers.

A fun but flawed experiment
Project Ara seems like a fresh take on the smartphone, but I seriously doubt that it will be remembered as much more than a flawed experiment in mobile design. The price of Ara's individual modules will prevent it from competing against emerging market devices, while the complicated nature of picking out individual modules could frustrate less tech-savvy consumers.

Project Ara might gain popularity among a niche group of enthusiasts, but that likely won't be enough to convince Google -- which exited handsets by selling Motorola Mobility to Lenovo (OTC:LNVGY) last year -- to launch the modular devices worldwide.