During the last year, Amazon has been on fire (pun intended). While the greater S&P 500 has barely budged, shares of the online shopping company have climbed nearly 65% as a surprise profit in the second quarter, and the revelation that its Amazon Web Services division is profitable as a segment, have found a receptive audience.
If there's been a negative to a rather strong year, however, it has to be the flop of Amazon's Fire Phone. While the device came to market with much fanfare, the company was unable to capitalize on the name recognition amid competition from high-end market share leaders Apple and Samsung. This month, Amazon discontinued the product and exited the market.
As a result of the device's debacle, Amazon parted ways with a host of engineers and developers in its secretive hardware-development laboratory located in Silicon Valley. As you can expect, talented employees don't remain unemployed long in The Valley; many of these former Lab126 workers have found a willing employer in Google (NASDAQ:GOOG) (NASDAQ:GOOGL) as it seeks to expand into the wearables market.
Google's still in hardware and in wearables
Ironically enough, many of the former Lab126 employees terminated due to a failing product seem to be returning to another product judged to be a failure. According to The Wall Street Journal, former Lab126 employees are moving to Google, to work on Google Glass, and other wearable device teams.
Although Google's Glass device was certainly groundbreaking, the first-gen unit never caught on with consumers. For starters, the price tag of $1,500 per unit was prohibitive for mass production. In addition, privacy concerns, battery life, and a general lack of defining purpose hurt the device. Early this year, the company halted mass-market sales, but promised to continue to work to perfect the product.
Now renamed Project Aura, it seems Google is going to continue to refine the Glass experience; but the team also looks to have a broader purpose to expand into the wearables market in a meaningful way. As for its Glass product, the company appears to be focusing on enterprise through its Glass at Work project.
According to The Journal, the company is working with the healthcare and manufacturing industries, as it seems the device is an on-demand video conferencing/collaborative tool. The health disclosure is notable considering that Google is also working on a medically approved, "state-of-the-art health-monitoring device." It seems Google sees opportunity in health-focused wearables.
Will Google succeed in hardware?
Although Google (eventually, Alphabet) is compared to Apple in many respects, the two companies have entirely different business models. Unlike Apple, which derives its money from high-margin device sales, Google monetizes its search, browser, and websites mainly for advertising revenue. When it comes to actual hardware, Google has had a hard time finding success.
Although the company has its Nexus phone line, it hasn't caught on in a meaningful way, and the company sold its Motorola Mobility division as a pivot away from large-scale hardware manufacturing. As a matter of fact, the company's most-dominant hardware product by market share is probably its Nest line of smart thermostats -- and that's a rather small market, and was acquired by Google, not designed by the company.
However, it's good to see Google continue to work on wearables. In addition, I like the enterprise and health-related focus. In the end, mass-market consumers are fickle, but enterprises and health-insurance companies are much more likely to adopt the devices if there's a compelling financial reason to do so.