Recent years have been a great reminder that big companies, which once focused entirely on software, have become serious about making hardware. Of course, Microsoft and Google have always been the major players. But, recently, Facebook and Snapchat are also getting deeper into the hardware market. So, why are these software companies making hardware?
Devices are shrinking; desktop computers are rapidly being replaced in the market by smartphones, tablets, and other smaller devices. All of these devices need software. A clear division typically existed between hardware manufacturers and software firms in the past. Companies like Dell, HP, Nokia, and Motorola would build and assemble the devices, and companies like Microsoft, Oracle, and Google would make the software run on the devices. Fast forward to 2022, and these companies each now have a significant presence in hardware. And Facebook, which has no hardware aspirations, has products like the Oculus Quest VR headset, the Portal video chat device lineup, and its new camera-equipped smart glasses with Ray-Ban. In addition, According to Verge, they are developing AR glasses, a smartwatch, and two cameras for next year.
However, Facebook isn’t the only one making hardwares. Snapchat has its own Spectacles 3 and recently launched a flying camera called Pixy to take selfies to a new height! So, let’s look at some of the possible reasons why these software-first companies are making hardware.
Introducing Brand New Software
With growing competition in the market, it’s becoming difficult to get your software in the hands of consumers. And one thing that’s apparent from the history of technology is that software matters more than hardware. But you also need great hardware to popularize a brand new piece of software. Thus, by developing hardware, software companies use it as a platform to expose their native software to consumers. Take the Voice Assistant as an example. Google’s and Amazon’s whole hardware business is an effort to vitalize the importance of Smart Assistant in our daily lives. Once that happens, they can persuade other companies to use their Smart Assistant. We are already seeing it in action. You will find many smart speakers and home appliances that come prebuilt with Google Assistant and Amazon’s Alexa.
Exposure to Cloud Services
Another reason these software companies invest in hardware is to increase the value of their proprietary cloud services. Think about Microsoft’s Xbox and Surface Products, primarily built to sell Microsoft’s services to the end-user. And, they aren’t the only ones doing it. Google Chromebook, as an example, comes with 100GB of free cloud storage and other special parks with each purchase. You can also see why the new Pixel 6 lineups are priced so competitively and offer great value propositions—all to use their services. We all know how Google makes money. The more you use their services, the more information they can collect from you. According to CNBC, over 80% of revenue comes from Google ads, generating $147 billion in profit last year.
Another extreme example is the Amazon Kindle. The early 2011 Report from Business Insider shows that the entry-level Kindle was shockingly priced at $79, whereas the actual production cost was more than $84. It’s because Amazon makes up for it by exposing millions of Kindle users to Amazon Web Services, Amazon Prime, and the Amazon Library. Investing in hardware is one method for these software companies to break down the barriers and expose their cloud services.
Highly Optimized Experience
These companies have also seen the benefits of combining their own hardware and software in a tightly integrated fashion. For example, Apple’s iPhones, iPads, and Macs always perform better, even with less RAM. In addition, their M1 Macs and Tablets were a groundbreaking success. In contrast, Google has always struggled with its hardware, specifically its Pixel devices. No wonder why they recently introduced their Tensor chips on Pixel devices. Microsoft also released the Surface Pro X, using a custom chip called SQ1 in partnership with Qualcomm. By designing their own hardware and software, companies can offer a highly optimized experience to the end-users. And doing so, they also increase their overall brand value.
Binding Into the EcoSystem
Finally, expanding deeper ties into the hardware allows software companies to create a more consistent and controlled experience for their users. The prime example of this is again Apple. Using iPhones, they made an Ecosystem to create a consistent and clear branding message across all their devices. Apple was quite successful in this strategy. And, seeing Apple succeed in their plan, Microsoft, Google, and other software companies are also getting into hardware so they can bind users into their ecosystem.
Social Media Getting Into Hardware
Earlier, we discussed how Facebook and Snapchat are also getting into hardware. But why is that? Have you ever given it a thought? In this smartphone era, FaceBook and other social media found themselves at the mercy of Apple. According to CNBC, Apple’s App Tracking Transparency feature will decrease Facebook’s $10 billion revenue this year. Another report from Financial Times found that iPhone’s privacy settings caused an estimated $9.85 billion of revenue loss in the second half of 2021 at Snapchat, Facebook, Twitter, and YouTube. These social media companies don’t wanna see history repeat itself. Since smartphones are not going anywhere, they are trying to build another dominant hardware platform where people will spend most of their media consumption and communication. Hence they are investing early and heavily, especially in AR and VR. Facebook hardware chief Andrew Bosworth said these new hardwares would be useful to people and help them connect with others.
As software gets crowded and companies feel pressure from others, additional value needs to add to remain competitive. Thus, investing in hardware is required for mature software companies seeking an edge. By doing so, they open up the barrier to introducing their brand new software and cloud services to the masses. Aside from that, they have also witnessed the benefits of tight integration between hardware and software, which later help them in the long run. And, if you put all the pieces together, it becomes clear that they are trying to create an ecosystem or an entirely new platform where the users will spend most of their time.
