A Project That Was Greater Than Some of Its Parts

Ara’s Shutdown Highlights Alphabet’s Tighter Business Discipline

Google’s ambition to create a modular smartphone was always a moving target. The reasons for rolling out a phone that could be customised with snap-on modules varied over time, but there was always a science-project feel to the endeavour.

Reports that Google is shuttering Project Ara are not a complete surprise. CCS Insight has long been sceptical about the potential of such a device (see Doubling Down on Doubt).

In all fairness, Google can point to the launch of several modular phones from brands such as LG and Lenovo-owned Motorola. It’s entirely possible that Google was at least a partial inspiration for LG’s G5 and the Moto Z phones. Both are interesting Android handsets and the creators deserve credit for bringing innovative products to market, but we believe that sales figures will likely show varied interest among consumers.

For Google and its parent, Alphabet, there are signs of much tighter financial discipline. Reports of the shutdown of Project Ara come parallel to other changes within Google.

First there are changes with the company’s ISP unit, Access. Previously called Google Fiber, the company has learnt that rolling out fast fibre to the home is an enormously expensive proposition. It can take years, in fact, decades, to make a return on investment. The company is now focussing more on wireless access of one kind or another. Google will likely lean on bringing fibre to the neighbourhood and use high-frequency spectrum to the home.

Changes at the company’s Nest unit also show that not even Alphabet has infinite patience. Google acquired Nest for $3.2 billion in 2014 and has had a mixed track record in becoming a centralised part of the smart home — it has a strong position in the market and a growing ecosystem, but it has been slow to expand its product range. The Internet of things and the smart home continue to be a fuzzy ecosystem, confusing even to those who follow developments on a daily basis.

Alphabet remains in an extremely enviable position, but like with all public companies, there is always pressure to grow revenue and profit and not just theories and concepts. Ara, Nest and Fiber are now under pressure from the realities of the market.