Essential Products, a consumer electronics startup founded by the former Google executive Andy Rubin, said on Wednesday that it was ceasing operations. Once considered one of Silicon Valley’s most promising hardware technology startups, Essential had raised $330 million in outside funding because of the track record of Rubin, who is widely credited with creating Google’s Android smartphone software.
But Essential, which was once valued at $1 billion, has struggled. It released a premium smartphone in 2017 that did not sell well, and it later scrapped plans to develop a smart speaker. Essential was also dogged by news about Rubin and the circumstances of his departure from Google. The New York Times reported in 2018 that Google paid Rubin a $90 million exit package after claims of sexual misconduct with an employee were deemed credible. Rubin has denied the claims.
In a blog post on the company’s website on Wednesday, Essential said it had developed a new handset, but that there was “no clear path to deliver it to customers.” Essential’s decision to shut down illustrates the challenges facing consumer electronics startups. Unlike software companies, hardware firms need more capital to buy components and maintain inventory of their products.
Some hardware startups have broken through with hit products such as the smart-home device-maker Nest and Fitbit, which made a fitness tracker. But those companies were eventually sold to Alphabet, Google’s parent company, partly because of the challenges of running a fledgling hardware business.
Money poured into Essential from both venture capitalists and companies including Hon Hai Precision Industry Co., also known as Foxconn, and Amazon, because of Rubin’s reputation as a smartphone visionary. All told, the company raised $330 million in outside funding. Access Technology Ventures, Redpoint Ventures and Tencent, the Chinese internet giant, were major investors.
Rubin helped popularize the use of keyboards on phones when he introduced the Sidekick device in 2002. He went on to develop Android, which was acquired by Google in 2005. Android software now runs on about 80% of the world’s smartphones. In 2018, Essential received buyout interest from larger companies like Amazon, Walmart, and several telecom carriers, according to a person familiar with the situation who was not authorized to speak on behalf of the company. Walmart and Amazon did not immediately respond to a request for comment.
Any potential buyout would have valued the company below its $1 billion valuation, the person said. But interest evaporated, in part because of the risk associated with Rubin’s workplace scandals. In 2017, The Information, a technology news site, reported that Rubin had departed Google after an inappropriate relationship with a subordinate, prompting him to take a leave of absence from Essential to deal with “personal matters.”
By the time the Times investigation into his departure from Google was published in October 2018, Essential was already experiencing difficulties. The company slashed the price of its first phone after disappointing sales. It dropped plans to build a home device and laid off a large number of employees, reducing its workforce by the end of the year to fewer than 50 from around 120.
Essential will be shutting with around $30 million in cash remaining, the person familiar with the situation said. Investors, some of whom had written off the investment after Rubin’s scandals, will get “pennies on the dollar” back, the person said.
Essential’s decision to shut down comes several months after Rubin tweeted a photo of what appeared to be the company’s next phone, which the company called Project Gem. The elongated phone — in a variety of shiny colors — had a long, thin screen resembling a candy bar.
The handset was supposed to be a so-called companion phone, according to former employees familiar with the project. It was intended to free people from being overly reliant on smartphones and would allow them to use a smaller device for tasks like sending and responding to messages using artificial intelligence and voice controls, said the former employees, who declined to be identified because they did not have permission to speak about Essential products.
The company spent at least $50 million developing the device, a person familiar with the company’s effort said. But after Rubin’s sneak peek on Twitter, there was no follow-up. Lauren Goode, a writer at Wired, published a widely shared article in response to the tweet, noting that it was hard to separate the allegations about Rubin with the usual hype surrounding a new device.
“It’s getting harder to look at consumer products and their pretty packages without thinking about the people making them, and the power behind them,” she wrote.
None of the major U.S. mobile carriers expressed interest in offering the phone, according to people familiar with those talks, and plans for an early 2020 release were dropped.
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