Can Google’s Pixel phones succeed? Insights into Google’s Entry into the Cell Phone Business

By: Madhav Ramesh

“Google has just released the new Pixel 2 and Pixel 2XL cell phones. Google’s aim is to compete with the likes of Samsung and Apple. Can Google succeed in entering the competitive marketplace of cell phones despite their prior failures? Has Google found the blueprint to success or simply repeating the same mistakes?”

Google has been so influential in our daily lives that the word “Google” has found its way into our day-to-day dictionary. When we think of Google, we often think of the software solutions that Google offers its users, from its search engines to Google Drive. However, Google wants to expand its business in various directions, some of which have proven successful and others not-so-much.

Google’s official business strategy, as directly quoted from its website is to, “Deliver the analytical insights our leaders use to enable us to innovate. Whether it’s identifying acquisitions and investments, monetizing strategies for products, or developing partners in emerging markets such as Africa and India, Business Strategy Googlers anticipate opportunities and execute programs critical to Google’s short- and long-term growth” (Google, n.d.).

Google’s strategy shows that they are pushing to expand the Google product into other markets rather than solely the software world. Recently, Google has released the Google Pixel 2 and the Google Pixel 2 XL, the second in the new cell phone series they created in 2016. These phones were received with mixed reviews, but Google continued expanding and investing in the hardware market of cell phones. The cell phone market is extremely difficult to break into, especially now, as there are so many different companies and high-end flagship phones, the specific market that Google is attempting to enter, is in essence a duopoly between Samsung and Apple. According to TrendForce research firm, Samsung has a market share of 26.1%  and Apple closely follows with a market share of 16.9% globally in the first quarter of 2017(Reisinger 2017). These are significant percentages, as the rest of the smartphone market is heavily divided amongst other competing companies. Simply looking the statistics, it is simply evident that Google must take deliberate steps into making the Pixel phones appeal to consumer, enough to chip significantly into the market shares of Apple and Samsung.

Google has invested heavily into development of these phones. They have invested $1.1 billion to employ HTC workers to engineer future Pixel phones and bought the intellectual property rights to HTC’s license. According to Rick Osterloh, an executive responsible for Google’s hardware, “[Google] focused on building [their] core capabilities, while creating a portfolio of products that offers people a unique yet delightful experience only made possible by bringing together the best of Google software—like the Google Assistant—with thoughtfully designed hardware”. Google understands that solely investing into the phone industry is rather foolish, as their investment may result in an empty return. They are positioning themselves to compete in various different markets, like the cell phone, home assistants, and portable computers  industries, just to name a few. Diversifying allows them to take more risks and to see which industry to invest in the future.

However, though Google’s approach seems bold and avaricious, the Pixel-line of phones have not been Google’s first shot at creating phone hardware. Google created a series of phones called Nexus. These phones were made through partnerships with other manufacturers, similar to the Pixels, but these phones did not sport a Google logo on the backs of the phones, but had the unique Google-version of Android. The reasoning behind the Nexus phones were similar to the idea behind starting the Pixel line of phones. According to a Google representative’s statement to Tech Insider, “ The Nexus program is our effort to push what’s possible in hardware design while unlocking the ideal software experience. It’s Google’s take on the total user experience…we think these devices serve as a beacon to show the industry what’s possible” (Gilbert 2015). Basically, Google was trying to create a software experience through cell phones that was unparalleled to its competitors, which the Pixel also shares to differentiate themselves from the competition. While these specific phones were not intended to compete with the likes of Apple and Samsung, they still eventually fizzled out due to the sheer number of competitors and the exclusivity of the phone. The Nexus phones were only available online and while they were unlocked, meaning that all carriers could accept them, not many consumers even knew they existed and thus, only cell-phone enthusiasts predominantly ordered them. Google’s communication manager, Chelsea Maughan, even called the Nexus “a good learning experience” (Silbert 2015). The demand even shows that the Nexus, while the line showed some promise, had miserable results in sales. According to a survey in 2013 by Yankee Group, out of a sample of 16,000 smartphone consumers, the amount of consumers that owned a Google phone in the was 1.04%, with a margin of error of 1% (Hamblen 2013). This survey alone showed that while the Nexus received positive reviews amongst those that purchased the phone, it barely made any mark, if any, on the overall cell phone market.

With the new Google Pixel line, however, Google is trying to mend the mistakes that they made with the Nexus series. Google has allowed the Pixel to be carried by Verizon Wireless, an exclusive carrier of the phone. Although that does limit the consumer yet again like the Nexus, Google has allowed the unlocked version to be available to consumers through the website. However, this still significantly decreases the amount of consumers, as more consumers purchase through carriers versus the unlocked version online. However, with Google still entering the market, by partnering with Verizon is a step in the right direction comparing to Google’s minor debacle with the Nexus. However, Google is seemingly making very similar mistakes as the Nexus, which eventually led to the downfall of the Nexus series. While Google branded the Pixels with the Google logo making it look like a specifically Google phone, Google does not have a strong manufacturing industry and is forced to partner with different companies for their hardware. For the Pixel 2 series, they partnered with HTC and LG to make the Pixel 2 and the Pixel 2 XL, each company making the respective phone. This has angered the consumers, as the designs do not match and the quality is noticeably different. While the Google has improved the reach of the phones through the partnership with a wireless carrier and has marketed the phone to a more general audience to cause a more mainstream appeal to compete with the likes of Apple and Samsung, the plaguing hardware issues and the ongoing exclusivity of the phone are reminiscent of the downfalls of the Nexus brand. The Google Pixels need to improve their subscriber shares, the shares from initial investors, from the atrocious 0.7%–compare that to Apple’s 45.5% and Samsung’s 29.5% subscriber shares (Frommer and Molla 2017). Google’s phone needs to simply appeal to more people, as shown by these eye-popping statistics.

Will the Google Pixel phones succeed? Yes, because it is Google. These phones are not replicas of iPhones and Galaxy phones like other companies are doing. These promote the importance of software which uniquely distinguishes Google from the competition. This is important for Google to get a foothold in the market. However, with the stiff competition, Google must fix these mistakes that they are making and expand their reach to consumers to think of competing with their adversaries–Apple and Samsung.

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