Why The Success Of New Pixel Phones Is Important For Google

by Trefis Team
Alphabet Inc.
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Last year, Google (NASDAQ: GOOG) launched its “Made By Google” campaign to signal its intent to aggressively participate in the hardware market, and last week it launched new devices to bolster its hardware revenues. These devices include wireless headphones, smart speakers, a hands-free camera and, most notably, the second-generation Pixel smartphones. While most of these devices aim to capture a significant portion of a user’s digital interactions, the Pixel 2 launch aims to solve the smartphone conundrum that has been an issue for the company for some time. Through widespread adoption of the Pixel 2, Google hopes to improve upon the user data that is currently available to it from smartphones that are manufactured by third-party OEMs such as Samsung using the Android OS. Central to this push is artificial intelligence, which the company hopes will witness widespread adoption amongst users due to its ecosystem of newly launched devices, and further improve the Android user experience. In this note, we explore the strategy behind the launch of its Pixel 2 and Pixel 2 XL devices.

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Why Is A The Success Of A Premium In-House Smartphone Vital?

Google announced the launch of two smartphones, Pixel 2 and Pixel 2 XL, which cost $649 and $849, respectively. While in the past, its Nexus phones saw a fair amount of success, the previous Pixel phones failed to attract as much attention as was hoped. However, with Pixel 2, Alphabet is integrating its AI Assistant, and offering cognitive and computational capabilities for a host of functions such as photography. The company hopes that this can be a differentiator in an industry that is highly competitive, especially in the premium segment of the market. While it is being reported that Pixel 2 pre-orders have sold out, it still has a ways to go in order to be a legitimate blockbuster that can challenge Apple and Samsung.

A successful premium Smartphone offering is important for Google, as it would not only help the company defend its mobile search ad share, but it would also provide greater access to user-centric/generated data. A recent report from Bernstein estimated that Google will pay Apple $3 billion to remain the default search engine on the iPhone, despite the fact that iOS accounts for less than 15% of the smartphone market. This is because Apple users are typically more affluent, and advertisers consequently pay more per ad impression on iOS devices. Earning a bulk of revenues from a key rival’s platform poses a significant threat to Google, and Apple has made some moves that could hinder Google’s business on the iPhone. For instance, Apple previously removed apps like YouTube and Google Maps from the iOS home screen while promoting its own apps. With the introduction of Pixel 2, Google is looking to create a solid Android alternative to the iPhone, potentially allowing it to win over affluent customers and improving the user experience with non-intrusive use of its AI. Further, the devices could emerge as a standard bearer of sorts in the Android space and improve the overall quality of the Android ecosystem.

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