Is Google inching its way towards building its own Pixel phone?

This article may contain personal views and opinion from the author.
Is Google inching its way towards building its own Pixel phone?
Since its inception, Google has always technically been a software company. I say technically, because even from the very start before Google was called Google and search was the only product in the portfolio, until now Google engineers build their own servers. But, search and other software products were the only consumer facing products for Google until relatively recently.

Google sidestepped its way into the hardware retail business by having Android manufacturing partners build Nexus devices that were then sold directly through Google. The first hardware product that Google designed and built itself was in the Nexus lineup (albeit remarkedly briefly) -- the Nexus Q. After that, Google also built Google Glass, which was sold, but never made commercially available. Next came the Chromecast, and the Pixel brand that started with two Google-built Chromebook Pixels and will soon be expanding to the Pixel C Android hybrid tablet.

That rounds out the hardware devices that have been designed and sold, even for a limited time or in a limited fashion, by Google itself. The Nest thermostat and smoke detector were sold as Google products, but those devices existed before Google bought the company. That only leaves two hardware products that Google has built, but haven't been released yet -- the Google self-driving car (which appears to only be a Google product until the division can be split off under Alphabet,) the Project Tango tablets, and the modular smartphones from Project Ara

That last one is the one that is very interesting, because although Project Ara technically started under Motorola, Motorola was owned by Google at the time and was one of the only non-patent products kept by Google when it sold Motorola to Lenovo. The story goes that it annoyed Samsung that Google owned its own phone manufacturer, and Google was annoyed that Samsung was making Android unrecognizable with heavy software skins on its products. So, a deal was struck -- Samsung would lighten its software modifications on Android and Google would sell Motorola. 

However, Google didn't completely get out of the phone hardware business completely, because it did keep the Advanced Technology and Projects division of Motorola which was the team behind both Project Tango and Project Ara. They were tablets and phones that might never see commercial release, and may not even have commercial appeal (as with Tango). But, they were engineers and designers who knew how to make mobile hardware, leaving Google with at least a small connection to mobile hardware. 

Is Google inching its way towards building its own Pixel phone?

Of course, since then, Google has designed its own mobile hardware -- the Pixel C -- and that tablet hybrid is expected to come to market soon. This is a move that isn't expected to cause much trouble with Android hardware partners, because no one is selling too many tablets anyway, so that isn't a market where Google could cause much disruption. 

Last week, though, word came out that Google has interest in designing its own processors, which seems to indicate that Google has probably at least had conversations about building a Pixel phone. Google won't be building a Pixel phone any time soon, because that would definitely cause commotion with Android hardware partners, but Google has been inching closer and if Google were actually to design its own chips, that would be a full step towards a Google-made phone. 

Why Google should be thinking about it


There are a couple different ways this could go, but Google wanting to build its own chips for Android makers is a tacit admission that Google needs more control over the hardware side of its ecosystem. This doesn't necessarily mean Google-made devices, but it does mean that no matter how closely Google works with companies like Qualcomm, MediaTek, and Intel, it can't reap the same benefits that Apple does by controlling both the hardware and software side of the platform. This means it is harder for Google to push new hardware features, because not all OEMs will jump on board. So, there will be delays, as there were with Android devices massively adopting NFC and fingerprint sensors. It also means Google can't fine tune and intricately optimize Android for hardware like Apple can. 

On one hand, that's not exactly a big problem, as evidenced by Android's malleability and huge market share. But, it does continue to be a problem in the high-end market where profit margins are much higher, and Apple is not only a major force, but a growing one. Android is still dominating in overall market share, but Android's market share did drop year-over-year between Q2 of 2014 and Q2 of 2015, while iOS rose, and Apple's market share rose year-over-year for Q3. And, Samsung's market share dropped a bit in that same time frame, although it has recovered, but profits from smartphone sales have absolutely tanked recently, which may have a much bigger impact on what Samsung does next. 

Is Google inching its way towards building its own Pixel phone?
According to the latest numbers from July, Samsung was responsible for 15% of the smartphone industry profits in Q1 of 2015, while as recently as late 2013 Samsung just about pulled even with Apple in terms of smartphone profits. However, Apple now accounts for a mind-boggling 92% of smartphone profits. This is especially important, because as you can see in the numbers, Apple and Samsung add up to 107% of the profits in the smartphone market, because they are the only two smartphone manufacturers that are profitable. Everyone else is either breaking even or losing money.

If things keep going as they have been, Apple will soon be making literally all of the profits in the smartphone market. Sure, it's easy to say that Apple has those profits because they charge so much for their products, but frankly that's blind hater reasoning that ignores the reality of the market. Apple can charge that much because people will pay. Whether or not you think Apple devices are worth the cost, plenty of other people do think they are worth it and that shows in the sales. Apple doesn't bother with purpose-built low-end devices (with the pseudo exception of the iPhone 5c) and usually just re-purposes old hardware for those price points, meaning it has far more control and stability in its supply chain and manufacturing costs which leads to profit margins that are pushed to their limit. 

No other company can do that. Manufacturers either have to: sidestep Google to create their own Android environments and hope to attract customers (Xiaomi and Amazon), use Google Apps and Play services and hand over the majority of software profits to Google, or try to go at it alone (Microsoft). Samsung has a potentially viable backup plan with Tizen to be able to fully pivot away from Google if it feels that would be best, and it is unclear what exactly would happen to Android if Samsung were to completely cut and run. 

It's highly unlikely that Samsung would completely ditch Android in one swoop, but Samsung will undoubtedly keep trying to grow Tizen while using Android as its money-maker. Of course, if Samsung stops making money from Android, it's hard to say what the company would do. Though, even if Samsung were able to perform a miracle and hold its ~22% smartphone share after a switch to Tizen, that would still leave more than 60% market share to Android. More likely, if Samsung's market share keeps eroding, it will be dispersed to the next companies on the top-global sellers list -- Apple, Huawei, Lenovo/Motorola, and Xiaomi. That could mean Android would still be okay, but the platform as a whole would likely be better served with Google fully behind the wheel. 

Google's Plan B


Now, as I noted earlier, Google designing chips doesn't necessarily mean that Google will become a full phone maker, and even if Samsung does put all of its efforts into Tizen, Google might not want to get into fully manufacturing phones. Not only would that anger other hardware partners and potentially lead to more companies moving to forks of Android, creating new forks, or switching to other platforms entirely (although things would have to be quite dire for companies to switch to Windows, Tizen, Ubuntu, Sailfish, or Firefox,) but Google being a hardware manufacturer would lead to plenty of other issues, not the least of which is that Google would have to make deals with wireless carriers. Google certainly could make those deals, and has in the past, but Google clearly would like to avoid doing that at all costs. 

If Google can convince hardware manufacturers that there are more profits to be made by using Google-made chips, though. That might be an interesting middle-point. In that scenario, Google would obviously anger other chip makers, but losing chip makers might not be as detrimental as losing hardware manufacturers. Chip makers like Qualcomm, MediaTek, and Intel wouldn't necessarily have anywhere to go. Apple isn't using those chips, and neither is Samsung, so those chip makers might not have much choice but to help manufacture Google's chips, or at least get on board with any open designs that Google releases. 

Is Google inching its way towards building its own Pixel phone?

And, Google could likely convince hardware manufacturers that there would be more profits to be made. First of all, Google could potentially undercut other chip makers on cost (or Alphabet, or whatever division of Alphabet were actually in charge of the chips). Then, of course, Google could also make sure that the chips offer a competitive advantage for Android devices. Google could optimize everything so Android running on its chips would get better battery life, better performance, or unique features. 

That said, undercutting the competition with unique features might lead to a bit of a legal quagmire for Google, which is why I suggested the chips might not come directly from Google, but another Alphabet company. Of course, if Google wants to avoid that trouble all-together, it could simply make its own Pixel phone from top to bottom. It is the least likely option, because Google has been a company that wants its products to be open and widely distributed, and making a Pixel phone would give plenty of manufacturers reason to leave the Google fold. But, it's not an impossible scenario. 

Conclusion


Google will undoubtedly try to find ways to help its hardware partners continue to dominate in market share, and maybe loosen Apple's grip on smartphone profits. But, Google's best hardware partner, Samsung, is not doing terribly well, despite recently making arguably the best devices it has ever made, and none of Google's other partners are well-positioned to take the lead should Samsung leave Android behind. 

Google making its own chips could help things to an extent, but that feels like it might be a stop-gap measure at best. Eventually, a viable third smartphone manufacturer will need to rise up with Samsung to push Apple out of the high-end market, or to take Samsung's spot as the major competitor to Apple in terms of smartphone profits. It is possible that company could be Huawei, Lenovo, or Xiaomi, but if you're an Android fan, wouldn't it be nice to see Google step into the game? That day might be closer than you think.

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14 Comments

1. theguy2345

Posts: 1216; Member since: Jun 24, 2014

I don't see Google making their own phone. They have no reason too; they have Samsung on their side (for now, unless they go all out tizen) and Android marketshare is completely fine. If they start to feel threatened by the competition then yes, but at this very moment? No, not at all.

8. Awalker

Posts: 1958; Member since: Aug 15, 2013

Samsung's vision for Android is not the same as Google's. Google may want to manufacture a phone to showcase what they want Android to be.

11. Bjray

Posts: 199; Member since: May 29, 2014

That's really what Nexus is supposed to be (also a reference for development). But a non-low cost oriented Pixel Phone with no compromises at all would be superb.

2. zeeBomb

Posts: 2318; Member since: Aug 14, 2014

Introducing the Pixel 5 for Android: running ChromeOS for mobile

3. roldefol

Posts: 4744; Member since: Jan 28, 2011

What do you think about the theory that Google is thinking about getting into processors because Qualcomm's 808 and 810 let them down this year? That was PC Mag's take last week. It's less about making the SoC itself, and more about dictating to the SoC vendors what sort of advancements in audio, video, processing, and battery life Google needs to see in the next generation of Android phones.

4. kabiluddin

Posts: 273; Member since: Feb 28, 2015

Ahhh, You just know the quality of Micheal H article. Excellent article, Micheal. I'm big fan.

12. runzlord

Posts: 245; Member since: Oct 13, 2013

Seconded.

13. runzlord

Posts: 245; Member since: Oct 13, 2013

Seconded.

5. UglyFrank

Posts: 2188; Member since: Jan 23, 2014

The Pixel C is the only android tablet that can compete with the IPad Pro (when it comes to power) but the lack of a microsd slot makes it less of a deal than the Z4 Tab.

6. nebula

Posts: 1009; Member since: Feb 20, 2015

Seldom we get matured and thoughtful articles like that. Thanks for making it.

7. Guaire

Posts: 850; Member since: Oct 15, 2014

Neither Google nor chipmakers have nothing to do with some Android phonemakers' inability to making money.

9. Loveneesh

Posts: 424; Member since: Jul 14, 2015

When Google launch its silver series?

10. Taters

Posts: 6474; Member since: Jan 28, 2013

Damn those isheep that keep empowering Apple to do and charge whatever they want. Stand up and be men for once you sheep and stop overpaying for their products.... Anyways, this is all speculation like this article and it's never going to happen, but if all the Android Manufacturers pull out, which is highly unlikely, and Google stops making tons of ad revenue, wouldn't Google be forced to make their own handsets and close off the Android ecosystem? That would interesting indeed if Android became a closed wall garden like WP and IOS. I personally think it would suck and leave Android. Not sure which of the other two s**tty operating systems I would go to though. I would prefer to go to another operating system but if I had to choose between IOS and WP I would probably go Windows since that's what my computers run.

14. runzlord

Posts: 245; Member since: Oct 13, 2013

Nice article! BRAVO!! But I wonder why you left out Blackberry os... Any way. Its like this. Samsung already knows where it is heading in 5 years and it wants to stand out to be like apple, while google is just hungry looking at all the profits Apple is making. So generally the cause of all these is APPLE! Well I don't see Google making Phones affecting any part of the industry! I means worse harm can it bring than Nexus phones? NO. My 2 cents

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