Amazon Prime Day is starting soon!
Check early bird deals here
0 d
00: 00: 00

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

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. 

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. 

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. 

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. 


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.

reference: Apple's share of smartphone profits soars to 92%
FCC OKs Cingular\'s purchase of AT&T Wireless