According to trend analyses and reports produced by Wave7, a U.S. mobile market analyst, the Google’s Pixel series have been selling consistently well over the three or so months it has been available. Given a selection of reporting around the time of launch that failed to clearly differentiate between Verizon being the exclusive Pixel carrier and Verizon being the only Pixel carrier, as well as displaying some reasonable hesitation about certain aspects of the relationship, there was no consensus among those covering the topic about the likelihood of Pixel succeeding as a product.
However, Verizon has made it clear that they were taking their exclusivity deal seriously and embarked on a multi-million dollar advertising campaign for the Google Pixel devices, as well as offering aggressive discounts and deals just after release that continued throughout the holiday season. Wave7 has found that Pixels have sold extremely well despite limited availability, reporting that Verizon representatives claimed that Pixels accounted for between 12.3% and 9.5% of all devices sold by Verizon in December and January, respectively. Given this fact, the limited availability of Pixel devices, a fact which has remained rather constant since launch, may well be a result of Google responding to greater demand than they had originally anticipated.
Regardless, with multiple financial analysts expecting around $2-4 billion in revenue from Pixel sales in fiscal year 2017, industry confidence in the Pixel is firm, albeit with plenty of room for growth. Gross margin estimates for Q4 2016 sales place Google’s Pixel and Pixel XL at a bit more than half of the iPhone’s industry-leading 41%, with overall profit estimates fluctuating around $400 to 500 million.
Morgan Stanley estimates Pixels will bring in around $375 million of profit in Q4 of 2016. (IHS Markit, Company Data, Morgan Stanley Research)
This places the Pixel devices magnitudes below Apple’s iPhone in terms of sales throughput and profitability, but the fact that it is profitable at all is of great importance. Given that Morgan Stanley’s analysts term the Pixel as a program of “Android user monetization”, the Pixel devices likely have a broader financial impact and utility for Google than can be seen simply by estimating device sales — past a certain point.
The Future of the Pixel Brand
Alphabet has been relentless in its willingness to shed internal groups and pursuits that fail to be profitable for too long. Fios, the Titan drone platform of Project Loon, and Alphabet’s self-driving car program have all been either put on hold, cancelled, or spun off into non-Alphabet related entities in the last 12 months alone. With a central goal of profitability clearly for the most part taking precedent over any form of vision or other non-financial goals, any program that fails to show growth and profitability is likely at risk of being excised from Alphabet. Thankfully, Pixel appears to be safe for the foreseeable future, as long as it continues to perform well.
With the stability of the Pixel brand more or less assured for 2017, it is worth briefly considering what the future may hold for Google’s nascent smartphone. XDA’s own Mario Serrafero published an extensive review of the Pixel XL and concluded that “the Pixel XL is a great consumer smartphone, but not the Google flagship I expected. Nevertheless, it sets the foundations for something bigger, and as Google’s ecosystem matures, the Pixel and its Assistant will get wiser with it.” This sentiment aligns closely with the response most technical reviewers have had. The Pixel shows immense promise but has also demonstrated some rough edges and areas that could use improvement, something that we recently explored.
One of the reasons that I maintain a significant amount of hope for the Pixel’s future, in spite of those rough edges, lies in the story of the development for the Pixel and Pixel XL. As discussed over at Ars Technica, there are a couple hints which suggest that the Pixel was pushed through a rushed development schedule of as little as 9 months from conception to production. As the article clearly illustrates, the Pixel features a large number of similarities with HTC’s A9, ranging from the appearance of the device to its motherboard layout — this isn’t odd considering who the actual assembler of the Pixel is. XDA also covered suspicious software-level tidbits that pointed to some HTC influence. Given unofficial reports that Huawei was initially pegged to manufacture the Pixel but backed out over concerns about Google’s insistence on maintaining its own brand on the device as well as David Pierce of Wired stating that employees of Google blamed “running out of time” for the lack of waterproofing, a strong case can be made that the Pixels were rushed to market.
For how strong of a device it is, the Pixel’s brief but mostly successful development is a notable accomplishment for Google (and possibly HTC). Dave Burke, Android’s VP of Engineering, also told interviewers in early November 2016 that he had already been shown photos taken by a device that was to be released in fall of 2017. This suggests that Google’s second foray into (semi) in-house smartphone development will have at least 12 months, and probably closer to 16 months, if a functional prototype existed only a month after the Pixel was released. With a more typical production cycle for the Pixel’s successor, the few rough edges of the Pixel have a good chance of being alleviated. By potentially tripling the amount of time Google engineers will have worked from start to finish to bring an Android device to market, there is plenty of time for Google to mature its hardware development team and more effectively step into the role of being its own smartphone designer.
A Pixel successor that seriously addressed the original’s flaws would be quite the sight to behold, and I am immensely excited to see what Google may yet accomplish before the end of 2017.
What do think about the Pixel and the approach Google has taken for its development? Let us know in the comments below if you have any thoughts or predictions for the future Google’s in-house smartphone development.
Source: FierceWireless (1)
Source: FierceWireless (2)