Tuesday, October 4, 2016

The Hidden Reason Behind Google's Pixel Phones

About 3 years ago, I wrote a post about Apple's iPhone 5C and its potentially hidden business proposition for the company. At the time the debut of the iPhone 5C was perplexing given that it was essentially an all-around inferior product to Apple's newest flagship, the iPhone 5S, and even lesser compared to the previous iPhone 5. Pundits and critics everywhere reasoned that Apple may have overplayed its hand in being so explicit in its targeting of the emerging markets - in particular China, as supposedly the "c" represented that country.

Fast forward 3 years and it looks like these critics were right: Apple has never again released a product like the iPhone 5c. It looks like a failure that the company is eager to move on from and forget. But as I conjectured back in 2013, the iPhone 5c likely had a hidden value proposition of making its superior cousin more attractive in the eyes of the consumer. In other words, Apple may not have cared about how many units of the iPhone 5c it sold or even if the product made a profit at all. Because its main purpose was create a perception that the iPhone 5S was of better value and convince potential customers to buy it instead. In behavioral economic theory, this is known as "relativity" - the human tendency to compare products against one another. Unlike Android or even Windows Phone, there are no other companies other than Apple making iPhones; therefore Apple has to take it upon themselves to create this sense of relativity, that the iPhone 5S is a truly amazing device.

So how does this all relate to the title of this blog post? Without rehashing what all the tech blogs and news outlets have reported, Google earlier today announced 2 new phones under the names of the Pixel and Pixel XL. This marks Google's first official foray into the lucrative smartphone business - since they never marketed a phone under the name "Google" while owning Motorola. On paper, both smartphones are very capable devices with some unique distinctive advantages compared to the competition. They have fast processors, good screens, and brilliant software. But akin to the reception of the iPhone 5c, it seems like everyone is criticizing Google for its pricing structure of starting at $649 for the lowest model. Essentially, the criticism is that Google is taking a page out of Apple's iPhone playbook by creating a direct competitor. And that it'll inevitably fail because no one can play Apple's game besides Apple itself.

But once again, my hypothesis is that Google's true intention isn't to sell the Pixel phones for profit or even break even point. I don't think they even care for how many units it sells ultimately. The real business reason is, rather, to reinvigorate the Android market and challenge the other manufacturers to stay on top of the game. The comparative example is arguably Microsoft's Surface business. Microsoft essentially created a new market by themselves in the 2-in-1 segment of tablets, to the extent that it's now a staple in every PC manufacturer's marketing brochure and even copied by Apple into their iPad Pro product. Likewise the Google Pixel phones are meant to motivate and inspire the Android manufacturers, especially towards the upper end of the market in pricing and features. We'll see if this is a true or false hypothesis.

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