Bits v. Bytes: Follow the money

Google announced its first computing product: the Pixel. It’s not the first Chromebook but it is the first device which is uniquely branded as a Google product (Motorola notwithstanding.)

It’s a curious choice given that companies which have “crossed-over” from being service or software oriented to hardware have started with more “mobile” devices. Amazon launched the Kindle as a low-end product and gradually moved it up-market. Microsoft launched with the Surface tablet and then followed with the Pro version as a hybrid laptop/tablet.

It’s also curious since Google has spent years contributing to the development of mobile phones and tablets under the Nexus sub-brand. This was an approach consistent with earlier Chromebooks as well.

But the Pixel is a high-end product. It’s priced at the top of the range of what a laptop computer might cost (given the dimensions).  Perhaps it’s part of a pattern where Google will hone its hardware skills toward releasing a phone or tablet it can call its own. Starting with a more traditional computer is “easier” than trying to deliver on the more demanding smaller form factors.

And yet, the more obvious question is why would Google want to be in the hardware business? Isn’t being a web-focused company implicitly suggesting that hardware is a commodity to be farmed off to perpetually impoverished and violently abused OEMs?

The truth is quite different from this. Samsung currently makes far more operating profit from Android phones than Google does from all its operations. Screen Shot 2013-02-22 at 2-22-3.47.58 PM

When looking at the patterns of sales and profit capture for hardware vendors since 2007 the contrast is stark:

Screen Shot 2013-02-22 at 2-22-3.32.46 PM

Apple and Samsung tower over the fortunes for software only Microsoft or service-oriented Google and Amazon. Although all companies are growing, the value, as defined by the buyer, resides in the whole product. Putting aside all the theory, the numbers are staggering. Google, Microsoft and Amazon are skimming profits but they are not particularly efficient at profit generation vis-a-vis the integrated Apple (and increasingly integrated Samsung.)

The question is which of the companies illustrated above will prosper from the value chain evolution under way?

  • Interesting then that the stock market anticipates Google’s profits continuing to grow rapidly and Apple’s to shrink substantially.

    • masquisieras

      I think the market is saying that Google to make anything substantial has to come me so I can see what is coming while Apple with his cash reserve do not need me at all so it has not to tell me anything more that a normal investor and the institutional investor don’t like it.

      • Google has vast cash reserves as well, about $50 billion.

      • masquisieras

        So about half, and Apple has a tradition of secrecy and not making big purchases so not talking with the banks, what I am saying is that one of the reasons of the low P/E is that Apple has not the need nor the custom of using external source of finances that are one of most important source of advantage knowledge for the institutional investor

      • Harmonica2

        Your theory may explain why big Wall Street firms choose not to promote Apple (they get nothing in return), but not why they choose not to buy Apple stock, even though the stock is a pretty safe bet. Failure to buy Apple stock is more easily explained by the 5% limit big funds are allowed to spend on any one position. At Apple’s market cap, only the big funds can make the price move in any meaningful and lasting way.

      • neutrino23

        It is an oft discussed topic, why large investors buy or ignore AAPL. One slice of it is that Google is seen as having a lock on their business. No one will displace them in the foreseeable future. Apple is seen as always on the verge of going out of business. They don’t know how to value Apple’s attractiveness to customers. They see each blow out quarter as lucky, something that might not be repeated. Obviously more complex than that, but this is one part of it.

      • harmonica2

        I find these types of explanations apocryphal. No serious analyst predicts Apple will have declining growth as suggested by the stock price, but out of respect for Mr. Market, such explanations are created. The real problem is that not enough money is currently invested in equities to support a company as wildly profitable as Apple. For this, Wall Street has only itself to blame.

      • Simon


    • stevesup

      Where did you hear that? I understood Mr. Market to say he preferred sweet nothings to profits.

  • obarthelemy

    “It’s a curious choice given that companies which have “crossed-over” from being service or software oriented to hardware have started with more “mobile” devices.” Or not. Ever heard of Oracle ? Or the Google Box ?

    “Isn’t being a web-focused company implicitly suggesting that hardware is a commodity to be farmed off to perpetually impoverished and violently abused OEMs?” So ? are you saying Google are actually building those ? They’re still buying from an OEM, the only difference with the Nexus deals is that the OEM doesn’t get to co-brand the Pixel.

    “When looking at the patterns of sales and profit capture for hardware vendors since 2007 the contrast is stark” always is when a new class of hardware pops up (which it did, conveniently, in 2007). then it gets commoditized,and profits fall off, especially for hardware. CF the PC market. Also, only looking retrospectively at the winners completely skews the charts. Palm, RIM and Nokia should be in there.

  • Looks like Apple and Google have successfully collaborated in creating a monster.

  • Shouldn’t the headline be Atoms v. Bits?

    • stevesup

      How about Atoms or Merely Electrons?

    • That’s where I thought Horace meant too… following the MIT Media Lab book…title…

  • I doubt they will sell many of these. The hardware is very, very nice. But at that price, very few consumers will buy a machine that is so severely limited by it’s OS of choice.

    I can’t help to think that ChromeOS is
    a) A very interesting proof of concept / experiment or
    b) A very cheap way to give employees a very cheap machine to access Google Apps for Business.

  • And yet another, more blatant example of Google copying apple.

    1. Unifying the company
    2. Focusing on design
    3. Entering hardware via the ‘premium’ thesis.

    (Although, as nexus 4 supply issues showed, they seriously lack the manufacturing/distribution efficiency of Apple.)

    The copying company is rewarded w a premium multiple. the originator is severly discounted. Wondering if there is a short GOOG/long aapl trade brewing.

    • Gaussian Blur

      GOOG multiple is more a reflection of their continued disruption of advertising economics and the still-untapped wells left for them to drill, and far less on their modest foray into the consumer space, Motorola notwithstanding.

      • With all its disruption, goog was given a multiple of 15-16 April-June 2012. But now, cpc’s are flat-to-up ever so slightly, and its to the moon.

      • Gaussian Blur

        That’s fair. My point is that, in my opinion, the market is not rewarding the copying. If anything, it’s squeezing the water balloon on tech sector allocations from one bellwether to another.

    • Are you positing that Google is an answer to Horace’s question of “why doesn’t anyone copy *Apple* rather than just Apple’s products?”

    • def4

      They try to copy Apple the same way Samsung tried to copy the iPhone: monkeying the obvious and easily observable features.
      But they are not copying the key to the formula: the why, the culture and philosophy that shines as the guiding light for all the hard choices one must make on the road to success through excellence.

      Apple makes products for me because they have the confidence there are enough people like me that appreciate the mind boggling amount of care that goes into the products enough to pay the premium.

      The Chromebook Pixel is not a product for me or anyone else.
      It is a product for Google, designed not for a user or for a use but simply to align with Google strategy.

      And so Google is rewarded by the people that understand them because they share the same values of greed and success through ruthlessness: Wall Street.

  • FalKirk

    Horace, you could write a dozen fascinating articles based solely on the data contained in those fantastic charts located at the bottom of this article. (And you probably will!)

  • Petar

    It’s curious to me that everybody seem to ignore the 3 year 1TB Google Drive offer that comes bundled. Normally that alone would cost $1800

    • Kizedek

      Yeah, I really want Google to hold me by the bits.

    • But a local internal 1TB hard drive only costs about $100, so the actual value of that slow, only semi-reliable remote drive is pretty low, other than the implicit backup feature.

    • Alex Park

      I tried to upload 500 MB file to Google drive …. upload is very slow and after 5 fails , I gave up … I couldn’t fill up my 5 GB free storage as it would take too much time to upload… … however, it is very useful for keeping small files (10 MB or smaller)

      I think it would be very hard to use all of 1TB …

  • mieswall

    shocking graphs! Thanks.

  • handleym

    There’s the obvious point — there is more money in HW.
    But I think there’s more than that, specifically there’s Steve Jobs envy. Larry and Sergei are still young and presumably have some vision of how they’d like computers to evolve. How do they get to that point? They can wait for Asia to get there — good luck with that. They can fund small companies in Silicon Valley — tough when a project is ambitious. Or they can wait for Apple — who may have a different destination in mind.

    If there’s one thing Apple in the 2000s has taught us, it is that you can do so much more if you can control all the pieces. Even something as apparently mundane as the compiler gives you so much more power when you have some say over it. The expansion in the capabilities of LLVM over the past few years, and how Apple has tapped those capabilities, is a great (but unheralded) success story.

    [Of course all this power is meaningless if you have no vision for where you want to go, which is the MS (and the IBM) story…
    It isn’t the Google story today, though I disagree with the technical details of some of where they appear to be headed. It also isn’t the Apple story yet. Maybe one day, but certainly not yet.]

    • Walt French

      “[T]here is more money in HW.”

      The money in the hardware is that it does what people want. Pretty obvious that LG, HTC, ZTE, which are all hardware manufacturers, are NOT benefitting from being in more-or-less the same business as Samsung is. BTW, these are fairly rich in engineering resources, too.

      “Larry and Sergei… presumably have some vision of how they’d like computers to evolve.”

      This seems closer to the issue. Per the great post on why nobody copies Apple, Google has a technological vision. They have the imagination and love of putting pieces together that, with the right tools, they anticipate being more empowered to do… well, “anything”! Have a touchscreen laptop! Get “cute kitten pictures” while skateboarding!

      But if they have a realistic vision of what “people” want, people who are not steeped in engineering or technolust, it’s not clear to me.

      If there really is a business objective here (as the “Copy” post suggests most firms have) it’s this: Android was a savvy, even brilliant assault on the possibility that Microsoft’s (potential) ownership of mobile would lock out Google’s future. Having done that, it’s since evolved to have a life of its own. Motorola was a way to ensure Android had a platform (Samsung was nowhere near as profitable then), and the engineering talent to keep Apple’s and perhaps Windows OEMs’ hardware advantages at bay. I’m pretty sure that it, too, is mostly a cost center with the objective of reinforcing Google’s core business: the ability to be your free tour guide for the internet bazaar, who gets his real reward from recommending his cousin’s rug shop.

      • I think Google is a classical example of “technology push”: “this is cool stuff, so everyone should want it”. So far, they’ve been right, once, in search. Maybe twice if you count Android, but I think that has a lot more to do with “free” and “you can do anything you want with it” than “cool”, since the main appeal was to hardware vendors, not consumers.

      • They are getting it right in KC fiber where they are bringing horizontal scale to driving marginal cost down a priori and pricing to reflect that future MC. They haven’t even gotten to ad sponsored or corporate subsidized broadband, but it is sure to come. Just think of the value of bandwidth reservation for 4k HD group video conferencing for driving cost efficiencies and productivity in corporate, educational, medical and government markets.

        Remember the internet was built out of the ashes of WAN competition, from whence it was borne. Ultimately the large scale users (corporations and institutions) are far better at defining and optimizing costs than distributed consumer consumption (which is served by vertically integrated, average priced, inefficient supply models). Centralized procurement/subsidization will account for 80% of the revenue in the ICT model; simply because demand at the edge will be so varied and free access will be the easiest way to attract that demand. We will need balanced settlements for that, not the bill and keep of the 3-4 layer “private” TCP-IP stack, and big data and advertising exchanges are the precursors to this.

        Back to KC, it will be interesting to see how Google scales the model geographically. Surely it will be in partnerships and via a franchise model, but I don’t see which capital/tech/trade players are likely candidates. The competitive market has been blown to smithereens over the past 15 years. In the past 4 years venture spending in the lower layers is down 70% over the prior 10 years.

      • Kyrke

        Walt, very well said. I am going to clip the comment to keep a copy. Google is positioned in the minds of many as the one who has made the internet accessible and useful. Their running after iOS with Android and their playing with sci-fi future tech is very confusing to us who try to understand them from the place we have them positioned. Their credo of don’t do evil is heard as doing me good. In reality all they did was take me to their cousin’s rug shop. If they did me good, it was incidental to doing good for their cousin. I wonder if others will be able to see this.

      • Walt French

        Google gets better CPMs for its ads because indeed, people click on them more often than other ad networks’ less focused, less customer-aware ads.

        Yes, Google is doing you — actually us, their average user — good by letting you know about offers/deals that you voluntarily click on. Another important party, the many websites that manage to collect income only thru ads, also find Google’s ads better, no matter why you click on Google ads more than other ads. Of course, their actual customers the advertisers obviously believe that they are well taken care of.

        My point is not that Google is evil in how it tracks us everywhere, but rather that they subtly steer us towards commercial results that may be much less rewarding to us than if we simply paid cash (as I do for the NYT, WSJ, Financial Times & others). In the process Google clutters up my information-gathering and entertainment — especially when I’m on my iPhone.

        I believe that every dollar an advertiser spends essentially becomes a dollar that the consumer pays for the product. Some goodly fraction of that dollar (that we consumers pay!) sticks in Google’s pocket; a small fraction goes to websites that run the ads. The ads cost us a bunch of time and bandwidth (both premium items on phones), so we’re paying a second time. Net-net, awfully expensive way to run an internet.

    • ono

      I agree with each of your points. Increasing meaning and personal freedom seems to be Apple’s goal, or vision. The business seems to revolve around how people feel, and what they can do independently, not on increasing product marketshare or improving functionality.

      Steve envy? Maybe it can be called Steve mourning… We all are still feeling the loss or vacuum of Steve. Even his competitors. But Steve was really focused not on “winning,” but on the “wow” moment. Wow in business, Wow in design. Wow in weaving a beautiful story, developing characters, and playing with the kids. Thinking and planning future “wows.” That was Steve. It was special, and it will be copied, but I dare say few CEOs would dare to behave and run a company that emotionally. That’s why Steve was special. But it took him years to find a way to make it work, with lots of enabling help. Succeeding Steve is Tim Cook’s adventure. And ours.

      Curiously, with iPod, iPhone, iPad, etc. and maybe even now with LLVM we learned that most of the “wow” in the [music, whatever] business was actually a secondary effect of the hardware product, supported by software architecture, and distribution and marketing. We “love” and “buy” the music, books, etc. but the disrupt was actually in the “wow” of the people, the power to be independent. The disrupt was not “in” the hardware or the software. You see? Wowness is not a property of hardware or software or retail marketing. Wowness is in our hearts. It is the significance and elegance and emotional connection that makes the “wow” so memorable, sticky and disruptive. It is art.

      • “That was Steve. It was special, and it will be copied, but I dare say few CEOs would dare to behave and run a company that emotionally. ”

        I don’t know about that. I think Larry & Sergei over at Google are pretty much running Google this way. Google is starting to understand and get design in the same manner that Apple does. You only have to look at Google Glasses and the excitement it’s generating to see that. It feels like iPhone 2007 all over again.

      • rattyuk

        “Google is starting to understand and get design in the same manner that Apple does.”
        Copying the MacBook is not “getting design”, it’s the same tried and tested method that Samsung used.

      • Google is all about simplicity. They’ve always been about design, ease of use, etc… That’s why they’ve won in search. They just believe in horizontalization and controlling ecosystems, while Apple believes in vertical completeness (not integration) and owning ecosystems. I think the former will win out, since open always beats silo.

      • If by open you mean modular and by silo you mean integrated, the modular approach wins when products reach a level of over-service but lose when the product is not good enough. There is not a “better” approach only the right approach for the right time.

      • Vertical in a network/processing sense means complete or integrated and closed or open. 4 different meanings, and business model implications.
        Horizontal means scaled (complete or integrated) from end to end, and typically focused on 1 or 2 or a grouping of layers; ie lower, middle and upper layers. Layers can be closed from a horizontal (ie private or competitive/community silo) or vertical (typically network monopoly) perspective.

        My framework is 3 dimensional, with:
        1) a service provisioning checklist (aka layers) on the vertical axis; a modified OSI-like reference model,
        2) geographic dispersion of traffic and demand on the horizontal axis indicating:
        -where: pan, lan, man, wan;
        -what: 1-way, 2-way;
        -how: synchronous, asynchronous;
        -when: real-time, store & forward), and
        3) application and/or market segment continuum on the z axis, including, consumer/commercial/institutional, mobile/fixed, voice/video/data, etc…
        Therefore you can have many “modules” or boxes around any datapoint. Technology makes everything modular. Supply is rapidly obsoleting and converging. Demand is rapidly diverging and growing. This framework helps to understand, reconcile and model the two conflicting forces.

  • I can’t see why Google thinks this will work, unless they think they can start a fad in the high-end business community, somewhat similar to how the iPhone spread there. But I don’t think there’s a corresponding value proposition to those users like the iPhone offered. This is just an Ultrabook/Macbook Air that’s also dependent on the cloud to function properly.

    I also think this illustrates the fundamental issue with thin-client computing yet again: the hardware costs are mostly in the screen, graphics processing, and battery, and virtually identical to a full-function computer. They’ve saved something like $40 to $100 in price by leaving out the hard drive, and made the machine’s functions mostly dependent on a slow, high-latency, somewhat unreliable network connection and remote storage. As I’ve said before, this is the teleprocessing/thin client thesis re-heated. I’d be surprised to see it get much traction now. It really makes sense only when most of the data you need to work with is *already* in the cloud and widely-shared.

    Users seem to want to have more control than this gives them over their computing experience.

    • obarthelemy

      You’re mostly right for individuals, but for organizations, the biggest costs by far are admin, training, software and maintenance. I think Google’s idea is that Chrome OS lowers those significantly.

      • Unfortunately for Google, the same applied to prior thin computing efforts in the workplace, and the market moved overwhelmingly in the direction of desktops anyway. Some of the economics are different with Google’s approach (i.e. companies don’t have the capital costs of the servers), but those applied in at least some cases in prior iterations as well, I believe (outsourced timesharing services in the 1970s, for example).

      • obarthelemy

        Yes, but that move to desktops was also due to costs and functionality. It was much easier and cheaper to get Wordstar and Multicalc on a PC than the equivalent on a mainframe or minicomputer, especially if there was no preexisting one in-house. Now the argument is reversed: provided you have network access (a big if, admittedly), it is much easier and cheaper to get and maintain internet, Google Office, email, Skype… on a ChromeBook than on a PC.

      • I’m not convinced the operations costs will be significantly cheaper — one of the problems with distributed systems is that there are more things to go wrong, in more places, than with a (mostly) stand-alone system.

        I think Google’s vision actually makes more sense for small businesses (where the user is likely to be their own IT support), than for large organizations, where there will still have to be someone to handle the “my computer’s not working!” calls. From my experience, I would expect the complexity of IT problem-solving will get *worse* in the cloud-based model, ultimately raising local IT support costs.

        I will also note that Google’s reputation for customer support isn’t particularly good….

        I believe the cloud model will only win on support costs if the number of support calls declines *radically*. Note that Apple has generally made the claim that Macs were much lower cost to support (with some evidence to back that), with consequently lower life-cycle costs, but that didn’t seem to have any traction in the enterprise. Maybe Google will have better luck…

        Note that Google’s cloud model is fairly close to the thin client X-windows systems of the late 1980s, and those failed badly in the market. Some of that was due to having to pay for the central server facility (which was often a capital cost with a long depreciation), but I think it was to a large extent due to control issues, and the fact that the workstation vs. thin client price differential was rather small.

      • obarthelemy

        Darn, my long answer got messed up. I was saying:

        1- Corporate PCs are network-dependent anyway nowadays. For obvious stuff (email, browsing…), less obvious one (Sharepoint, shared docs…), and oftentimes even… everything (users can’t login nor access their own files w/o network access). So I’m not sure being 100% network dependent would be much of a change.

        2- Apple was touting lower TCO at one time indeed. Their proposition was not very compelling though: same paradigm as Wintel PCs, another set of proprietary techs (*and* with a single, unproven, vendor, which is a big no-no anyway), a huge investment in converting & retraining, more expensive stations and servers… but you’ll save later ! No wonder it didn’t catch on. Goole is touting savings from the get-go (no more servers, cheaper clients), not a lot of training (everyone knows how to use a browser)… there are indeed conversion costs. And bumping everything up into the cloud does not guarantee better availability or security, it only guarantees that it’s your provider’s problem (or your SLA negociators’ ^^)

        3- Indeed, I remember when I was selling Wyse terminals more expensive than PCs. And using quite proprietary techs. That’s not the case here though: the clients are cheaper (Pixel notwithstanding ^^), the techs are standard, there are several suppliers and the OS is open source…

        We’ll see how this pans out. If we have to wait until Google makes a mark in edu, and then the “educated” generation gets to decision-making posts in corp, that could take a while. Assuming it all works and MS stands idle :-p

    • Plus 1 on access. It’s terrible and only going to get worse as data/content gets bigger and more graphical/video oriented. While everyone believes 2G to 3G to 4G evolutions are great, they are linear, not geometric. Their performance/price improvement is 5-10% per annum, whereas it should be 30-50% given moore’s and metcalfe’s laws. The consumer and technology is driven by the latter two. The service providers aren’t and that’s a big, big, big problem for the cloud model.

      What I want is everything like kindle reader: contain state locally and sync across all devices. My rate of book consumption has gone up significantly in the process. This should be done at every layer, such as OS’ in the middle layer (why can’t I program my cellphone settings from my PC??????), and even the lower layers (I can imagine the need 30-50 different devices (maybe infinite) based on contexts and requirements, and I want them connected by an easily interchangeable/upgradeable cellular/wifi/bluetooth/battery dongle).

    • Davel

      To me google is testing the waters. Putting out a product that won’t sell much but learning about product positioning and features.

      This is just a hardware expression of what google does. Make 100 things and see what sticks. How many software tools does google make? They do this all the time and no one pays attention. Samsung too. How many unsuccessful stupid products does Samsung make? But they have one or two good products that they ramp up.

      Apple makes a handful of products. So if it fails everyone notices.

  • poke

    I think we need to rethink the degree to which Apple is “integrated.” Relative to Microsoft’s Windows platform, they’ve merely shifted the goal post slightly so that the platform now includes the design of the device. I see this as a shift from a software/hardware division to form/realisation. I think the latter is the logical division for mobile devices. If you simply compare an old Windows PC to an iPhone, you can instantly see why Microsoft wasn’t interested in the shape of the beige box sitting under your desk and why Apple is very interested in the way their platform feels in your hand. But Apple isn’t integrated in the traditional sense of doing its own manufacturing (although they purchase equipment for strategic reasons).

    Google, on this view, can then be seen as taking two roles. One is as a component supplier, in the form of the open source Android OS. The other is as a services partner, in the form of Google services and the Google Play store. This is typical behaviour for Google. They do many things at once. But it limits the degree to which they can be said to own and operate a coherent platform. Many people have suggested that, in the current market, Apple is analogous to Apple in the 80s/90s and Google is analogous to Microsoft at that time. But I think Apple is actually in the “Microsoft position.” It’s just that what it means to be a platform in the mobile era is slightly more encompassing. Meanwhile, Google finds itself in the odd position of being both a services partner and a component supplier trying to move up the supply chain through an acquisition.

    • Apple has a vertically complete (not integrated) approach and by virtue of its siloed controls and constraints owns the ecosystem. Google has a horizontal approach and controls the ecosystem via horizontal scale.

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  • The reason why Microsoft and Google are not generating profit comparable to Apple and Samsung have more to do with their relative level of innovation and issues with business model than in any inherent weaknesses in relation to them. For years, Microsoft feasted on the profits of the entire PC industry by making software, which allowed it approach 90% margins relative to investment, even with the hundreds of thousands of man-hours necessary to build and test a major operating system. Microsoft’s profits relative to investment are so vast, it has been able to fund spectacular failures for over two decades while still virtually printing money. Imagine if Microsoft had managed to successfully apply its business model to consoles and mobile phones. OEMs would still be scratching and clawing for pennies while MSFT laughed its way to the bank.

    Google has a different issue… its business model is based on giving away its software products for free while making money from advertising. The reality is that Android would not have been the breakaway hit it has been if Google had charged for it. To the contrary, considering Microsoft profits more from Android software than Google, it is unlikely Google would have withstood the legal assaults that every major player would have brought against it if it had been making significant profits from the sale of Android software. Google skirted the whole issue by giving away the software for free and profiting (somewhat) on the back end.

    The sad fact is that, if it had innovated and attacked markets effectively instead of resting on its laurels and letting internal politics destroy innovation, Microsoft would still be the 800lbs gorilla of the tech world. There is no major recent innovation that has been introduced by Apple, Google or Samsung that Microsoft didn’t have the inside track on and failed miserably to capitalize. As for Google, let’s be realistic… if Google or Samsung disappeared tomorrow, which would have a greater impact on the tech world?

    By its very nature, the software business is a more efficient way to generate profit than hardware, regardless of the level of vertical integration. Microsoft is falling from an acute case of self-immolation. Google’s power and influence are simply not adequately captured on its balance sheet. In this particular case, the information is apples and oranges.

    • Childermass

      I agree with your underlying concern. It is increasingly difficult to see meaningful comparisons between these businesses. Microsoft? Fading monopolist. Samsung? Opportunistic manufacturer. Google? Advertising. Apple? Well we all have our favorites, but it isn’t the first three. All these companies do things that overlap with the others, and other things altogether, but why spend time analysing the overlaps, when they are so often happenstance? Apart from it being a lot of fun, of course.

      You could take your apples and oranges theme further by dismissing ‘Android’. What is it? Much of ‘Android’ is limited to servicing feature phones, some has been hi-jacked, and the rest is a spread of implementations that are equipment specific. iOS is a unified system that is the same whichever device has it. ‘Android’ is a vehicle for OEMs to make phones that can be called ‘smart’. There is no necessary connection. iOS and iPhone are inseparable. Where is the value in the comparison? Apart from a few techies, people are not making a choice between iOS and ‘Android’. They are buying cool little computers, or fancy phones. Or, probably far more than is funny, just taking whatever the salesperson, highly incentivised, offers.

    • All 3 need to realize their models are constrained by the service providers. With their huge cash hordes they should band together in partnership with capital players and government and drive horizontal frameworks into the carrier market. Bandwidth is overpriced by 20-150x depending on where you are in the InfoStack. The businesses built out of this cash investment can be spun out to share holders to reduce tax problems with cash dividends; and they get a positive stimulus in their core businesses to boot.

      Google is experimenting with this in KC, Apple dabbles in Wifi and resurrected equal access via the wifi backdoor on smartphones and MSFT has lync/skype. If all of them worked together in the lower, middle and upper layers, who is to know where the US tech model will go? It will surely make the last 30 years look like child’s play.

      Lastly, all have to realize that we need relatively open settlement systems in the middle layers. These settlement systems will: 1) create a virtual push/pull between demand/supply drivers (like the wintel software/hardware upgrade cycle), 2) promote new service introduction; 3) reduce chance of monopoly creation and ossification; 4) stimulate infrastructure developments more rapidly. The bill and keep that the telco world going towards and that the “private” internet protocol came from is inefficient on all fronts.

  • r.d

    Chrome is all about ecosystem.
    It is about Web supremacy which went down with the rise of apps.
    Android was an ecosystem play but it hasn’t really helped
    because Google’s goal is shift money into ad driven software
    as apposed high margin Microsoft like business.

    Pixel product is aimed at Photography. So either
    photo editing is coming into the cloud or they are
    going to run C programs using LLVM JIT in the browser.

    Google wanted to attack Microsoft ecosystem
    but things have shifted so it is kind of mimicking apple
    but Google’s main goal is to devalue software and hardware.
    Google’s doesn’t care about Samsung that much except
    that their Android ecosystem is not enhanced by Samsung.

    • Walt French

      Do you have a link for LLVM implementations other than Apple’s XCode?

  • Herve

    I think that the product makes a lot more sense when looking into the ecosystem it bundles in the price. Its an absolute no brainer for those who have a $50/month 1TB google drive subscription as it brings them not only around 30% rebate and a free pixel over a three year period and it might well be the perfect reason to make the jump
    for some as well.

    My hypothesis is that the pixel was designed with these people in mind and try to establish a very loyal base. It seems safe to assume that this base would be both tech savvy and in a higher than average income bracket and this might be useful to google in at least two ways. First it would establish a direct relationship with an engaged user base and secondly this group would no doubt be strong advocates for the brand towards their peers.

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  • Thad G.

    I think Google is in a difficult state of contradiction. It’s a company founded on the idea that everything can be made better with the right algorithm — a technology wonk’s dream of an organization. It’s now trying to shift it’s brand perception from behind-the-scenes-geek to friendly, fun, lovable and human. Inevitably, part of doing this is giving people something physical with which to associate the brand — hence Glass, Pixel and I’m sure other single-noun fruits of labor to come.

    The problem is that Google — at it’s heart — is still a company of technology wonks trying to solve their perception problem in the same mechanical, methodical, programmatical way they always have. As a result, we’re seeing Google mimic the surface-level traits of Apple in things like advertising (white background, music, families, nice typography) and hardware design (thin, sexy, etc.) as if those traits were variables in a complex program that will turn Google cool. Sadly, in the end, mimicking is not the same as being. The secret to becoming a beloved brand (and not just a verb) lies in a fundamental shift away from technology/utility and towards emotion, art and other unquantifiable traits, an area where Google has little, if any, comfort or expertise.

    I think that Google (as it is today) cannot compete with Apple at an emotional, consumer level. I don’t think Google would hire the next “Steve Jobs” if he showed up at their door. Even if they managed to get him past their cold, sterile, robotic interview process (they wouldn’t, he’d leave after round one), they wouldn’t see the value because it isn’t quantifiable. They’re not a company prepared to embrace artists or prepared to understand that there is value in technology beyond the hyper-optimized algorithmic solution to problems. They are just playacting what they think a company like that would do.

    Further, Google does itself a disservice by trying to copy Apple. Apple is the God of their kind of brand marketing; nobody does it better and it’s unlikely that anyone ever will. That’s because Apple invented their way of marketing and it’s true to their core. Like so many companies right now, Google is making the mistake of trying to ape that, but you can’t — it’s a truly unique characteristic that is so intrinsically linked to its originator that everybody else doing it will always appear to be a copycat. Instead, Google needs to find their own voice and build their own emotional bonds with consumers. Unfortunately, that’s where they fall flat — Google isn’t a company of creators, it’s a company of optimizers.

    I think over time Google will recognize and respond to its limitations and perhaps even shape up to be a beloved brand in its own right. But the longer it takes and the more time they waste on mimicry, the bigger the danger that their brand will be solidified in consumer minds as the also-ran or (even worse) the unsexy, but suitable-enough utilitarian option.

    • obarthelemy

      I think Google is founded on the belief that if they make something free and good, and pay for it via tracking, people will like it.

      I think Google’s problem is that good ideas are relatively few and far between, and mostly Not Invented There. And once an idea is out (free stuff paid for by ads/tracking in Google’s case), copycats arrive.

      Apple has the same problem by the way, except their idea is not “free”, it is “easy and sexy”.

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  • I question the analysis as it is disingenuous.

    1) Comparing apples and oranges; literally, figuratively.

    2) Cellular service provider markets are non-competitive, they are broken and over-priced, and the device subsidization model has destroyed meaningful competition amongst vendors and choice for consumers. (Note clearly Apple and Samsung have succeeded where many others have failed).

    3) To make a global statement the analysis should compare all software and hardware across all ICT and account for systems integrators (should they be included in software?). Taking the top 4 data points is arbitrary and leads to incorrect conclusions; particularly when so much money is being lost in handsets.

    4) Apple has become a defacto monopoly and clearly overcharges within its silos. How defensible those are remains to be seen. (Again, they have clearly been very good at capturing short term arbitrages and market inefficiencies in music, content, and communications. But is new leadership capable of seeing these opportunities the way Jobs did?).

    5) This constant debate over whether Google is vertically integrating belies actual history. Everything about their strategy screams horizontal and when verticality enters it is always simply to demonstrate to the market the opportunity and not a marked shift or departure from horizontal scale.

    6) As I’ve said elsewhere in this blog “Google believes in horizontalization and controlling ecosystems, while Apple believes in vertical completeness (not integration) and owning ecosystems. I think the former will win out, since open always beats silo.”

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  • there is a 60 Minutes interview with Jack Welch from the late 1990’s during the dot bomb boom.

    1. he said that at the time GE was building jet engines and other high tech things while amazon and other internet darlings were building warehouses and yet GE was a dinosaur and not high tech.

    2.He said never let anyone get between you and your customers. NO ONE. at the time there were some logistics companies trying resell anything to corporations. even cloud services.

    the warning is that if you let someone service your customers, there is nothing stopping them from taking your business away. look at dell outsourcing their manufacturing.

    same here, samsung is becoming too powerful for google. at this point samsung/qualcomm are android. very little stopping them from building their OS and taking their customers away from google

    • obarthelemy

      The same has been true of MS and PC OEMs for ages, and yet nothing happens, because the ecosystem does matter.

      • NoName

        Your mistake is this – PC OEMs cannot take Windows and fork it.

        Samsung is already actively forking Android (see all the incompatible APIs).

      • obarthelemy

        Your mistake is reading comprehension. Parent is about “Samsung building their OS”, not “Samsung forking Android”

      • NoName

        Forking is not building? Someone better let Amazon know.

        Would you be happier discussing all the Android forks in China that use their own appstore instead of Google’s Play store?

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  • Francis pascual