Category Archives: Hardware

Alphabet, Google, Hardware, Pixel, Smartphones

Google’s Schizophrenic Pixel Positioning

This is my second post about Google’s event this week, and there will likely be more. The first tackled Google’s big strategy shift: moving from a strategy of gaining the broadest possible distribution for its services to preferring its own hardware in a narrower rollout. Today, I’m going to focus on the Pixel phones.

Positioning Pixel as a peer to the iPhone…

The Pixel phones are the most interesting and risky piece of this week’s announcements, because they go head to head against Google’s most important partners. One of my big questions ahead of time was how Google would address this tension, and in the end it simply didn’t, at least not during the event. The way it addressed it indirectly was to aim its presentation and the phones at the iPhone instead of at other Android phones. There were quite a few references to the iPhone during the event, and they’re worth pulling out:

  • A presenter said as an aside, “no unsightly camera bump” when describing the back of the Pixel phones
  • The unlimited photo and video storage was positioned against the iPhone, explicitly so when an image of iOS’s “Storage Full” error message was shown on screen (as it was in a recent Google Photos ad campaign)
  • The colors of the Pixel phones have names which appear to mock Apple’s color names
  • The pricing of the Pixel phones is identical to the pricing for the iPhone 7, right down to the first-time $20 increase to $769 for the iPhone 7 Plus from the earlier $749 price point for the larger phones, despite the fact that the larger Pixel has no additional components
  • A reference to the 3.5mm headphone jack in the Pixel commercial.

Google is attempting to position the Pixel as a true peer to the iPhone, unlike Nexus devices, which have usually been priced at a discount with feature disparities (notably in the cameras) to match. The pricing is easily the most telling element here, because there’s literally no other reason to match the pricing so precisely, and Google could arguably have benefited from undercutting the iPhone on price instead. Rather, Google wants us to see the Pixel as playing on a level playing field with the iPhone. This is very much a premium device, something that Chrome and Android exec Hiroshi Lockheimer explicitly addressed in an interview with Bloomberg published this week:

Premium is a very important category. Having a healthy premium device ecosystem is an important element in an overall healthy ecosystem. For app developers and others. It’s where certain OEMs have been successful, like Samsung. It’s where Apple is also very strong. Is there room for another player there? We think so. Do we think it’s an important aspect of Android? Yeah, absolutely.

What’s most interesting to me is the question and answer near the end there: “Is there room for another player there? We think so.” Given that the premium smartphone market is basically saturated at this point, that’s an interesting statement to make. Unlike, say, in the low end of the smartphone market, where there’s still quite a bit of growth, the only sense in which there’s “room” for another player at the premium end is by squeezing someone else out. Google clearly wants that to be Apple, but it’s arguably more likely to be Samsung if it’s anyone.

We’ve seen from long experience that switching from iOS to Android is much rarer than the other way, and so Google is far more likely to take share from Samsung than Apple, even with its overt focus on competing against the iPhone. In addition, this is fundamentally an Android phone with a few customizations, and will be seen as such, and therefore in competition with other Android devices, rather than the iPhone, for all Google’s focus on the iPhone in its messaging.

…while also mocking the iPhone (and iPhone owners)

But perhaps the biggest misfire here is the schizoid positioning versus the iPhone – on the one hand, the Pixel borrows very heavily from the iPhone – the look, especially from the front; the two sizes; the pricing, the focus on the camera; the integrated approach to hardware and software (of which more below); and so on. And yet at the same time Google seems determined to mock the iPhone, as evident in the color naming and in other ways throughout the presentation. If you want to go head to head against the iPhone, you do it in one of two ways: you show how you’re different (as Samsung has arguably done successfully), or you show how you’re the same but better. You don’t do it by aping lots of features and then mocking the very thing you’re aping at the same time (and by implication its customers, the very customers you’re going after).

True integration, or just a smokescreen?

The other major element of this strategy, of course, is that Google is now capitulating to the Apple strategy of many years and more recently Microsoft’s Surface strategy: the company that makes the best hardware is the company that makes the OS. Again, the approach is best encapsulated in an interview, this time with Rick Osterloh, head of Google’s new consolidated hardware division:

Fundamentally, we believe that a lot of the innovation that we want to do now ends up requiring controlling the end-to-end user experience.

What’s odd is that there seems to be relatively little evidence of this approach in what was announced on Tuesday. Is there really anything in the Pixel phones that couldn’t have been achieved by another OEM working at arm’s length from Google? One of the biggest benefits of taking this integrated approach is deep ties between the OS and the hardware, but from that perspective, Google isn’t actually allowing its Android division to get any closer to its own hardware team than other OEMs. It’s only integration with other Google services (outside of Android) where the Pixel team got special access, and even then only because they’re the only ones who have asked to do so.

All of this undermines Google’s argument that the Pixel is somehow in a different category because it’s “made by Google” (even leaving aside the fact-checking on that particular claim from a hardware perspective). This phone could easily have been made by an OEM with the same motivations – the big difference is that no OEM has precisely those motivations, not that the Pixel team was somehow given special access.

In fact, this gets at the heart of one of the main drivers behind the Pixel – Google reasserting control over Android and putting Google services front and center again. I’ve written about this previously in the context of Google’s attempts to do this through software, as exemplified by its I/O 2014 announcements. But those efforts largely failed to reclaim both control over Android and a more prominent role for Google services on Android phones. As a result, Google’s relationship with Android releases has continued to be analogous to that of a parent sending a child off to college – both have done all they can to set their creation on the right path, but have little control over what happens next.

If, though, this is the real motivation behind Pixel (and I strongly suspect it is), then all this stuff about targeting the iPhone and tightly integrated hardware and software is really something of a smokescreen. I would bet Google’s OEM partners can see that pretty clearly too, and for all Google executives’ reassurances that the OEMs are fine with it, I very much doubt it.

Google, Hardware, OnHub, Quick Thoughts, Routers, Smart home

Quick Thoughts: Google’s OnHub router

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It looks like a slew of reviews of Google’s OnHub router have come out in the last 24 hours or so, so I’m guessing some sort of embargo has lifted. It seems the reviews are decidedly mixed (which feels par for the course today for products both good and bad, as reviewers each seek to find something unique to say, often overreaching in search of something worth praising or criticizing). Glenn Fleishman has an interesting review of reviews of sorts at TidBits, which is  worth reading for its own sake and for the links to other reviews.

What I wanted to write up here quickly isn’t a review (I don’t have a review unit) but some other related thoughts I’ve had about the OnHub router since it was announced, and which have been reinforced by reading some of these reviews. We discussed some of this on the Beyond Devices Podcast a few weeks back, the week the router was announced, but I’ll probably go a bit deeper on some of it.  I’ll embed the podcast episode at the end of this post too.

A router for novices at a power user price

One of the things that struck me off the bat, but has really been brought home by these reviews, is that there’s a fundamental mismatch between the price positioning of this router and the target audience. The whole value proposition (at least for today – and we’ll come back to this) of this router is that it’s enormously simple to use. And yet it’s priced at $200, the same sort of range as the high-end routers in the market. The Wall Street Journal review notes some interesting trends in the router market, which I think serve as useful context for this device:

Cable companies and other Internet service providers now rent their customers basic Wi-Fi routers when they sign up for service. As a result, U.S. router sales have fallen from 6.1 million year-to-date in 2012 to 3.5 million in the same period this year, market research firm NPD reports… NPD determined that the average selling price is on the upswing. Cheap routers aren’t selling so well, but higher-end models… are. “People are willing to pay a lot of money—more than before—for an AC router with significantly better performance than they had in the past,” said Mr. Baker.

Here’s the thing: I’m betting that the kind of people who are willing to pay a lot of money for “an AC router with significantly better performance” are not the kind of people who feel intimidated by those routers. They’re the kind of people who know enough about routers to understand what distinguishes 802.11ac from some of the older technologies, and who are likely pretty comfortable customizing the various settings. And yet Google’s router is priced in this same range and yet removes many of the typical settings available to power users in other routers in that category. You can’t specify separate SSIDs for the 2.4GHz and 5GHz bands, you can’t get into a web interface, and many of the other deeper settings you can configure on almost any other router. This is a router for novices sold at a power user price point. As such, it’s likely to please neither group.

This is further reinforced by the fact that the router is clearly something of a trojan horse for Google in the home automation space, given the inclusion of Bluetooth and Zigbee, and yet again those users are likely to want far more control over their routers than the OnHub provides. Some of this may be solvable in software down the line, but I suspect Google’s whole mentality around this router is wrong, and that can’t be fixed by software updates.

A symbol of Google’s disjointed approach

To my mind, the OnHub router is also a symbol of Google’s disjointed approach to so many of its projects, and I worry that the Alphabet reorg will only make things worse. Google already has a home automation business, Nest, which not only makes its own products but has been the vehicle for both making further home automation acquisitions (Dropcam) and for acting as a hub for other home automation gear (the Works with Nest strategy). And yet, this product isn’t branded Nest, nor does it apparently sit under Tony Fadell’s hardware group, which also includes Google Glass. In fact, Mark Bergen of Recode and Amir Efrati of the Information have both suggested that this product actually came out of the Google Fiber team. I’ve written previously about how disconnected from the rest of Google the Fiber project has seemed, and it’s ironic to now see Google proper appropriate this technology just as Fiber is being hived off into a separate Alphabet company. The good thing about Google is that people throughout the organization feel free to experiment with various things, some of which eventually become products. The bad thing is that this means you could have several separate teams working on similar things in isolation, and in some cases you end up with several products apparently chasing the same use case (e.g. the Nexus Q, Chromecast, and Google TV/Android TV).

The naming of the OnHub router, the subdomain on.Google.com, the naming of the companion app (Google On), and so on all suggest that this is the beginning of a broader strategy (and we already know that there will be another router made in partnership with Asus). But this is yet another effort within Google to tie together the different devices in the home. Why isn’t it owned by Nest? How will it relate to Android TV and Chromecast, Google’s other living-room projects? So many questions, and so few answers…

The theory and the reality

One other thing Google has touted as part of its positioning for the OnHub is this idea that it is pretty enough to sit in the living room. This, too, feels like a very Googley statement – I’m not sure how many people with real design sense would actually want even a relatively good-looking router in their living rooms. But it’s also a bit of a non-starter as a practical matter – the router doesn’t stand alone – it needs both a power cable and an ethernet cable to function, and you’ll seldom find both of those in the middle of a living room. You’ll at least have power outlets in the wall, but your cable modem is likely to be in a closet somewhere rather than in your living room. And with only one jack in the back of the device, you’re going to need a switch somewhere else anyway for the rest of your hardwired devices, another example of the mismatch between functionality and pricing.

I could go on with all this, but you get the idea. Though an interesting product, the OnHub feels like it falls short on the theory alone, let alone the reality (where several of the reviews suggested it falls down too, even on the most touted features). But it also feels like it’s emblematic of several of the key challenges Google has – too many experiments and projects that are poorly coordinated, poorly thought-through, and ultimately poorly executed. I’m not convinced that the Alphabet structure will help with any of this, and in fact it’s quite likely that it will make the fragmentation problem worse rather than better.

Amazon, Hardware, pricing

Amazon’s changing hardware pricing strategy

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I’ve referred to this in passing in several different posts, but I wanted to really devote some time to both researching and writing up a particular trend: Amazon’s changing approach to hardware, and especially the pricing of its hardware.

Kindle: Amazon’s successful hardware product

The Kindle e-reader was Amazon’s first hardware product, and is arguably its only truly successful hardware product too. It has three key characteristics that make it successful:

  • It offers exclusive functionality: it’s the only dedicated e-reader that is designed from the ground up to work with Amazon’s Kindle ebooks.
  • It’s tied exclusively to content sold through Amazon: Kindles are designed for one thing, and one thing only: reading books purchased from the Kindle store. Yes, it’s technically possible to read some free content and content from other sources, but for all intents and purposes Kindles are storefronts for Kindle books and aren’t really useful unless its users are buying those books.
  • It’s competitively priced: although Amazon’s first Kindles cost several hundred dollars, prices quickly dropped, especially as Amazon began selling the devices at, near, or even below cost.

When Amazon debuted the Kindle Fire category, it took in some ways a similar approach, pricing the devices very competitively, at well below what comparable tablets were going for, and the devices were heavily focused on content purchased through Amazon. The exclusive element wasn’t so much in the functionality, however, as in getting that functionality for the price Amazon was charging. But since then, the strategy has diverged further and further from the original strategy that made the Kindle so successful, and Amazon’s other recent devices – the Fire Phone and Fire TV – have arguably continued the pattern.

We never did see those free Kindles promised in 2011

It’s worth looking at the history of pricing for the Kindle and Kindle Fire lines to see how Amazon has handled pricing since the early versions. The chart below shows baseline pricing (WiFi only, no ads) for Kindles since their inception:

Kindle prices over timeIt’s no wonder that there was a slew of articles in late 2011 asking when Kindles would be free, or predicting that they certainly would be shortly (see here, here and here). That was partly just extrapolation from the obvious trend line, but it also seemed to fit with Amazon’s razors-and-razor-blades model for the Kindle. However, what happened in 2012 and beyond was not at all what so many predicted. The baseline price of the Kindle stopped falling in 2012, and the next edition (launched in 2014) actually cost more. The price discount offered on the version with ads masks this a little bit, but the reality is that Kindle prices aren’t falling at all, and in fact they’re rising. If you layer in the other Kindle versions, the baseline price for the more expensive version has actually risen again as well, with the launch of the Kindle Voyage.

Kindle Fires have also been getting more expensive

Now, look at the equivalent chart for the Kindle Fire:

Kindle Fire prices over timeThe trend here is harder to spot, because Amazon hasn’t stuck with a single model throughout the history, rather introducing a series of new models over time. But you can see two distinct trends: individual models have come down in price over time (in the case of the original Fire and the HD 7), while new versions are being introduced at higher prices, actually raising the upper price over time. Amazon has lowered the entry-level price (and you very much get what you pay for at that level) but it’s also moving up the stack into the premium space. The highest base-level price has moved from $200 to $300 to just under $400 over this time.

Let’s go back to the original Kindle model for a second and see how the new line of Kindle Fires stacks up:

  • Exclusive functionality – a key problem for the Kindle Fire line all along has been that they offered no exclusive functionality, only exclusive access to widely-available functionality at a low price
  • Exclusive ties to Amazon content – one of the key problems for the Kindle Fire line is that they could be used for plenty of things that didn’t require another purchase from Amazon. As such, the razor blades and razors model fundamentally didn’t work
  • Competitive pricing – as a result of both of these, Amazon hasn’t been able to keep the prices low, and instead has had to raise prices over time for the most capable tablets in order to truly cover costs.

That last point is the key here: Amazon can’t sell other products on the same basis as it originally sold Kindles because those other products don’t have the same positive effect on other sales as Kindles do. Even Kindles can only be discounted so far before they become loss-making, presumably, even taking into account e-book sales. As a result, both the Kindle itself and Amazon’s other products have been priced increasingly like competing products, at modest to decent gross margins, rather than being sold at cost, because there simply is no significant indirect revenue opportunity from selling these devices. As such, these devices have to be revenue and margin generators in their own right, rather than driving content revenue for Amazon (especially since Amazon has turned video consumption into a Prime perk, rather than a revenue source of its own).

For all these reasons, neither the Fire Phone nor the Fire TV could be priced the way the early Kindles were, because they have to cover their own costs when it comes to revenues. But because many people haven’t understood this shift that’s happened in Amazon’s hardware pricing strategy, they’ve been surprised by the pricing of both devices, which was higher than many expected. Interestingly, the Fire TV stick is the one exception to all this, as the equivalent of those cheap Fire tablets, with more limited functionality at rock-bottom prices. As a result, it’s also sold very well (it’s Amazon’s top-selling electronics device as I write this).

But the implication of all this is that Amazon has lost the two things that made its hardware so compelling in earlier versions, and it’s also lost much of the benefit of selling the devices from the perspective of its other businesses. As such, it should at this point scale back its hardware activities (which are apparently troubled in other ways) and focus on those hardware products which exhibit the same characteristics as its earlier, successful products. That means dramatically paring back its hardware activities, which I’m not convinced the company is ready to do yet. But it’s essential.

Postscript: compare all this to the iPad

It’s interesting to compare all this to the iPad, and what’s happened to its price over the last few years. This is a slightly different chart, in that it shows both the highest and lowest price as well as the average selling price, but it’s comparable:

iPad prices over timeWhat you can see is that Apple has slowly lowered the lowest price of the iPad, partly by keeping older models on sale, and partly by introducing the iPad Mini, such that the entry-level price is now half what it was in 2010, when the device first launched. Notably, though, in contrast to Amazon, it hasn’t done this by creating ever cheaper, crappier tablets, but by keeping very good older tablets in market. It’s also kept the high end of the spectrum remarkably constant, with only a brief blip in 2013 when it introduced a new storage tier. Meanwhile, the average selling price fell for a while and has now stabilized somewhat.

Apple has pursued in some ways the opposite strategy to Amazon, as it often does. It comes in at a relatively high price, giving it the healthy margins it expects while also leaving room for future price discounts. What was so amazing with the iPad, of course, was that it cost far less than people expected even in its original version.