Google Inc (NASDAQ:GOOG) announced the newest in its line of Chromebooks last week – The Pixel. Unlike previously released models, the Pixel is a high-end premium product priced at the upper end of the spectrum, and the first uniquely branded by Google. The departure is the next step for Google as it continues its foray into selling hardware to complement its internet services.
It’s a pattern we’ve seen from numerous software and internet service companies in recent years – creating complementary hardware – and while it may prove successful for some, it points directly to the power of one company’s business model: Apple Inc. (NASDAQ:AAPL).
Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Google have all started making more hardware in recent years. While each has had successes (e.g. Kindle) and failures (e.g. Microsoft’s Kin), none of them quite compare to the astounding run Apple Inc. (NASDAQ:AAPL) has had, particularly in the last decade.
It’s interesting that all of these companies want to make products like Apple Inc. (NASDAQ:AAPL)’s – phones, tablets, notebook computers – but none of them actually make new products the way Apple Inc. (NASDAQ:AAPL) does. It’s more of a copycat culture where Apple creates a new innovative product, and companies pounce on it to try and capture part of the market Apple Inc. (NASDAQ:AAPL) just made. We’ve seen this pattern time and time again, according to venture capitalist Marc Andreeson, who expects it to continue with Apple’s next product innovation.
While consumers and investors complain about Apple’s recent lack of innovation, nobody seems to care about Microsoft’s, or Google’s, or Amazon’s relative inability to do so. These are software and service companies after all; nobody expects new exciting hardware from them. So why, then, do they insist on competing with Apple and other hardware makers?
Follow the money
Horace Dediu of Asymco.com points out that despite Google’s dominance in the non-iPhone smartphone market, Samsung, the largest producer of Android phones, is actually seeing a greater benefit. In fact, with the rise in popularity of Android OS, Samsung has seen its growth in operating income from mobile drastically outperform all of Google’s operations combined.
That’s not to say Google’s strategy has not been successful. Who can argue with a nearly 50% market share in mobile? However, Dediu points out, “Although all companies are growing, the value, as defined by the buyer, resides in the whole product.” This is how Apple has grown in the last decade. They offer the whole product – the hardware, the software, and the service – and they profit at every point.
Look at iTunes – the biggest indicator of the companies growing ecosystem. With over half a billion iTunes accounts, Apple simply creates new hardware to serve that growing market of users, or adapts the software and service to complement its hardware better. This vertical integration’s led to the rising popularity of Apple products as one product purchase leads to the next.
Apple-ization: Offering the whole product
Google’s Pixel is the first real step by the company to profit from its hardware. While previous iterations of the Chromebook have always partnered with a hardware producer and sold at low-to-no-margin prices, the Pixel is different. Priced at $1,299, and produced independently, Google clearly intends to profit from the sale of hardware.
