Google puts AI central in head-on competition with Apple

Wednesday 5 October 2016 | 11:42 CET | Background

Google has launched its new range of hardware, including two smartphones under the Pixel brand. Comparisons with the iPhone and other high-end phones are obvious, but the implications of the new products go beyond that. We summarise first the features of the new devices and then look at two strategic elements for Google: artificial intelligence (AI) and vertical integration (Google as hardware manufacturer).


New range

The new products and services from Google will be available first in a handful of English-speaking countries (US, Canada, UK, Australia, India) and Germany. India is a notable addition, and follows the recent launch by Google of a range of dedicated services for India, such as free Wi-Fi and soon a data centre in the country. The prices for Google's new product are in general competitive, although the Pixel phones are pricier than its previous Nexus range and more in line with other top smartphones.

  • Google Assistant. Using AI, the software interacts with the user. Assistant is standard on the new Pixel phones as well as the Google Home smart speaker. Amazon preceded Google with this, with its Alexa voice assistant and Echo smart speaker. Amazon is also a bit ahead of Google, as it has agreements with third parties to integrate Alexa in their hardware as well for voice controls. This includes Sonos speakers, Lenovo PCs, BMW's smart car platform and Deutsche Telekom's Qivicon smart home platform. Google Assistant is also competing with Apple's Siri and Microsoft's Cortana.
  • Pixel and Pixel XL. The two high-end smartphones will cost from USD 650 to USD 870, depending mainly on the storage capacity. Google cited external research claiming that this is the 'best smartphone ever' (as opposed to Apple's recent 'best iPhone ever'). The claim is mainly driven by the camera quality, as well as the battery (seven hours use after 15-minute charge) and free storage of high-quality photos and video. The other special features are Google Assistant, the Google Duo video calls app and integration with the new Daydream VR headset. Google has chosen operator partners, sometimes exclusive, in the launch countries. These are Verizon in the US; Rogers, Telus and Bell in Canada; EE (BT) in the UK; Telstra in Australia; and Deutsche Telekom in Germany. Google has clearly chosen market leaders where it could; in India, it's working with retailers such as Flipkart, which have become the top sellers of high-end smartphones.
  • Daydream View. This is the new virtual reality headset, which for the moment works only with Pixel phones. Content partnerships are planned, and various Google services will be integrated, such as Play Movies, YouTube, Photos and Streetview. Even content not optimised for VR (360-degree video/photo) will get an extra dimension with the headset, offering a cinema-like experience. The price is low: USD 80.
  • Google Home. The smart speaker with voice controls (Google Assistant) provides information, plays music, can order tickets and controls connected smart home devices, such as lighting. Price: USD 130.
  • Google WiFi. A Wi-Fi router designed to provide optimum coverage around the home by creating a mesh network. This device is also relatively cheap, at USD 130 for one unit and USD 300 for three. 
  • Chromecast Ultra. This stick makes a 'dumb' TV smart, and the latest version supports 4K and HDR. It costs USD 70, twice the price of older generations of Chromecast.

At the same time as the new products appear, Google has removed its older Nexus devices from its online store. It also had nothing to say about the rumoured Andromeda operating system, which was expected to merge Chrome and Android.


Google Assistant, rather than the Pixel phones, is the important element in the announcement. Google is pointing to a major change in the market. In recent years we've been shifting from the desktop to mobile, and Google is now going from mobile-first to AI-first. The innovation is happening where the hardware and software meet: where AI sits. Google's dream is to create for every user his or her own, personalised Google. Google Assistant learns from the user, getting smarter the more it is used.

Vertical integration

The result of all this is a vertically integrated internet company, with Google active across software, AI and hardware. Google's market power in search and Android is also a source of concern for regulators, which have pointed to signs of abuse. These risks are only growing with Google's vertical integration. It's essential that Google create a Chinese wall between Android and its hardware business, if it doesn't want to put off other Android manufacturers, which are now even more its competitors. 

The Android division has to handle all customers the same, whether it's Google or a third party like Samsung or LG. Telecom operators will recognise the problem from their own wholesale markets, an issue that already has the UK regulator considering a structural separation of BT. If Google can create this Chinese wall, it has the opportunity to address come of the competition concerns, while also opening the door to a possible spin-off of its hardware business in the future.

Another consequence of this integration is Google stepping up competition with other integrated players like Apple (iPhone, Apple TV, iTunes), Amazon (Echo, Fire, Fire TV), Facebook (Oculus, WhatsApp, Instagram) and Microsoft (HoloLens, Skype, Office), which all make similar hardware, offered with a range of software and services. They offer the hardware at low prices, as the focus is more on selling services to make money - hardware as loss leader. 

Only the smartphone market shows a different pattern. Amazon and Microsoft have practically exited the market, and Facebook is more focused on networks than phones, but Google is trying to take its piece. By outsourcing only the assembly (to HTC), Google is just as real a hardware manufacturer as Apple. In the internet sector, only Apple and Google are now going up against traditional manufacturers such as Samsung, Sony and LG. Google is offering as a result 24/7 customer support. 

The question is whether the  Pixel will be as big as the iPhone, something the cheaper Nexus phones never achieved. Price will play a subtle role in this. Google can allow the price to fall, as it earns its money with advertising. Apple does not have quite the same luxury, however much it talks about the growing share of services in its business. Google has likely adopted a higher price for the Pixel to start in order to avoid the perception that it's a budget phone; the company first needs to profile the brand as high end. Let Apple be warned. 

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