Morgan Stanley, a research firm, estimates a revenue of $3.8 billion for Google. This revenue will apparently come from the sales of 6-7 million units of Google Pixel phones in 2017. The figure looks minuscule in comparison to iPhones. However, the sales will help Google to close the revenue gap from services/apps generated with iOS. Google has tagged the Pixel phones with a price between $649 and $869.
If you are wondering how good the sales figure for Pixel phones will be, here are some data points to put things in perspective. Pixel phones from Google come under the extra-premium category of smartphones ranging between $600 to $950. A handful of smartphones come under this category. The Flagship S6 and S7 variants from Samsung, and iPhones are tagged as the extra-premium smartphones.
Apple sold 212 million iPhones in FY 2016, ending on 31 September 2016. It generated a revenue of $136.6 billion from the sales of iPhones alone.
Talking about revenues, Google apparently isn’t much bothered about the sales figure and revenue generated from the Pixel phones. With the most suitable hardware, Google wants to push the Android ecosystem to its limits and showcase what the OS is really capable of. This will help Google to win the confidence of smartphone users and will apparently close the gap with iOS on the parameters of performance, features and usability.
Another reason why Google doesn’t bother about the Pixel sales is the profit margins. Each Pixel Phone that Google sells carries a gross margin of 22% – 25%. It is significantly less in comparison to its peers. Apple iPhone 7 trades in the open market with a gross margin of 41%, albeit declined from 57.7% in 2009. Therefore, Google will not see a significant impact on its revenue books until it sells few hundred million units of Pixel phones.
The lower margin of Google Pixel is attributed to the built-in quality of the device. HTC replaced Huawei to build the Pixel phones after Huawei turned down Google’s offer for the same. HTC is always known for the premium quality of its phones. The specifications and BOM (Bill of Material) of Pixel phones, however, was selected and approved by Google. The higher cost of material used in the Google Pixel squeezed the margins, albeit Google didn’t pay heed to it as the company’s prime focus was to introduce ‘the best Android smartphone ever made’.
What is Google up to with Pixel Phones?
Overall, iPhone device users spend almost double the time Android users spend on their smartphones on a daily basis. The love for iOS is not limited only to time; iOS users spend 2.5X more on in-app purchases than Android users. This helps Apple bring in 75% more revenue from apps than Google Android apps. The most interesting fact here is that Apple store has less number of apps and downloads!
Android accounts for nearly 87% of the global mobile operating system market but has failed to close the gap with iOS in terms of revenue from apps and services. People spend 3x more money on shopping apps on iOS than Android.
Analysts at Morgan Stanley believe that Pixel phones can help Google to turn the tides. Tweaked for the optimum performance, Google Pixel phones have got few unique offerings, such as Google Assistant, the Pixel camera, and Daydream (Google’s virtual reality headset which works with Pixel phones). But the innovation and uniqueness of Pixel phones are not just limited to few new apps or feature. It also has:
- Deep integration of apps
- Increase in Android Pay adoption
- Enhanced computing power of Pixel phones
All these clubbed with the perfect combination of latest chipsets can make Pixel phones one of the most wannabe premium Android smartphones ever.
Google is also trying to provide a unified experience of Android through Pixel phones. This will not only help Google to tackle the ongoing fragmentation challenge but will also bring down the development cost of an Android app, which is 30% more expensive than iOS app.
By setting Pixel phones in the premium category, Google is also trying to woo advertisers who have got premium products to sell, offering significantly high commission. The newly introduced features will help Google Pixel phones drive in more search traffic on mobile, which will ultimately result in more advertising dollars for Google, as believed by Morgan Stanly’s analysts.