1 Mar 2013

The Chromebook Pixel: What's Google's Strategy?

Chromebook Pixel

Analysts have been at a loss to figure out the strategy behind Google's $1300 Chromebook Pixel. While the product comes with a high resolution display, a touchscreen and an Intel processor, the Chrome OS is still quite basic in terms of its functionality, i.e. it's not quite a high-end laptop replacement, even though it's priced like one. Some well-known analysts have suggested that this signals Google's intention to enter the hardware industry. That may not be entirely true.

Google in the Hardware Industry

Analysts have stated that most of the revenue and profits in the technology industry are being captured by companies with integrated hardware/software offerings. While this may be true today, it was also true in the early days of the PC industry. Over time, hardware is commoditized and the market shifts to cheaper modular designs that enable a quicker response to market trends. We have already seen the beginnings of this trend in the mobile industry, with Huawei, ZTE, Lenovo, Micromax, Lava and Karbonn gaining steam in emerging markets like China & India. In this situation, it is software & services companies that capture value - Apple's desire to have their own mapping service serves as a good example of this focus. Therefore, it is quite unlikely that Google has designs on the hardware industry to boost revenue & profits.

Google could certainly attempt to use Motorola's upcoming flagship devices (such as the rumored X Phone) to diversify the high-end Android smartphone market, but not much more than that.

Google's "Market Experiments"

Google follows a distinct pricing pattern when it expects a product to serve the mainstream market. With Google's Nexus tablets and smartphones, the goal was to price products low to ensure wide adoption. Even though those products were manufactured by external OEMs, the marketing & distribution expenses were covered by Google. I expect Motorola's upcoming flagships to follow a similar pricing pattern.

Compare this to Google's pricing strategy with the Chromebook Pixel ($1299+, comparable to the MacBook Air), the now cancelled Nexus Q ($299, three times the price of Apple TV) and the explorer version of Google Glass ($1500, with a consumer release rumored to be below that). When a product isn't yet ready to serve the mainstream market, Google normally keeps prices high to limit the potential market, while gathering valuable consumer feedback from a niche audience. For example, there were many complaints about the Nexus Q's high price tag, but the product was cancelled only after Google received feedback on the product's limited feature set. Based on this pattern, I'd have to conclude that the Chromebook Pixel is just another market research experiment for Google.

But what exactly does Google hope to accomplish with this experiment?

The Potential Android-Chrome OS Convergence

The Chrome OS is basically a browser based operating system. With Chrome on Android, it is clear that both operating systems would converge at some point in the future - something many Google employees have hinted at. The convergence is likely to be gradual through improvements in Chrome for Android. Here are Matias Duarte's comments about the Chromebook Pixel and the potential Android-Chrome OS convergence:

I think that’s a real trend, that touch on laptops and on desktop form-factors is the way that people want to interact with computers. I think every screen should be a touchscreen in the future, regardless if it has a keyboard or not. 
Google is excellent at diversifying, and experimenting. And I think what Chrome OS does well – they’re getting better at, and it’s being reflected in what Android does well in succession – Chrome on Android is the best browser we've ever had, and we would not be at that level without the Chrome team doing the work that they do, without the Chrome OS team learning the things that they do, and learning to understand, for example, how to work on touchscreens. 
Until we have one solution for Google that can really capture everything, it makes sense for us to continue to develop two platforms. Exactly how long that development will take is unclear, but it may take some time before Chrome OS – or a flavor of it – achieves the same market dominance as Android enjoys.

For these two platforms to converge, Google needs to have a good idea of the form factors to be optimized for the OS. That's where the Chromebook Pixel comes in.  Watching Windows 8 is unlikely to be helpful, as the market response is probably related to the OS itself, rather than the supported form factors. So it seems like Google's primary goal with the Chromebook Pixel is to measure the market's response to a touchscreen device with a keyboard, i.e. hybrid form factors.