The CEO of Google says 'headwinds' are hurting its Pixel smartphone business, but experts say that Google owns much of the blame (GOOG, GOOGL)


Sundar Pichai

  • Google said that sales of its Pixel smartphone declined in the first three months of the year. 
  • Google’s CEO Sundar Pichai cited “headwinds” facing the high-end smartphone industry, echoing the bumpy smartphone sales that Apple and Samsung have recently suffered.
  • But according to industry experts, Google owns much of the blame based on its pricing and go-to-market strategy. 
  • Google has purposefully kept its smartphone business in low gear, say analysts. But that strategy could be due for a big shake up as Google prepares to introduce an affordable version of the Pixel. 
  • Visit Business Insider’s homepage for more stories.

During Google’s first quarter earnings call on Monday, CEO Sundar Pichai broke the news to investors that sales of its Pixel smartphone had declined. 

The reason? Pichai skirted around specifics and instead blamed general “headwinds” facing the high-end smartphone industry. 

“Phones definitely across an industry, I think we are working through a phase where there is definite year-on-year headwinds,” Pichai said. 

Read more: Google CEO Sundar Pichai blames a drop in sales of its Pixel smartphone on ‘headwinds’ that are putting pressure on every expensive phone

Google’s chief exec isn’t wrong in calling out the downward trends facing the industry. 

Apple has been rocked by declining iPhone sales as of late — so much so that the hardware giant has recently been making attempts to double-down on the “services” side of its business instead. Apple’s iPhone sales beat analysts expectations in its earnings call on Tuesday, but were still down over 20% from the same period a year prior. 

Samsung — the world’s largest smartphone manufacturer — reported on Tuesday that operating profits from its mobile phones were down 40% year-over-year. 

Frank Gillett, a Principal Analyst at Forrester, told Business Insider in a recent interview that the difficult market in which Google finds itself is a real threat to its smartphone business. 

“Ownership cycles are lengthening,” Gillett said. “There’s much less compelling reasons now to upgrade phones, so people are pushing out to three or four year cycles on these high-end phones because they’re so good.” 

Carolina Milanesi, a Principal Analyst at Creative Strategies, told Business Insider that she agreed Google’s sluggish smartphone sales can be attributed to the current landscape. 

“I wouldn’t say the high-end of the market is shrinking, but replacement cycles are lengthening which must have impacted Pixel 3,” Milanesi said. 

Still, both believe there’s more to Pixel’s declining sales than Pichai’s blaming of the industry. 

“Google is in a tricky place”

The Pixel phone didn’t have an advantage when it came to pricing, Gillett said. At $799 when it first launched, the Pixel 3 was slightly higher in price than the comparable Apple phone — the iPhone XR — which retailed at $749. 

The Pixel’s capabilities, especially in regards to its camera, have also been difficult to market, according to Gillett. 

The Pixel’s main selling point has been the crisp photos it’s able to capture, but the Google-made smartphone only has one rear-facing lens — compared to two cameras on many of the new iPhones and three on the Samsung S10+. Although, much of the Pixel’s photo-making magic lies in its software, Gillett says, being able to communicate those capabilities to customers has been difficult. 

“If someone is convinced that more cameras are better, they’re going to discount Google,” Gillett said. “At a certain point, there’s only so much software can do compared to optics.” 

Samsung S10 Smartphone

And then there’s the delicate situation that Google finds itself in with other device makers. 

Google relies on hardware makers — like Samsung, Nokia, and LG — to spread its Android software on their devices. By selling its own line of smartphones, Google is effectively competing against its own partners. 

Milanesi told Business Insider that the main reason Pixel sales have declined is a lack of “channel presence” — that is, consumers are not able to buy the Pixel phone in enough places around the world. Forrester’s Gillett pointed to Google’s lackluster marketing efforts promoting the Pixel to mainstream consumers. This modest distribution and marketing may not be an accident. 

“Google is in a tricky place because they don’t want to go too hard on pushing their product line, otherwise they’re going to annoy Samsung and everyone else who uses Android,” Gillett said.

For that reason, he says, evaluating whether the Google Pixel is a success requires different criteria.

“We have to think of [Google] differently than say, ‘Can they ever replace Samsung or Apple?’ If they’re smart, they’re not trying to.”

Reading the tea leaves of the “affordable” Pixel

Despite the tightrope Google must walk to keep its partners happy, the tech giant is rumored to have plans of expanding its smartphone lineup this month with the introduction of more affordable devices — the Pixel 3a and 3a XL.

The lower price tag for the new Pixels — reportedly as low as $400 — will make the phones far more accessible to the average consumer. How Google handles the launch — and eventual distribution — of its new smartphones could be an indicator of how the company will treat its hardware business moving forward. 

A modest launch would show that Google is comfortable with slow sales, and considers the Pixel’s primary purpose as setting a high standard for other hardware makers to emulate — ultimately lifting the quality of smartphones running its Android software. 

An all-out marketing blitz could signal that Google has more serious expectations for its smartphone business, whatever the consequences.

SEE ALSO: Experts say that Google may be slowing down on developing its own laptops because they’ve ‘done what it needed to do’

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