Google unveiled the latest versions of its flagship smartphone, the Pixel and the Pixel 2 XL, promising that both phones have everything its rivals have -- and more.
In terms of specs, the Alphabet (GOOGL) - Get Alphabet Inc. Class A Report unit's new phones try hard to match up to Apple Inc.'s (AAPL) - Get Apple Inc. Report iPhone and Samsung's (SSNLF) Galaxy S8. Both Pixel phones pack high-quality cameras, organic LED screens, no headphone jack and an Active Edge that activates the voice-activated Google Assistant when you squeeze it. Compared to the iPhone, which has dual cameras, the phones only have a single lens, but Google says its cameras are so good that it doesn't need two. Also missing is wireless charging and only the high-end Pixel phone has a bezel-less screen.
Even with all of the Pixel 2's fancy new features, Google still faces a cutthroat smartphone market that has little room for players beyond the Apple-Samsung duopoly. Google took its first crack at the phone last year when it released the inaugural Pixel to little fanfare. Critics agreed that the Pixel and Pixel XL were solid phones, but that didn't translate to big sales. Google doesn't break out Pixel sales, but analysts estimate that it sold between four to five million units. By comparison, Apple sold roughly 25 million iPhones, blazing ahead of Google.
But Google may not be worried about the Pixel 2 being a breakthrough seller. So far, the Pixel phones have become a device for niche consumers, particularly first adopters and Android superfans, said Creative Strategies analyst Ben Bajarin. Google is less focused on the mass market and more about the "long game" of differentiating itself through killer software and services, he added.
"They can only rely so much on design and hardware to differentiate themselves," Bajarin explained. "Instead, they've been really trying to emphasize the intelligence of the device, which is not something people think when they think about their phone. That's where Google has a unique advantage."
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If Wednesday's event didn't make it clear, Google is going all in on artificial intelligence and its Pixel phones are certainly an extension of that strategy. Google Assistant is enabled in almost every device -- from the Pixel phones to the wireless Pixel Buds -- and Google is so confident about its machine learning technology that it ditched a dual-lens camera for a single, AI-powered one. In short, Google is fully leaning into AI and it's hoping that in about three to four years, consumers will care less about how their phone looks and more about what their phone can do for them.
Google is trying to package things such as Google Search and Google Translate less as software, and more like services that can make consumers' lives easier, while also being exclusive to Pixel phones. The strategy also predicts that eventually, consumers will want services that used to only exist in the cloud on their phones.
"They're trying to set an agenda for where tech is going and the roles that they think they can play," said Bob O'Donnell, president of TECHnalysis Research. "The idea is that AI won't just be in the cloud, but AI will also be in devices. It's a longer term, big picture trend."
For now, it's unlikely that that strategy will help Google sell a lot of smartphones, however. Bajarin believes the Pixel 2 will sell better than the original Pixel, which "didn't do well at all," but unit sales are likely to be far less than 10 million.
"Google can position it all they want as a smarter phone, that's just not what's driving the decisions in the market today," Bajarin said. "It's a much longer game for Google than I think people realize. They're trying to make some bets about where the market might be and build on an annual basis."