The Pixel will get cheaper. Probably a lot cheaper than its competitors.
Yes, $1,300 is a lot, but the Pixel won’t stay that expensive for long. If you study Google’s basic business model, you have to conclude that the Pixel’s price will fall substantially over the next few years—probably to a point far below that of comparable Apple and Windows machines.
Why’s that? Because Google doesn’t need to make a profit on device sales, while its competitors do. Indeed, Apple’s entire business model is based on device profits, so it’s never going to sell the MacBook Air at cost. Plus, to keep selling newer models, Apple has to keep upgrading the Air’s hardware—every year the processor will get faster, the solid-state drive more capacious, the screen better, and on and on. This means that the Air’s price is likely to remain constant for several years.
High-end Windows laptop manufacturers face the same pressure. And even if they lower their prices, Windows PC vendors will run up against a floor price: the licensing cost for Windows.
Chromebooks don’t face that pressure. For one thing, all the stuff that makes the Pixel run—the Chrome OS, Google Drive online storage, Google Docs, Gmail—is, for Google, essentially recycled technology. Google was doing all that stuff anyway, probably at a profit. If you think about it that way, the Pixel’s only real cost is the hardware. Not only will that hardware get cheaper, but the Pixel—because it only runs the Web—doesn’t need as advanced hardware as its PC rivals. In three years’ time, today’s Pixel will still run the Web really well, but Google might be able to sell it for two-thirds or maybe half the price. And it can only go down from there. By 2018, a Pixel-like machine will be the price of an iPad, I imagine. At that price it’d be unbeatable.
Google’s opportunity is huge.
But wait a second. Why would Google go to the trouble of making a high-end machine only to sell it at cost? Oh, silly friend—because there is no surer way to permanently connect a person to the Google universe than to set him up with a Chromebook. To get the most out of the Pixel, you’ll run your entire life through Google—you’ll use Chrome as your primary browser, you get media from Google’s Play store, you run your office stuff through Google Docs, and you’ll do all of your searches through Google.com. “The lifetime value of a Chrome user is phenomenal,” Nikesh Arora, Google’s chief business officer, said on an investor call a couple years ago. Now imagine an entire PC made out of Chrome. That’s better than phenomenal.
But it’s not just that Google could make a lot of money from Chromebooks. The other benefit, for Google, is that if Chromebooks take off, it’ll be a direct hit against Apple and Microsoft. A $500 high-quality Chromebook would compete with Macs and iOS devices as well as Windows tablets, laptops, and hybrids. It won’t be for everyone, but by standing as a cheap, compelling alternative for some customers, the Pixel—or something like it—will necessarily force competitors to lower their prices and, thus, profits.
Yes, a lot of my ideas here are speculation. I might be way off on how quickly the Pixel’s price will fall and how soon consumers will take to cloud-only machines. Despite the uncertainty, though, the Pixel looks like a pretty good gamble for Google. It may not pan out—but if it does, watch out.