Google unveiled a variety of new products, including Pixel 2 and Pixel 2 XL, during a press event that proved Google really wants to be more like Apple.
For every product Apple makes, Google had a direct rival, although it also unveiled devices that have no equivalent over at Apple like smart speakers. On the software side, Google unveiled new Assistant features, as well as advancements in machine learning and artificial intelligence that seem to eclipse anything Apple is doing right now — though Apple isn’t that forthcoming with its AI and ML efforts just yet.
Now, a new report reveals that fear of Apple and the iPhone is what will force Google to put more effort into its hardware division. And who knows, maybe this year Google will even have enough Pixel units to go around.
Why Google want this?
There’s a $19 billion black box inside Google. That’s the yearly amount Google pays to companies that help generate its advertising sales, from the websites lined with Google-served ads to Apple and others that plant Google’s search box or apps in prominent spots.
Investors are obsessed with this money, called traffic acquisition costs, and they’re particularly worried about the growing slice of those payments going to Apple and Google’s Android allies. That chunk of fees now amounts to 11 percent of revenue for Google’s internet properties. The figure was 7 percent in 2012.
The report says that Google paid Apple and its Android partners $7.2 billion last year, more than three times the figure in 2012. Apple is believed to have taken a huge chunk of that money, anywhere from $3 billion to $4 billion per year, or even more.
That’s how much it costs to have Google Search as the default online search engine on the iPhone and Mac computers.
That’s a fee Google is willing to pay for the time being. But it’s also great motivation to turn the Pixel line into a successful product. By selling an increasing amount of Pixel phones, Chromebooks, and Search-ready Home assistants, Google may get additional revenue to offset some of its advertising costs.
Not to mention that it won’t have to pay anything to be the default search engine on these products. And who knows, in time, Google may command a decent share of the high-end mobile, PC, and home speaker markets.
One of the Pixel’s problems was stock. Google simply couldn’t make enough units to meet demand, which was something the company spoke about during last week’s event. The Pixel 2 is supposed to ship soon, and we’ll soon see how quickly Google can replenish stock. It turns out that Google may be very motivated to replicate Apple’s successful hardware business.
That doesn’t mean Google will keep copying Apple’s product launch strategy in the coming years. But Google may focus more on selling more smartphones and computers of its own than ever before.
In the meantime, Google’s first hardware test is just around the corner: this year’s Christmas shopping season. Let’s see if there will be enough Pixel 2 units to go around.
If Google’s hardware market share goes up, it may need to pay less to partners such as Apple. For now, however, Google sells relatively few phones or other gadgets. That means for the foreseeable future, the majority of people using Google search and other services will come through partners that collect the Google traffic tax.
Google’s rising traffic costs also shows the general profit pinch facing the technology superpowers. Google, Facebook Inc., Microsoft Corp. and other companies are branching into new areas that drag down profit margins.
It’s also possible that Google and Facebook will be forced to apply more oversight to their advertising systems to guard against the types of misuses exposed after the U.S.
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