Pixel and Surface: Comparing Google and Microsoft’s Hardware Game Plans

Google’s recent launch of the high-end Pixel and Pixel XL smartphones marks the company’s first self-branded entrance into the market, after dabbling via partner-branded Nexus products and a short run as the corporate owner of Motorola. Like Microsoft in 2012 and Apple decades before that, the company clearly understands that, to drive the best possible premium customer experience, it must own not just the software and services on the device but the device hardware itself. It’s instructive to compare Google’s plans for Pixel with what Microsoft has done with Surface and how both have modeled elements of their strategy on Apple.

Let’s start with a short history of Microsoft’s Surface. Microsoft launched the first two versions of the Surface, called the Surface and Surface with Windows RT in 2012, at the same time as it rolled out the ill-fated Windows 8 operating system. The product line suffered a rocky start as the company struggled to define its two different products, which resulted in a $990M loss. Undaunted, in late 2013, Microsoft launched the Surface 2 (the last product based upon Window RT) and Surface Pro 2 (Windows 8) and started to sharpen the products’ focus.

The Surface Pro 3 launched in 2014 to better reviews and improving sales. In 2015, Microsoft launched Windows 10, a demonstrably better operating system, which also helped Surface. Later that year, the company launched Surface 3, a lower-priced Windows 10 product, followed by Surface Pro 4 and the new, even pricier Surface Book. Microsoft will hold an event in late October where the company is expected to launch additional Surface-branded products.

Market Maturity
A fundamental difference between Pixel and Surface has to do with the maturity level of the market the device is entering. While Microsoft certainly didn’t invent what we now call the detachable market, it certainly put it on the map. Frustrated with its partners for not moving faster to embrace the form factor, Microsoft launched the first Surface into a market with total shipments in 2012 of 4.6M units. After a slow start, Microsoft moved into the number one spot, largely maintaining that position until Apple arrived with the iPad Pro. In 2015, the detachable market reached 16.6M units. It will double in size in 2016 and we’re forecasting strong growth for the next few years. Detachables is a high-growth area but, from a volume perspective, it’s quite small versus relevant adjacent categories.

Contrast this with the smartphone market, with massive shipment volumes but slowing growth. In 2014, the worldwide market saw growth of 10.4% year over year, with worldwide shipments of 1.4B units. In 2016, growth will slow to 1.6%. Moreover, much of the market’s growth is happening in the low-end of the market, primarily in emerging markets. There is still clearly a market for premium products, including high-end Android but, as a percentage of the market, that high-end space is shrinking and Apple and Samsung have a strong grip on many of these customers.

Channels
Obviously, Samsung’s current Note 7 recall woes present a golden opportunity for the Pixel in the premium space. However, it is unlikely Google is prepared to take advantage of that opportunity because its phone simply isn’t going to be available in all the channels where people traditionally obtain their smartphones. For example, in the United States, the only telco to offer the product is Verizon (although the Pixel will work on other networks). Best Buy will also carry the phone and, of course, you can buy it from Google’s online store. Google must be willing to expand the Pixel’s availability if it hopes to move the needle with this product. The company’s long-standing reluctance to embrace a wider channel strategy must evolve. This was one of the key elements of the Surface’s eventual success. In fact, in 2015 Microsoft went so far as to embrace Dell as a reseller of Surface hardware, bundled in a Dell-owned service contract. Apple has similarly embraced an ever-widening channel approach, especially when it comes to commercial buyers with high-profile deals with IBM, Cisco, and Deloitte.

The Partner Tightrope
One of the reasons Google is likely limiting the initial channels for Pixel is that, like Microsoft, it is walking a tightrope with a long list of hardware partners who use its operating system on their products. By targeting the high end, both companies argue they effectively limited their total available market, which gives them each cover with their partners. And it’s worth noting that, even when Microsoft has offered slightly lower priced (but still high end) Surface products, they haven’t done particularly well. While Microsoft isn’t rushing to put out less expensive products, it has certainly expanded its high-end product line with the Surface Book and I expect it to further expand later this month. I would expect Google to do the same over time. So, while both companies try to placate their partners, those partners should be wary just the same.

Customer Service
One of the key elements Microsoft copied from Apple and that differs for Google, is the vendor store. Apple Stores are not only a place to buy Apple hardware but a place to go if a customer needs some face-to-face help with their device. Microsoft’s rapid expansion of its stores allowed it to offer a similar level of hands-on customer service for Surface. Google doesn’t have physical stores of its own, so it is taking a different approach by offering 24/7 customer service through the phone. In either call or chat form, a human can help with issues and you can even share your screen. It’s worth noting Google isn’t the first to do this, as Amazon has offered this service on its tablets in the past. This is clearly not the same as being able to talk to someone in person but, for many people, this may prove to be a more preferred method.

The Long Game
The debate I’m having with my industry colleagues is about Google’s long game in hardware. Is the company simply trying to urge its partners to bring better devices to market or does it plan to own a chunk of the market? Microsoft argued it was doing the former with Surface but certainly didn’t bow out when partners such as HP, Lenovo, and Dell brought higher quality detachables to market. Whatever Google has planned, there’s no doubt the Android market is better with it in the mix. It will be interesting to see how the company’s products fare and how its partners respond in the coming months.

Published by

Tom Mainelli

Tom Mainelli has covered the technology industry since 1995. He manages IDC's Devices and Displays group, which covers a broad range of hardware categories including PCs, tablets, smartphones, thin clients, displays, and wearables. He works closely with tech companies, industry contacts, and other analysts to provide in-depth insight and analysis on the always-evolving market of endpoint devices and their related services. In addition to overseeing the collection of historical shipment data and the forecasting of shipment trends in cooperation with IDC's Tracker organization, he also heads up numerous primary research initiatives at IDC. Chief among them is the fielding and analysis of IDC's influential, multi-country Consumer and Commercial PC, Tablet, and Smartphone Buyer Surveys. Mainelli is also driving new research at IDC around the technologies of augmented and virtual reality.

23 thoughts on “Pixel and Surface: Comparing Google and Microsoft’s Hardware Game Plans”

  1. Not having seen one yet in person, from what I can tell, and if you discount the camera, the Pixels are sufficiently lame, yet gloriously overpriced. If there’s any justice in the world, they ought to do well, just add censorship. /s

    Meanwhile, the “detachables” as a category is so broad, it may be meaningless. The only commonality between devices, for comparison, would be mobility and screen size. The iPad Pro just does not compare to more fully equipped PCs in that form factor. Not in performance or ecosystem anyway.

  2. I would compare Google hardware approach more to Amazon then to Microsoft – Google does not have retail stores for the showcase. And not loving Pixel name for the phone – what a strange name for a software giant product. Not flattering play on words may arise, such as “bad pixel”. And what is a killer app for the Pixel? VR?

  3. The way I see it, a lot depends on how well the Pixel sells in its first few years. If it sells well, then Google will adopt a more serious approach with regards to customer service, long term commitment, and willingness to screw its partners. If it doesn’t sell well, then Google will backtrack and pretend that they were never serious to begin with, and that it was a showcase-ish product like the Nexus. Recall how the rhetoric about Google+ changed, and expect something similar.

    Therefore the only meaningful discussion at this point is how well the Pixel will sell.

    In this regard, the authors discussion about the maturity of the market is what I think is most relevant. I cannot recall a single instance where a company has penetrated the high-end of a mature market, without a major innovation creating a new opening. For example, the high-end car market has been remarkably stable with maybe only the Lexus as a new entrant in half a century.

    If this is the case, then the success of the Pixel rests solely on whether or not AI will dramatically reshape the smartphone market. If it does, then the Pixel has a chance to penetrate the high-end. If it doesn’t, it will most certainly flop, and Google will inevitably lose interest and treat it like the Nexus products.

    I would add that since Apple is also heavily investing in AI, it is unlikely that the AI itself will be a disruptive force for the high-end smartphone market. The only thing that the Pixel can hope for, is that Google’s intrusion of privacy (which Apple is adverse to) really makes a significant difference in terms of the benefits that AI can provide.

    1. I don’t expect the Pixel to do all that well, not in the sense that it will be a serious competitor for Apple. There seems to be a widespread misunderstanding of why Apple succeeds in the high end segment, as if all that needs to be done is to make something shiny, put a brand name on it, and boom! instant success + death of iPhone and Apple dooooooooooom. Google is at least trying to add some value through integration, but I don’t think it will be enough.

      1. “in the sense that it will be a serious competitor for Apple.”

        That’s not the gameplan unless Google management is suffering from delusions. However, if the Pixel phones prove to be good, they may, in time, be able to unseat Samsung from the throne of the high end Android market.

        1. Agreed, I would hope Google knows the Pixel isn’t really competing against Apple. Probably it is mostly pundits and commenters pushing the ‘watch out Apple, here comes the Pixel phone’ angle. I’m actually seeing a number of ‘iPhone killer’ headlines re: the Pixel, which is ludicrous clickbait and such a fundamental misunderstanding of why Apple is succeeding.

          1. “Agreed, I would hope Google knows the Pixel isn’t really competing against Apple.”

            If you watched the Google keynote and the amount times they mentioned or took jabs at Apple, you can’t come to any other conclusion other than they’re aiming for iPhone.

          2. Interesting, then maybe it’s back to Glaurung-Quena’s point, “Google management is suffering from delusions.”

            If they actually believe the Pixel is competing against the iPhone, then they do not understand why Apple is succeeding.

          3. “If they actually believe the Pixel is competing against the iPhone, then they do not understand why Apple is succeeding.”

            They also don’t seem to understand why they themselves are succeeding — isn’t a lot of their actual revenue coming from iOS?

          4. Yes, a good sized chunk of Google revenue comes from Apple customers, since Apple dominates the high end of the market. I’m not sure what the percentage is these days, but it is significant.

    2. What’s weird is that Android as a whole is probably more in need of an Entreprise solution, from someone able to guarantee a long shelf life (5+ years, which implies updates), provide support, and maybe strike a few partnerships.

      I’m surprised Google isn’t tackling that, especially since ChromeOS does hint at ambitions in that direction.

      An extra-shiny phone is nice… It doesn’ fill an immense void though. The new AI sauce doesn’t need anything special, it’s already been hacked to run on any 6.0+ phone. The rest of the phone is premium but not unique.

      Edit: 6.0 not 7.0

      1. I agree that the Enterprise is a better target for premium Android.

        As I mentioned in my comment, it is very difficult to penetrate the high-end of a mature market. On the other hand, Apple is seeing significant revenue growth in the enterprise, which signals that this segment is not yet mature. Therefore newcomers have a good chance of gaining a significant foothold.

        As for why Google is not targeting this area. Well it’s not very sexy so even if they were, I don’t think we would be hearing much about it. It is possible that they are working on it but not talking.

    3. You’re definitely right in that Apple is heavily investing in AI but there is a lot of skepticism regarding the quality of Apple’s services (especially Siri) and whether they can succeed in a supposed cloud-first, AI-first world due to their shaky track record in this area.

      1. Let’s just say that I’m actually skeptical that Google can succeed in a cloud-first, AI-first world. There is a significant probability that Google will end up being similar to Microsoft in the mobile age, and Yahoo in the search age. The pioneers do not end always end up being the winners in the next decade.

        It’s much to early to declare winners and losers, and we should keep in mind that tomorrows winners are often non-existent today. Apple may lose and Google may lose. I can’t say which is more likely, because I have no idea of what an AI-first world would really look like.

  4. Historically, Google has been filling voids in the Android lineup: cheap, then midrange… I think the only remaining void is: first-party + luxury. Recently, looking for a counter to the iPhone was “if you want the best specs+looks, get a Galaxy S/Note, if you want the best software+software support, get a Nexus”. That convoluted and compromised answer just got simplified.

    I’m not sure what Google’s mid/long term plans are, I’m not even sure they have those. That’s a big issue because support, distribution, maybe a first-party retail/service network, require long-term effort. I’m wondering if Google haven’t just seen a low-hanging fruit, some people really seem to be easily parted from their money for a name and something shiny.

    Apart from the first-party issues (branding, support, distribution), Android mostly has a support issue. Doing the hardware is a roundabout way to kinda solve it: Windows has no issue supporting updates on even more diverse hardware. It’s a software, not a hardware issue.

    MS issue was rather more straightforward: make premium hardware and prove it’s profitable. They’ve kind of succeeded.

    As for switching segments to/from Consumer/Entreprise, MS has emphatically failed, and if that’s what Google is attempting with Pixel… we’ll need a roadmap ?

  5. Google phones can never come close to competing with Apple or Samsung without huge investments in retail and customer support. We can get a preview of their plans here by watching their investments in these areas and seeing whether they build the huge organizations needed. Build it and they will come rarely works.

    1. I question your logic. Did Apple have huge investments in retail and customer support in 2007? Are you sure that huge investments in these organisations are a pre-requisite for success, and what is the basis for your confidence? Note that in 2006, the number of Apple Stores was about 1/3 of today, with only about 160. In contrast, BestBuy has 1,400 stores in the US alone. As a point of reference, Burberry has about 300 it seems. Samsung has about 1,400 mini-stores inside BestBuy stores, but only did this in 2013, AFTER they found huge success.

      I fail to see why one should consider investment in retail as a leading indicator for success.

      https://www.statista.com/statistics/273480/number-of-apple-stores-worldwide-since-2005/

      1. Both Apple and Samsung had tremendous infrastructure and experience in retail and customer _support_ pre-iPhone, not even counting their own independent retail stores. Google has no such experience, or at the very least not to the same level when either Apple or Samsung started selling smartphones.

        Joe

        1. Having a certain level of experience in retail/customer support and building huge organisations for these are not the same thing.

          The original comment suggested that you needed huge ones.

          1. Sure, but comparing what Google is facing today with what Apple and Samsung faced when they started in smartphones is not the same thing, either. And, again, they both started with huge retail infrastructures in place because that is how they make money—selling products to customers through retail. Google isn’t even starting at that point.

            Although I would grant that Google is large enough (in organizational size and economy) that they can scale faster than either company could have done when they started out.

            Joe

          2. “but comparing what Google is facing today with what Apple and Samsung faced when they started in smartphones is not the same thing, either.”

            Exactly my point.

            I would say that given Google’s huge financial resources, they could easily launch huge and powerful marketing campaigns and even quickly ramp up their own retail stores.

            However, because the market for smartphones is mature, the ROI for this investment will be much much less than it was for Apple and Samsung. In fact, I would predict that despite all the money they might put in, they would not even be able to take down Samsung. Mature high-end markets are that tough.

            So in regards to the other comments to this article, my position is that the willingness of Google to invest in brand and retail is not what is important. What is important is the maturity of the market. If the market remains mature, no amount of humongous investment will help Google. Google’s hope rest on a) the market being disrupted, b) Samsung/Apple messing up completely.

            Importantly however, this is only true for the premium top-end. For lower tiers, the market is more volatile.

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