Google Pixel Strategy: Internal, External & Growth Analysis

Introduction

Google Inc. is one of the major internet companies worldwide. The multinational firm is predominantly involved in providing online advertising and search engine services. Other products and services provided by the firm include cloud computing, enterprise services, mobile payment services, and consumer electronics. The provision of consumer electronics under the Nexus brand represents one of the firm's latest expansions of its product portfolio, largely seen as a move to reduce its reliance on online advertising revenue. With reference to the relevant tools and frameworks, this paper provides a strategic analysis of Google, particularly in relation to its consumer electronics segment. First, an analysis of the internal and external environment is provided. Next, attention is paid to the firm's current strategy diamond. Finally, strategic recommendations based on the analysis are presented.

Internal Environment

The VRINE model provides an ideal framework for examining the firm's internal environment (Carpenter and Sanders, 2009). Google has been in operation since 1998, and in just under two decades established itself as one of the most popular and valuable brands across the globe. Its worldwide popularity means it requires little significant advertising. The firm has experienced rapid growth thanks to effective and competent leadership. One of the major sources of competitive advantage is its commitment to innovation and creativity. With its innovation-oriented culture, Google has been consistently ranked among the most innovative technology companies in the world. The firm's proprietary products have transformed the internet landscape, providing a valuable source of competitive advantage in the highly competitive internet marketplace, alongside heavy research and development (R&D) spending and impressive financial performance.

The firm's commitment to innovation and creativity has been evident in its Nexus product line, which mainly includes smartphones and tablets designed and developed in partnership with original equipment manufacturers (OEMs). The Nexus brand was replaced by Pixel in 2016. Pixel devices come with notably rare features, including the Android operating system (OS), which powers approximately four in every five smartphones in the world (International Data Corporation [IDC], 2016a). Key innovative features supported by the OS include Google Maps, YouTube, Play Store, Google Drive, Gmail, Chrome, and Google Docs. Although the Android OS is common across other smartphone brands, Nexus and Pixel have unique advantages by comparison. For instance, Pixel supports only Google applications, meaning no third-party junk or illegitimate applications. Pixel devices are also typically the first to receive Android updates, giving them a significant advantage. Additional benefits include a simple user interface, developer friendliness, and greater personalisation. From a hardware perspective, Pixel devices boast fast processing speeds, a large display, and an appealing design — all at a relatively affordable price compared to Apple and Samsung smartphones.

Despite these rare capabilities, Pixel devices represent an insignificant share of the global smartphone market. The market remains dominated by Samsung, Apple, Huawei, Sony, HTC, and LG (IDC, 2016b), with Google's Pixel accounting for less than 0.02% of market share as of 2016 (Spence, 2016). Google remains predominantly reliant on online advertising, which accounts for over 90% of its revenue (Alphabet Inc., 2015). This is a major weakness from a revenue diversification perspective. There is still a long way to go before Pixel becomes an established brand in the smartphone market. The challenge of market share is further compounded by the threat of imitation and substitution. In recent decades, numerous smartphone brands have entered the market, largely due to the relative ease of imitating consumer electronics. Although Google maintains a strong patent portfolio, the possibility of competitors imitating their products cannot be overlooked. In a market where attaining significant market share is already an enormous challenge, imitation presents an additional disadvantage for the firm (Barney, 1995).

External Environment

The external environment comprises two elements: the micro environment and the macro environment (Carpenter and Sanders, 2009). The micro environment represents the industry or competitive environment, analysed using Porter's Five Forces model (Porter, 2008). The smartphone market represents a rigorously competitive landscape in which the threat of rivalry is strong. The market is dominated by powerful brands such as Apple, Samsung, Huawei, Xiaomi, LG, Sony, HTC, Lenovo, BlackBerry, and Nokia. These brands have been in the smartphone business for considerably longer than Google, which is a more recent entrant. A major advantage these rivals hold over Google is that smartphones comprise their core business, unlike Google whose core business is the internet. They boast superior engineering capabilities that Google is yet to fully match.

High competitive rivalry often means a weak threat of new entrants (Hill and Jones, 2012). Most of Google's rivals in the smartphone segment — notably Apple and Samsung — have established robust market share and brand loyalty, making it quite difficult for new players to enter successfully. This difficulty is further compounded by the substantial financial, R&D, and supply chain capabilities required to thrive in the industry. A weak threat of new entrants is therefore an advantage for Google. The threat of substitutes in the smartphone industry is also low. Although tablets, laptops, digital cameras, and personal digital assistants (PDAs) may be considered substitutes, they have yet to match the range of functionalities offered by smartphones, making it difficult for them to serve as replacements.

The bargaining power of buyers is strong. With numerous smartphone brands offering similar attributes, buyers have a wide range of options. They can readily switch to alternatives that offer greater satisfaction in terms of operating system, user-friendliness, camera capabilities, size, weight, carrier compatibility, price, and other factors. The bargaining power of suppliers is moderate. On one hand, some smartphone manufacturers supply certain inputs themselves — Google, for instance, owns the Android OS, a major input in the smartphone market, which dilutes the power of software vendors. On the other hand, smartphone manufacturers depend on external suppliers for components such as memory chips, processors, cameras, covers, earphones, chargers, and batteries. While some manufacturers such as Samsung produce their own components, Google depends on third-party suppliers, who may exert significant bargaining power given the breadth of their clientele.

Business operations are affected not only by the industry environment, but also by the broader macro environment, as captured in the PESTEL model (Carpenter and Sanders, 2009). Political and legal factors are particularly important in the smartphone market. Although the markets in which Google currently sells its Pixel brand are generally politically stable, political instability can hinder business operations and lead to loss of revenue. Laws and regulations relating to intellectual property, privacy, telecommunications, and consumer safety may also result in expensive lawsuits, reputational damage, and reduced smartphone usability.

Economic and social factors carry significant implications for the smartphone industry. Unfavourable economic events such as recession can increase operating costs and weaken consumers' purchasing power, slowing smartphone purchases. Conversely, favourable economic conditions such as sustained growth can strengthen purchasing power. Emerging markets are a prime example: with impressive economic growth over the past three decades, they present a significant opportunity for smartphone vendors due to the expansion of the middle class (Dobberstein, Narasimhan and Aggarwal, 2013). Social factors also influence smartphone design, as local preferences must be accommodated — for example, through support for local languages. The increased popularity of social media has further driven demand for smartphones, presenting additional opportunities for Google and other vendors.

Environmental concerns are increasingly important for the consumer electronics industry. It has become essential for firms to focus on eco-friendly materials, recycling, sustainable packaging, carbon emissions, and energy efficiency. Inattention to environmental issues can carry significant reputational and regulatory costs in today's environmentally conscious market.

Technological factors are perhaps the most influential forces in the smartphone industry. The ability to thrive in the market depends heavily on technological capabilities. Smartphones have a short product lifecycle, compelling manufacturers to remain continuously innovative. Firms must regularly introduce devices with more advanced capabilities, such as water resistance, high-definition (HD) display sensitivity, wireless charging, and higher camera resolution. Other technological trends driving the smartphone market include cloud computing, growth of the applications market, and greater and faster internet connectivity across the globe (Dobberstein, Narasimhan and Aggarwal, 2013).

Conclusion

Google recently ventured into the smartphone market in an attempt to diversify its product portfolio. Although the business has yet to become significantly profitable due to intense industry competition, there is genuine cause for optimism. With its valuable resources and capabilities, the firm can grow its smartphone business by pursuing deeper penetration of existing markets while paying greater strategic attention to developing markets. If effectively executed, market penetration and market development can not only improve Google's position in the global smartphone market, but also reduce its heavy dependence on online advertising revenue.