Why You Shouldn't Underestimate Google's Impractical Marvel
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A couple of weeks ago Google (NASDAQ: GOOG) launched its new Pixel Chromebook, a laptop that most industry analysts interpreted as an attempt to compete against the powerful Macbooks from Apple (NASDAQ: AAPL) and high-quality Windows laptops. However, this new “impractical marvel” from Google may have more ambitious long-term aspirations.
Pixel vs Macbook
The Pixel hits Apple where it hurts by delivering the highest pixel density in the market: it has a resolution of 2,560 by 1,700 pixels at 239 pixels per inch (ppi). By comparison, the 13-inch Macbook Pro with Retina display has a resolution of 2,560 by 1,600 pixels at 227 ppi. In addition to remarkable hardware specs and a beautiful design, the new Chromebook from Google includes a touchscreen surface that has been widely acclaimed by reviewers.
What Google has done with this product is quite impressive, and it measures up to Apple's laptops on several aspects. But with a price range of $1,299/$1,449 versus $1499/$1699 for 13-inch Macbook with Retina Display and $1,199/$1,399 for a 13-inch Macbook Air, the Pixel looks just too expensive to be commercially successful.
This is a very particular kind of laptop. The operating system is radically different from other alternatives like Windows or Mac OS, mostly because the only tool in the device is a web browser. The Chromebook is designed so that users to do all their work and store all their files in the cloud, and this means that some kinds software like Office or Photoshop cannot be used on a Chromebook, so users have to rely on web-based alternatives like Google Docs and Pixlr Expres. For many tasks like editing video, for example, the Pixel is at a big disadvantage versus Macbooks and Windows laptops.
This drawback is probably too serious for a computer in this price range. Like CNET said: Despite impressive hardware specs and solid industrial design, the Chromebook Pixel’s high price and cloud OS limitations make it impossible to recommend for the vast majority of users.
Engadget was quite eloquent in its review, calling the Pixel: another impractical marvel from Google.
The Opportunity in Chromebooks
Low-priced Chromebooks are trying to fill the gap between tablets and full-priced laptops, displacing in many ways the agonizing netbook category. And some Chromebooks are doing remarkably well; the Samsung Chromebook Series 3 is the best selling laptop on Amazon.com at the time of this writing, probably because of its ultracompetitive price tag of $249.
So why did Google decide to build such an expensive product when successful Chromebooks are precisely the cheaper ones? Does the company believe it can compete in the high end of the market in spite of its shortcomings? Not likely. I think Google understands quite well that it's not going to sell a lot Pixels, but that's not the point.
The Pixel is a halo product designed to prove that high-quality laptops working with Chrome OS can provide an enjoyable experience. It's probably intended as a marketing tool and as a guide for other hardware manufacturers, not so much as a profitable business line by itself. And it makes sense, because the opportunity in Chromebooks could be huge for Google over the coming years.
At this point, Chromebooks can't deliver the same functionality that Macbooks or windows laptops provide. But as cloud computing continues to get more powerful and more people gain access to a permanent and reliable internet connection, this could easily change. More importantly, the economics of the Chromebook can be very fortunate for Google.
The company doesn´t need to make a profit on device sales: Google sees the future of computing where everything is in the cloud: all your files and programs become available everywhere and in every device, no matter if it's a phone, tablet or laptop. The main point here is to own the cloud: Google wants to make sure everyone is using Google Drive storage, Google Docs, Gmail and Google Maps among others, and Chromebooks are just a means to that end.
Google vs. Microsoft
If this strategy is successful, the first victims will be low-end Windows laptops. These products are mostly bought by price-sensitive consumers who don't need a lot of computing power, and that's precisely where a Chromebook can become a convenient choice. More importantly, Chromebooks are already very cheap, and they will continue getting more affordable over time, especially in comparison to Windows machines.
There is no licensing cost to pay, so the biggest cost in a Chromebook is hardware, which tends to get cheaper over time. Besides, since they run on the web, Chromebooks don't need as advanced hardware as its rivals. Even if they try to lower their hardware costs as much as possible, Windows partners will run up against a floor price provided by the licensing cost for Microsoft's (NASDAQ: MSFT) operating system.
Microsoft could be in a vulnerable position if its hardware partners start giving more weight to Chromebooks as a lower cost alternative to Windows laptops. In a context in which tablets are seriously cannibalizing PCs, the last thing that Microsoft needs is more competition in the low end of the market in the form of aggressively cheap Chromebooks. Unfortunately for the company; this may easily be the case in the middle term.
Considering its price point, the Pixel is hardly a convenient alternative versus alternatives like Macbooks or high-end Windows laptops, so I wouldn't expect sales of this product to be economically relevant to Google anytime soon. But the company won't be too surprised by that -- the Pixel is a halo product designed to promote the Chromebook category as a whole.
And it's not even that Google is planning to make much money on lower-cost, more competitive Chromebook models either. Chromebooks are a medium for Google to bring users to its cloud, were the future of computing lies.
Andrés Cardenal owns shares of Apple and Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!