The original Pixel was released in 2016 at the end of interesting, at least when it came to smartphones. Two years earlier Apple had finally knocked down every barrier limiting iPhone growth, releasing the large-screen iPhone 6 worldwide, including on the elusive China Mobile; Samsung, meanwhile, had consolidated the high-end of Android. Over the ensuing decade cameras have grown in both quantity and quality, buttons and bezels have given way to dynamic islands and hidden sensors, and, most annoyingly, Android and Apple have increasingly aped the other’s aggressive App Store policies; the only thing better than a monopoly is a duopoly that reaps the same profits without the regulatory pressure.

Integration and Smartphone Innovation

What was clear is that Apple was not, as so many had predicted in the early 2010s, doomed; it’s hard to imagine now, but the conventional wisdom when I started this site was that Apple’s focus on integration, while essential to creating the modern smartphone, would lead to ever-dwindling marketshare in the face of Android’s modular approach, which, we were assured, would bring to bear more innovation at lower prices, until developers gave up on iOS completely, relegating the iPhone to the status of the mid-1990s Macintosh — i.e. on life support.

This didn’t happen for several reasons.

First off, popular history of Windows and the Mac is totally wrong; yes, the Mac came before Windows, but critically, Windows was not a new operating system: it sat on top of DOS, which both preceded the Mac by years, and was originally sold by IBM, making it the standard for enterprise. The iPhone, on the other hand, absolutely did come out before Android, which is to say it had the head start in users and developers that the Mac never had (it’s also worth pointing out that the iPhone, in contrast to the Mac, has always been the performance leader).

Second, the iPhone is first and foremost a consumer device: this means that the user experience matters, and integration, which smooths over the seams of modularization, delivers a better user experience. This was the foundation of the argument I made for the iPhone’s long-term prospects in 2013’s What Clayton Christensen Got Wrong:

The issue I have with this analysis of vertical integration — and this is exactly what I was taught at business school — is that the only considered costs are financial. But there are other, more difficult to quantify costs. Modularization incurs costs in the design and experience of using products that cannot be overcome, yet cannot be measured. Business buyers — and the analysts who study them — simply ignore them, but consumers don’t. Some consumers inherently know and value quality, look-and-feel, and attention to detail, and are willing to pay a premium that far exceeds the financial costs of being vertically integrated.

What is notable is that the iPhone’s most successful premium competitors have been more integrated than not: while Samsung and Huawei don’t make the Android operating system, they do make a huge number of components of their phones — more than Apple — which helps them keep up in the race for new and novel features.

That there is the third point: new and novel features continue to matter, because the smartphone is the black hole of consumer electronics. Or, to use the term I coined in 2013, the smart phone is Obsoletive:

In 2006, the Nokia 1600 was the top-selling phone in the world, and the BlackBerry Pearl the best-selling smartphone. Both were only a year away from their doom, but that doom was not a cheaper, less-capable product, but in fact the exact opposite: a far more powerful, and fantastically more expensive product called the iPhone.

The problem for Nokia and BlackBerry was that their specialties — calling, messaging, and email — were simply apps: one function on a general-purpose computer. A dedicated device that only did calls, or messages, or email, was simply obsolete.

An even cursory examination of tech history makes it clear that “obsoletion” — where a cheaper, single-purpose product is replaced by a more expensive, general purpose product — is just as common as “disruption” — even more so, in fact. Just a few examples (think about it, and you’ll come up with a bunch more):

• The typewriter and word processor were obsoleted by the PC
• Typesetting was obsoleted by the Mac and desktop publishing
• The newspaper was obsoleted by the Internet
• The CD player was obsoleted by the iPod
• The iPod was obsoleted by the iPhone

Smartphones and app stores have only accelerated this process, obsoleting the point-and-shoot, handheld video games, watches, calculators, maps, and many, many more.

The smartphone was, and remains, the perfect product: it is with you all the time, constantly connected, and increasingly capable and extendable. This both means that the utility-to-dollar-spent ratio is hugely positive, even for phones that cost well into the four-figures, and also continues to accentuate the advantages of integration, which makes these new capabilities possible. Google Senior Vice President of Devices & Services Rick Osterloh told me in an interview that will be posted tomorrow:

In the premium side [of the market], I think the leaders are going to end up being people with deep technical capabilities. It is the frontier space of computing in my view. And, because phones are with you all the time and they’re so heavily used, people want them to do everything. And so, there’s almost a sensational appetite for increasing capability within phones, which keeps pushing the envelope on what computing capability can you add to it to be able to accomplish the next task. And, I mean, I wouldn’t have thought a decade ago that people would ever be interested in taking continuous 4K video on this, and then being able to immediately upload it to a cloud. And, I don’t know, you wouldn’t have envisioned that necessarily.

I think now, phones are on the cusp of being able to, not only do stuff like that, but also become your wallet, become your keys, run advanced AI workloads, do stuff in the background for you. I mean, the amount of capabilities they have today is outrageous, and that’s only going to grow based on what I’m seeing now. Various times I thought maybe this work had plateaued, but that is absolutely not the case. I think they’re going to become more and more computer-like, and because they’re with you, they’ve got this place of importance that is difficult to overestimate.

In short, integration wins, at least in premium smartphones, which goes a long way in explaining why Pixel even exists: yes, Google partners closely with OEMs like Samsung, but if it ever wants to take on the iPhone, the company needs to do it all.

And yet, the Pixel hasn’t amounted to much so far: Google is up to around 5% marketshare in the U.S., but only 1% worldwide. There are various reasons this might be the case, some of which may be under Google’s control; the biggest problem, though, is the end of interesting: smartphones have gotten better over the eight years the Pixel has been in the market, but in rather boring ways; the paradigm shift that let Apple and Samsung take over the premium market happened before the Pixel ever existed. But now comes AI.

Android Primacy

Yesterday Google announced its ninth iteration of Pixel phones, and as you might expect, the focus was on AI. It is also unsurprising that the foundation of Osterloh’s pitch at the beginning of the keynote was about integration. What was notable is that the integration he focused on actually didn’t have anything to do with Pixel at all, but rather Android and Google:

We’re re-imagining the entire OS layer, putting Gemini right at the core of Android, the world’s most popular OS. You can see how we’re innovating with AI at every layer of the tech stack: from the infrastructure and the foundation models, to the OS and devices, and the apps and services you use every day. It’s a complete end-to-end experience that only Google can deliver. And I want to talk about the work we’re going to integrate it all together, with an integrated, helpful AI assistant for everyone. It changes how people interact with their mobile devices, and we’re building it right into Android.

For years, we’ve been pursuing our vision of a mobile AI assistant that you can work with like you work with a real life personal assistant, but we’ve been limited by the bounds of what existing technologies can do. So we’ve completely rebuilt the personal assistant experience around our Gemini models, creating a novel kind of computing help for the Gemini era.

The new Gemini assistant can go beyond understanding your words, to understanding your intent, so you can communicate more naturally. It can synthesize large amounts of information within seconds, and tackle complex tasks. It can draft messages for you, brainstorm with you, and give you ideas on how you can improve your work. With your permission, it can offer unparalleled personalized help, accessing relevant information across your Gmail Inbox, your Google calendar, and more. And it can reason across personal information and Google’s world knowledge, to provide just the right help and insight you need, and its only possible through advances we made in Gemini models over the last six months. It’s the biggest leap forward since we launched Google Assistant. Now we’re going to keep building responsibly, and pushing to make sure Gemini is available to everyone on every phone, and of course this starts with Android.

This may seem obvious, and in many respects it is: Google is a services company, which means it is incentivized to serve the entire world, maximizing the leverage on its costs, and the best way to reach the entire world is via Android. Of course that excludes the iPhone, but the new Gemini assistant isn’t displacing Siri anytime soon!

That, though, gets why the focus on Android is notable: one possible strategy for Google would have been to make its AI assistant efforts exclusive to Pixel, which The Information reported might happen late last year; the rumored name for the Pixel-exclusive-assistant was “Pixie”. I wrote in Google’s True Moonshot:

What, though, if the mission statement were the moonshot all along? What if “I’m Feeling Lucky” were not a whimsical button on a spartan home page, but the default way of interacting with all of the world’s information? What if an AI Assistant were so good, and so natural, that anyone with seamless access to it simply used it all the time, without thought?

That, needless to say, is probably the only thing that truly scares Apple. Yes, Android has its advantages to iOS, but they aren’t particularly meaningful to most people, and even for those that care — like me — they are not large enough to give up on iOS’s overall superior user experience. The only thing that drives meaningful shifts in platform marketshare are paradigm shifts, and while I doubt the v1 version of Pixie would be good enough to drive switching from iPhone users, there is at least a path to where it does exactly that.

Of course Pixel would need to win in the Android space first, and that would mean massively more investment by Google in go-to-market activities in particular, from opening stores to subsidizing carriers to ramping up production capacity. It would not be cheap, which is why it’s no surprise that Google hasn’t truly invested to make Pixel a meaningful player in the smartphone space.

The potential payoff, though, is astronomical: a world with Pixie everywhere means a world where Google makes real money from selling hardware, in addition to services for enterprises and schools, and cloud services that leverage Google’s infrastructure to provide the same capabilities to businesses. Moreover, it’s a world where Google is truly integrated: the company already makes the chips, in both its phones and its data centers, it makes the models, and it does it all with the largest collection of data in the world.

This path does away with the messiness of complicated relationships with OEMs and developers and the like, which I think suits the company: Google, at its core, has always been much more like Apple than Microsoft. It wants to control everything, it just needs to do it legally; that the best manifestation of AI is almost certainly dependent on a fully integrated (and thus fully seamless) experience means that the company can both control everything and, if it pulls this gambit off, serve everyone.

The problem is that the risks are massive: Google would not only be risking search revenue, it would also estrange its OEM partners, all while spending astronomical amounts of money. The attempt to be the one AI Assistant that everyone uses — and pays for — is the polar opposite of the conservative approach the company has taken to the Google Aggregator Paradox. Paying for defaults and buying off competitors is the strategy of a company seeking to protect what it has; spending on a bold assault on the most dominant company in tech is to risk it all.

I’ve referenced this piece a few times over the last year, including when Osterloh, the founding father of Pixel, took over Android as well. I said in an Update at the time:

Google has a very long ways to go to make [Google’s True Moonshot] a reality, or, frankly, to even make it a corporate goal. It will cost a lot of money, risk partnerships, and lower margins. It is, though, a massive opportunity — the maximal application of AI to Google’s business prospects — and it strikes me as a pretty big deal that, at least when it comes to the org chart, the Pixel has been elevated above Android.

In fact, though, my takeaway from yesterday’s event is the opposite: Android still matters most, and the integration Google is truly betting on is with the cloud.

The Pixel Angle

That’s not to say that Google is giving up on integration completely; President of Android Ecosystem Sameer Samat framed Google’s approach this way:

As Rick said earlier, this is where our decades of investment in AI and Google’s full tech stack make Gemini really special. Gemini can handle these kinds of complex personal queries within Google’s own secure cloud, without sending any of your personal data to a third-party AI provider you may not know or trust. And for some of the most sensitive use cases, like summarizing audio from a phone call, or suggesting a helpful reply to an encrypted text message, we’ve pioneered on-device generative AI with Gemini Nano. It’s the first time a large multimodal AI model has been optimized for a mobile device, so the data never leaves your phone. With Gemini deeply integrated with Android, we’re well on our way to rebuilding the OS with AI at the core. The new Gemini assistant brings the benefits of AI to billions around the world, while helping to keep your personal information secure and private. Android is truly leading the way towards AI for everyone.

To the extent Google is betting on Pixel, it’s that the company will deliver on this hybrid approach more effectively than anyone else in the ecosystem, and that’s not nothing: Google has ultimate control of a Pixel device, and can reap all of the benefits of integration I highlighted above.

In the end, though, Google’s real bet is that owning the information stack matters more than owning the tech stack, particularly when you have the most capable cloud infrastructure to act on it. That is, of course, the same Android strategy as always; the bet is that AI does the hard work of making it more attractive to premium customers than it has to date.

Integration, Innovation, and the DOJ

From Bloomberg:

A bid to break up Alphabet Inc.’s Google is one of the options being considered by the Justice Department after a landmark court ruling found that the company monopolized the online search market, according to people with knowledge of the deliberations.

The move would be Washington’s first push to dismantle a company for illegal monopolization since unsuccessful efforts to break up Microsoft Corp. two decades ago. Less severe options include forcing Google to share more data with competitors and measures to prevent it from gaining an unfair advantage in AI products, said the people, who asked not to be identified discussing private conversations.

Regardless, the government will likely seek a ban on the type of exclusive contracts that were at the center of its case against Google. If the Justice Department pushes ahead with a breakup plan, the most likely units for divestment are the Android operating system and Google’s web browser Chrome, said the people. Officials are also looking at trying to force a possible sale of AdWords, the platform the company uses to sell text advertising, one of the people said.

As I noted last week, I think the remedy that actually addresses the issues in this case is that ban on exclusive contracts.

One important takeaway from yesterday’s Google event, though, and the overall discussion of the importance of integration, is that I think forcing a divesture of Android in particular would be a mistake. Yes, you can envision a world where Android spurs competition amongst AI providers by being open to the highest bidder, or the best product; note, though, that is basically what Apple Intelligence is proffering. Apple is handling AI related to your personal data that is held on the device they sell, and they are really the only ones that can do so; “world knowledge” is being handled by OpenAI for now, but the company has been clear that there will be other offerings.

What Google is proposing is something different entirely: you can pick your device, but your AI will be integrated with your data primarily via the cloud; the company can pull that off because they own both Android and the cloud. It’s something different and, to the extent the DOJ is concerned with historial patterns of innovation, they should let Google’s integration be.