Failure of Pixel 2 exposed a larger problem: Google's ads don't work

The embarrassing performance of the micro-Pixel

Last fall, Google released two second-generation "Pixel 2" phones, one it created in partnership with HTC and a larger 2 XL it produced with LG. However, across all of 2017— including the critical holiday launch quarter— Google's total annual sales of Pixel phones amounted to just 3.9 million units worldwide, according to research director Francisco Jeronimo of IDC.

That's fewer phones than Apple sells in a week, but nobody expected Google to outsell iPhones. A better comparison would be Microsoft's ill-fated Windows Mobile initiative, which struggled along for years trying to establish a market. However, by 2015 it was clear that Microsoft's phone sales were dead. That year, it sold just over 4 million "Windows Phones" in the fourth quarter, down from just over 10 million phones in Q4 2014.

Across the full year of its collapsing sales of Windows phones in 2015, Microsoft sold just over 26 million Windows Phone devices, or 666% more than Google's total sales of Pixel phones last year. Google's best-ever sales of Pixel branded hardware is far worse than the performance that caused the termination of Microsoft's dead-end efforts in smartphone hardware.

But wait, it's growing not showing

Some of Google's fan blogs attempted spin 3.9 million in annual sales as a cause for optimism. 9to5 Google tried to turn the frown upside-down with a cheery comparison, noting that "the company is quickly picking up ground with its Pixel lineup, with sales in the past year doubling," adding that "it shows great growth for the company's lineup."

It then had to acknowledge that "the 'double' is slightly misleading."

That's because Google Pixel sales in 2016 only included the original launch quarter of the original Pixel and Pixel XL. The "increase" referred to all sales of Pixel phones in 2017, including the original Pixel 1 models that sold across the first three quarters of the year and continued to sell as discounted models when the Pixel 2 models were introduced.

"Regardless of which model these numbers show off the most, this is good news for Google," the site insisted. "3.9 million phones may not be a huge number or portion of the smartphone market, but it's pretty excellent for a new lineup."

That's false. But more importantly: why is Google continuing to invest in Pixel (having acquired HTC's design group) after failing to find significant sales for the new phone— which is currently selling at one-sixth the annual volume that caused Microsoft to give up on its entire phone hardware strategy?

Google isn't happy with Android

Why isn't Google investing in supporting its Android platform in general terms, rather than creating proprietary Pixel hardware and services that are exclusive to a device it sells only under its own brand, and not shared with its manufacturing partners nor its broader licensees? Quite obviously, giving away Android has done very little for Google. Android has been nothing but an expensive failure for Google. If it weren't, Google would still be advertising its Android experience the way it did back in 2010, when it still believed that was a viable strategy

Generic Android is certainly not attracting valuable customers. To reach the demographics that appeal to its real customers (advertisers), Google has to pay Apple billions to remain the search provider for iOS. Expensive Google Pixel phones were supposed to attract the buyers of higher-end Androids (and perhaps some iPhone users), but they did not.

After mocking iPhones for being expensive and having a "dated look" in comparison with the latest bezel-free Androids with curved screens, Google's fans were forced to make excuses for the company's dated-looking Pixel 2 models with the highest prices ever, differentially largely by a portrait camera feature copying the previous year's iPhone 7.

Google was gunning to copy everything about Apple while abandoning everything unique about Android because Android has been nothing but an expensive failure for Google. If it weren't, Google would still be advertising its Android experience the way it did back in 2010, when it still believed that was a viable strategy.

Google can fail in hardware; it can't fail in advertising

Google's inability to make money in hardware isn't perceived as a problem. From Google TV to Google Glass to five years of Nexus phones to its Chrome and Pixel devices, hardware has always remained a money pit for Alphabet. The company dumped billions of dollars to acquire Motorola and Nest, establishing nothing more than two more failures and a series of fire sales. Nobody expects Google to be able to sell hardware.

Advertising is another matter. Google has consistently earned about 90 percent of its revenues from selling the paid placement of advertising. That $95 billion in ad revenue is Google's iPhone, the singular product it relies upon while it attempts to create new markets and products to diversify its business.

However, while Apple's sales of iPhones are growing more profitable at higher prices, Google's sales of advertising is becoming hard to sell and more expensive to offer.

The worst thing for Google right now would be to establish that its advertising simply isn't very effective. Yet that's exactly what the failure of Google Pixel is doing.

Across 2017, a variety of PR firms applauded Google for having the "worlds most valuable brand." Brand Finance was among the chorus, claiming that "the company remains largely unchallenged in its core search business, the mainstay of its advertising income."

David Haigh, the chief executive of Brand Finance, put his own firm's reputation on the line in writing that "Apple has struggled to maintain its technological advantage, with new iterations of the iPhone delivering diminishing returns, while the Chinese market is now crowded with local competitors."

Remember when the Chinese market didn't have local competitors? Such as back in the days of iPods when China didn't have any ability to listen to music at all— or right up into 2009 when Apple's iPhones weren't even officially sold in the country, but somehow the Chinese market still had the world's largest national phone carrier networks? None of Google's advertising had any real effect on consumer behavior. The ads didn't work and Pixel phones did not sell

Using the words "diminishing return," of iPhones is simply asinine, given that Apple has never earned less money, or has ever sold iPhones for more. What's actually diminishing is Google's profit margins on advertising.

And what's worse (for Google) is that no amount of native ads for Pixel phones— placed right on Google's search page, the most valuable property the company has— managed to push any commercially significant slice of potential buyers to go slightly out of their way to acquire one. That's bad.

In addition to its own search page, Google also relentlessly pushed Pixel across its Double Click ad space, forcing the brand into squares and rectangles across blogs and within ad-sponsored apps. It also promoted Pixel relentlessly on YouTube, supposedly reaching the very demographic of buyers who love to open packages. None of Google's advertising had any real effect on consumer behavior. The ads didn't work and Pixel phones did not sell.

Google sycophants worth as little as Google ads

Google wasn't advertising Android. It wasn't extolling the virtues of its open platform, or promoting how great it is to side-load apps or to download and compile your own operating system kernel. The Pixel branding downplays all of these once-touted ideas to deliver as much of an iPhone-like experience as possible: push-button simplicity where you touch the button and a perfect photo is magically generated for you.

For Pixel, Google promoted one of the most popular features of smartphones: the camera. It promoted the idea that one feature— a version of Apple's Portrait mode background blurring— was so great that it didn't matter that Pixel 2 lacked a zoom lens or a faster processor or a higher quality display.

This might have seemed like an effective advertising campaign strategy. Google got every one of its blogging partners to fall in line, from the Verge to Toms Guide. They all announced that the only thing that mattered in a new phone was the presence of a feature Apple had debuted the previous year.

Despite this lockstep marketing from every major Google advertiser, including breathless praise for a feature even when it was clearly not working properly (Dieter Bohn of the Verge insulted his readers with "it looks good" when posting a terrible portrait example), Pixel 2 sold incredibly poorly over the holidays— worse than Windows Phone in its death throes.

Clearly, there wasn't really much value in the phoniness of Google fan-bloggers to call a failure "success" and to excitedly award blue ribbons to a middling, rebranded HTC or LG phone with a spectacularly high price.

It wasn't just Google's own ads, its paid-placement homepage and its partner blogs that failed to sell any commercially significant number of Pixel phones. Google also paid others to advertise its brand. It blanketed conventional advertising spaces including the New York subway and roadside billboards. It put ads on conventional TV, on top of the advertising it forced all over the place on YouTube.

This all cost a lot more money than sales of a scant number of phones returned in revenue. However, the biggest, most expensive thing Google demonstrated was that its Paid Placement, DoubleClick and YouTube ads aren't very effective at targeting potential buyers, and that Google itself isn't very good at framing advertisement messages capable of swaying members of the public to make a sale— even when that product is one Google has worked to create itself, and targeted at the very tech-savvy, ready to spend customer that Google thinks it best knows how to reach.

That's all far worse than just flubbing another phone.