Google's Pixel 3a smartphone is less expensive but not a game changer

On Tuesday at Google's annual developer's conference, I/O, the company announced its new, cheaper Pixel lineup — the Pixel 3a and 3a XL — to much fanfare. The bullish feelings surrounding the Pixel franchise were a stark difference from the prior week when Google's CEO Sundar Pichai admitted to sluggish sales of its flagship Pixel 3.The lower costs, powerful feature set, and wider distribution might give the Pixel 3a a chance to capture a meaningful part of the smartphone market. Yet, Google's delicate relationship with other device makers and relatively small worldwide market share today make it unlikely that the Pixel 3a will help Google oust its top competitors. Visit Business Insider's homepage for more stories.Driving on Interstate 101 from San Francisco to Silicon Valley, freshly updated billboards line the highway comparing Google's new Pixel 3a with Apple's iPhone X. The biggest difference being touted on the billboards is the price: $399 for the Pixel 3a versus $999 for the iPhone X. And under the prices, smaller text offers a more subtle point: “One has Google,” the billboard reads. “The other is Google.” The billboards were part of a series of jabs at Apple that Google made during its annual developer's conference last week. During Tuesday's keynote, Google proudly showed off a side-by-side comparison of a photo taken in a dark setting supposedly using an iPhone X and a Pixel 3a. With its Night Sight feature — which essentially lets the camera see in the dark — the Pixel's photo was the clear winner.The amphitheater, filled with Google fanatics, erupted in cheer. The bullish feelings surrounding the Pixel franchise were a stark difference from the prior week when Google's CEO Sundar Pichai admitted to sluggish sales of its flagship Pixel 3. During Google's quarterly earnings call, Pichai blamed industry-wide “headwinds” facing the high-end smartphone market — likely referencing the consumer trend of lengthening upgrade cycles. That “headwind,” in part, caused Apple's iPhones sales to decline by 20% last quarter compared to the same period the year prior. But with the launch of a phone that's half the cost of its predecessor (the Pixel 3 is now priced at $799), Google is feeling particularly frisky. “The Pixel 3a will get more notice from consumers,” Frank Gillett, a Principal Analyst at Forrester, told Business Insider in a recent interview. “And it will be a big step forward for Google in showing original equipment manufacturers [OEMs] and customers what the minimum bar is for a quality Android phone at mid-market prices, as well as for premium smartphones.”With the Pixel 3a, Google has been able to keep many of the beloved features from the Pixel 3 — including its impressive camera and automatic call screening — while keeping costs low with a less powerful processor and cheaper, polycarbonate outer layer. Read more: Here's how Google's new $400 Pixel 3a compares to the more expensive Pixel 3Google's camera strategy has been particularly important. While other companies, like Apple, have doubled-down on building the best camera — which is pricey — Google has instead focused on enhancements it can bring to photos with software and artificial intelligence. The cost of developing software scales better than expensive hardware components, and so over time, Google can offer competitive photo quality at a fraction of the price. That's the idea, at least. A wider 'channel presence' Besides more aggressive messaging against Apple, Google also flexed in front of competitors when it announced a broader distribution strategy for the Pixel 3a. The Pixel 3 was only available at Verizon stores. That lack of “channel presence” with other carriers, Creative Strategies analyst Carolina Milanesi told Business Insider in a recent interview, was the main reason for the product's disappointing sales. On Tuesday, Google announced it would expand its coverage with the Pixel 3a also being available in T-Mobile, Sprint, and US Cellular stores across the country. The latest Pixels can be bought on Google Store as well and used with any US carrier, including AT&T. “It sure looks like [Google is getting more serious about its distribution efforts] not just from a carrier perspective, but also the unlocked options you have, which at a $400 price point, are much more attractive than at double the price,” Milanesi said. Forrester's Gillett agreed. “The broader distribution will help Google reach a bigger set of buyers,” he said. “And the price will help too.” Pixel's precarious positionYet, even as Google seems to be finding itself with the right product at the right time, the company's unique positioning in the marketplace will likely hold it back from being a real threat to hardware giants like Apple or Samsung. That's because, besides its hardware business, Google also owns Android — the operating system for over 80% of phones worldwide. To keep device makers happy, Google has traditionally walked the tight rope when it comes to promoting its own hardware offering. And even with a new, less expensive handset, Google will need to continue to strike that balance. Gillett believes the recent Pixel launch will spark some concern with some OEMs, and ultimately help raise the bar for phones at the $400 price point. “Android device makers will be concerned that Google is competing with them more, which it is,” Gillett said. “But they don't exactly have many options. In the short run, they'll have to up their game on device features and software services.” Milanesi, however, says that most OEMs will likely brush off the move by Google given its relatively small market share today. For Milanesi, the Pixel threat to major incumbents is likely more bark coming out of I/O, than bite. “The Pixel brand has gained the respect of users in both the Android and iOS base,” she said, “We also need to be realistic, though, as far as market share growth at a worldwide level.”