^, sure, I get that but it's launched at a higher price than the S7 and S7 Edge which are better (subjective but I think they're better phones). And Samsung will release upgraded versions of the S-phones in a few months which will leave the Pixel in an even odder position.
More to the point, why did Google want to launch a premium Android handset at all? I'd be interested to see the reasoning behind that...are they trying to get Apple users to come over (as in they, Google, believe other OEM's haven't been doing a good job of putting together premium Android handsets)? Cannibalising sales from existing OEM's doesn't seem to make any kind of sense but that's what I think this device is going to do (if it does anything).
I think they're going to find the same thing the other OEM's have discovered...Apple people like Apple stuff. It's just how it is.
Are they cheaper? According to
this they're priced the same.
And how are they better, in your estimation? The camera was the only thing that made the Nexus phones lag behind, imo, and they've changed that. Maybe they suspect there's quite an appetite for skin-less Android phones that they can capture. I'm certainly in that camp.
Regarding overall strategy and motivations, here's some views on that:
http://www.theverge.com/a/google-pixel-phone-new-hardware-interview-2016
http://www.theverge.com/2016/10/4/13160442/google-phone-hardware-event-pixel-2016
Whether it'll work, who knows. But I suppose they felt they were stuck in limbo a bit and had to choose a road to go down. They've been heading towards a more hardware oriented strategy for a while (home automation, wifi router, Google Assistant on these devices etc.), so a premium phone slots in nicely.
I'm sure they're aware of Apple's brand loyalty, but they've got the opportunity to do something none of the other Android OEMs could do - build on the synergy between software and hardware and offer it as a complete tech. solution. If they only had a by-the-way phone on offer as part of their overall approach it would weaken that effort, imo.