As time goes by – and it always passes quickly in Silicon Valley – Apple and Google are becoming more alike and increasingly treading on each other’s turf. At the start of 2010, on January 5, Google introduced its smartphone, the Nexus One which runs on the Android operating system. This is a clear competitor to the ubiquitous iPhone. Apple, on the same day, announced the acquisition of Quattro Wireless, an advertising company that targets mobile phone users. In the past, before these moves, Apple was the shining star in the smartphone market, and Google was the leader in advertising. Now that the two companies have crossed paths, what will happen next?
BusinessWeek says “when companies start to imitate one another, it’s usually an extreme case of flattery – or war”. Eric Schmidt, CEO of Google, and Steve Jobs, CEO of Apple are the same age, and have known each other for years. As we all know, Jobs has been at Apple for a long time, since he founded the company in the 70s, with a little time off in the late 80s and early 90s before rejoining the company. Eric Schmidt was at Sun Microsystems and Novell, and has experience taking on Microsoft as a competitor. In 2006, Eric Schmidt joined Apple’s board. In August of 2009, Schmidt was off the board. Why? The two companies were overlapping more frequently, and Schmidt had to recuse himself more and more during meetings.
Why the growing overlap? Because the world has changed. Just a few years ago, we all used desktops and laptops for computing, and cell phones were a calling device. Then in 2002, Research In Motion(RIM) introduced the first smartphone, the BlackBerry. This market of smartphones soon grew, competitors sprang up and in 2007, the iPhone entered the market. Computing and internet access soon became something to do on a phone, and something you could do anywhere without lugging a laptop. Most people in the industry predict only a growth of mobile computing, and less of a dependence on desktop and laptop devices. Even the growth of netbooks turned the corner for consumers who want less computing power, not more, just access to the internet.
Apple and Google are strong players, and want to become stronger. But with two of them on the same turf, who will come out ahead? BW managed to get a statement from Apple, attributed to an internal manager. “Apple is a valued partner of ours and we continue to work closely with hem to move the entire mobile ecosystem ahead”. For now each company still need the other. Google dominates search(in spite of Steve Ballmer’s attempts with Bing) and for now it is still on the iPhone. The iPhone does not dominate the smartphone market, but it is certainly a key influence and Google needs more people to access the internet so it can sell advertising.
Mobile computing is clearly the wave of the immediate future, but how to make money off of it? This reminds me of the earlier days of the internet when various companies tried to gain customers regardless of profits. It took Amazon years to turn a profit. In this case, both companies make enormous profits in other lines of business, so they can afford to take a few losses in one area in the hopes of more profitability in the future.
BW says that Apple has the lead in this business. Currently the iPhone has 14% of the smartphone market and the Nexus One has 3.5%. One new wrinkle is that app developers are now starting to have a tough time earning money on their apps. But with more than 125,000 apps in existence, maybe that doesn’t matter.
And if anyone has the creativity to come up with a whiz-bang product, most of us would place our bets on Apple. From the iPod to the iPhone, and all the neat things in between, there seems to have no end to creativity and innovation. BW says that Jobs and company are trying to come up with a way to revolutionize mobile computing. If anyone can do it, I would predict Apple. Google may be brilliant with algorithms, but data manipulation and search just aren’t the same as the innovation we have seen from Apple. Apple’s acquisition of Quattro Wireless puts it in the driver’s seat going forward with mobile ads.
Google may have a problem because people don’t seem to use computing the same way when they are at their desks and when they are on the road. Mobile search has not taken off. The search bars are small, and people can bypass search by using an app, which is more direct, with fewer keystrokes. And Apple knows a lot about you. If you buy music on iTunes, subscribe to podcasts, watch videos and give your credit card number and home address, they have a lot of valuable information about your buying habits. This information is precisely the gold standard of market research that advertisers have been after for decades. Now Apple has a one-stop shop for targeted ads. In the past, Google had a significant head start by knowing search habits, but Apple’s hard data may be even more of an advantage.
It is interesting to note that the Android operating system was developed with the hopes that it would be used on devices not owned by Google. However, Google went ahead and purchased Nexus One, which indicate they may feel they can’t depend on other companies – they need to be a one-stop shop in the smartphone market just like Apple.
Here’s the key question: could Apple take Google off of its iPhones and computers? Sounds possible. Steve Ballmer is chomping at the bit to increase market share for Bing. In spite of the acrimonious nature of previous relations between Apple and Microsoft, BW predicts it is possible for them to come to a truce and start putting Bing as the default on Apple products.
What I hope is that the consumer will win out in this big battle. I don’t think any of us will complain if competition drives prices down, produces superior products, and generally makes life easier for those of us end users. I remember when people used to talk about Pepsi vs. Coke, now it is Nexus One vs. iPhone. Stay tuned folks – I’m sure we’ll be hearing more on this one.
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