Apple and Google, once the friendliest of Silicon Valley neighbours, have set themselves on a collision course.
While Google was driving its tanks into Apple retail territory this week with its new smartphone, Steve Jobs quietly bought a mobile advertising company, potentially pitching the group that he founded into the online ad sales business.
Google’s Nexus One “superphone” is a direct competitor to Apple’s iPhone and, according to some, a worthy rival. In buying Quattro Wireless for a reported $275 million (£170 million), Apple is following Google’s acquisition of AdMob, a mobile advertising network that competed with Quattro, for $750 million.
The ground they are both trying to conquer is the mobile internet; both see it as essential to growth. Analysts suggest that new internet connections — and web page views and advertising clicks — are much more likely to come from the 4 billion mobile users worldwide than the 1 billion PC users.
The key to that growth is likely to be smartphones, which are set to dominate the way in which we access the web on the move. In the US, for example, smartphone adoption grew from 11 per cent of the mobile market at the end of 2008 to 17 per cent at the end of 2009, according to Forrester Research. Both technology powerhouses want as much control over this new gateway as possible as they move beyond their traditional markets. Rob Enderle, technology analyst of the Enderle Group, the consultancy, said: “I think Google might be more focused on Apple than Microsoft.”
Apple is likely to use Quattro to make the iPhone platform still more attractive to the thousands of software developers who have turned its App Store into such a success. If Apple can offer a way to sell ads in the applications, it can help those developers make more money. Apple is keenly aware that the iPhone’s App Store is a big selling point for consumers; just as Google was launching the Nexus One, Apple put out a press release declaring that more than 3 billion applications had been downloaded for the iPhone and the iPod Touch. Mr Jobs said: “We see no signs of the competition catching up any time soon.”
The iPhone is a goldmine, with more than 30 million handsets sold in the past two and a half years. And demand is still growing, thanks to international launches and carefully planned hardware updates. The device helped to boost Apple’s annual revenue from $24 billion in the 2007 financial year to $36.5 billion in its most recent financial year, which ended in September.
Google’s revenues have also soared, from $1.5 billion in 2003 to more than $22 billion last year, the vast bulk of the money coming from the internet search ad business. Google wants AdMob to help it to dominate mobile search advertising similarly.
But it also wants its Android operating system for mobiles to be used by as many devices as possible. So it has taken the logical step of selling its own phone.
Google is looking to become a big-volume retailer, too, through its phone webstore. At the launch of the Nexus One this week, it said the smartphone was simply the first of many Android handsets that it planned to sell directly online to the public. Even if the Nexus is not an “iPhone killer”, as some had expected before its launch, many see the Android operating system as the only true rival to the dominance of the iPhone.
The Google/Apple collision has been coming for more than a year. It was the potential clash over Google’s increasing mobile ambitions that led last August to the resignation of Eric Schmidt, Google’s chief executive, from the Apple board.
The move came three days after the US Federal Communications Commission, the US industry regulator, said it was looking into why Apple rejected a Google software application for the iPhone. Mr Jobs cited Google’s expansion into “Apple’s core businesses” as the main reason for the departure.
In the past, the two companies have been close, with Apple board members Bill Campbell and Al Gore, the former US Vice-President, serving as advisers to Google in its early days.
Now Google’s acquisition of AdMob is mired in a regulatory review, though it is expected to be approved. This may explain why Google went out of its way to welcome Apple’s acquisition of Quattro. Paul Feng, Google’s group product manager, wrote that “investments and acquisitions” … were “a sign that vigorous growth and competition will continue”. Analysts noted that Google’s warm response may have been motivated by a desire to persuade the authorities that the AdMob deal should go through.
Beyond the politics, both companies know there is much at stake. The business of placing ads on smartphone screens is small but growing fast. Advertisers spent just $416 million on mobile ads last year, compared with $22 billion on websites, according to eMarketer, the research firm. However, the mobile spend is expected to grow to $1.6 billion by 2013 as smartphones and other mobile computing devices become increasingly popular.
In hardware and in software, Google and Apple are set to slug it out.
www.warren-knight.com thanks The Times