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Google CEO Leaves Apple Board, Signaling Increased Competition

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Apple has announced that Eric Schmidt, CEO of Google, has stepped down from his position on the Apple Board of Directors. He held that position since August of 2006. Genentech chairman Arthur Levinson remains on the board of directors for both Apple and Google.

In the statement, Steve Jobs said, "Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore, we have mutually decided that now is the right time for Eric to resign his position on Apple's Board."

That's a telling acknowledgement that Google and Apple are now competitors, something that has been becoming increasingly obvious over the last year, first with Google's release of the Android mobile phone operating system and then with the recent announcement of the Chrome OS project, which is aimed at creating a Web-focused operating system for netbooks. The most recent dustup came with Apple's rejection of Google's official Google Voice app for the iPhone (see "FCC Queries Apple, AT&T, and Google about Google Voice App," 2009-08-03).

In the past, it seemed as though Google and Apple were in some ways allied against Microsoft's hegemony, despite working together only in limited ways, such as inclusion of the Google search field in Safari and support for Google Maps in the iPhone. Originally, Google and Microsoft competed largely in Web services, in Web searching, and with Gmail and Hotmail, for instance. Most recently, Microsoft sealed an agreement with Yahoo that uses Microsoft's Bing search engine to power Yahoo Search.

But as Google has broadened its product scope, it's become clear that we're in a three-way game, with Apple, Google, and Microsoft all trying to compete in roughly the same ballpark. What's most interesting about this three-way competition is that it's as much a referendum on business models as products. Consider the following:

  • Apple uses a highly integrated product strategy to exert far more control over the entire user experience than either Google or Microsoft. Whether you're talking about the Mac, MobileMe, iTunes, the iPhone, or the App Store, Apple controls all the pieces. The benefit is great product design in terms of both hardware and software, and a nearly seamless user experience. Apple makes money throughout the entire chain, but as a single supplier, Apple can't always reach as many market niches. And on the downside, as we're seeing with the App Store policies, when Apple does something wrong, there's no recourse. Apple makes its money largely from selling hardware: Macs, iPhones, and iPods, with other products like iTunes and MobileMe adding value to the hardware.
  • Google focuses all of its efforts on increasing use of the Web, since 97 percent of its income comes from Web-based advertising. Aside from its search algorithms, which Google guards jealously, most Google products and services have open APIs and are released as open source. With Android and Chrome OS, it appears that Google will attempt to encourage widespread use by mobile phone and netbook manufacturers as a way of driving users ever more toward the Web and Google's advertising. Although Google has been wildly successful on the Web, it remains to be seen if this product strategy will lead to significant revenue or if it's more a way of achieving some level of independence from Apple and Microsoft, upon whose operating systems and browsers Google is largely dependent.
  • Microsoft has long used what is essentially a combination of Apple's and Google's approaches, mixing proprietary software with broad licensing. All the variants of Windows are proprietary, but Microsoft licenses versions of Windows to nearly all PC manufacturers and many mobile phone makers, and encourages independent software development. This gives Microsoft huge reach and incredible influence over the market, but far less control over the user experience than Apple exerts. Windows, Microsoft Office, and server tools remain major moneymakers for the company, while Microsoft's online services continue to lose money; the company's entertainment division turned a profit in 2008 after years of losses.

So we have three companies with very different business approaches: Apple makes money from hardware, Google makes money from Web advertising, and Microsoft makes money from software. And yet, they've all started to collide because the secret sauce for Apple's hardware is its operating system software, because Google's Web advertising is viewed primarily on Macs and Windows-based PCs, and because Microsoft is continually looking for new markets.

Thanks to the differences between these three companies, there will never be a single winner, which makes the competition even stranger, a bit like sumo wrestlers bumping each other around in the ring with no chance of winning or losing. It's therefore impossible to predict anything about the future, short of that it will be interesting to watch.

 

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