In 2011, Steve Jobs famously declared that he was “going to destroy Android because it’s a stolen product. [He was] willing to go thermonuclear war on this” and that he “will spend every penny of Apple’s $40 billion in the bank to right this wrong. [1]” Three years later, Android has arguably beaten iOS for smartphone market share, controlling 62% of the market compared to iOS’s 33%. Despite this seemingly resounding victory for Google, the war between Apple and Google is far from over; in fact, it has only begun as Apple takes the war to where it really hurts for Google—its core search and advertising business.

Google revolves around its lucrative advertising business. Significantly more profitable than any other line of business that Google operates in, advertising composes 96% of the company’s revenue [2]. Google’s advertising business is so important to them that every strategic decision they make can be traced back to helping their advertising business in three ways. Namely, every one of Google’s decisions does one or more of the following:

1.     Increases the number of times users see ads served by Google. For example, Google released Chrome and Android for free with Google Search as the default search engine to direct more users to Google Search, and thus, AdWords.

2.     Increases the effectiveness of ads served by Google. Google does this primarily by collecting more information about users, resulting in better targeting for their ads. Products like Gmail, Chrome, Maps, Google+, and a whole host of others help Google collect more information about users (and as a bonus provide other web properties where they can show display and text advertisements.)

3.     Increases the time users spend online. The logic here is simple: the more time a user spends online, the more they use Google, effectively helping point 1 and point 2 above. This is the rationale for projects like Driverless Cars and Project Loon, which appear completely tangential to Google’s core strengths until viewed from this lens.

These three priorities encompass the core of Google’s business, and Apple has begun to relentlessly attack each one.

First, Apple threatens to disintermediate Google’s search business. One way they do this is through Safari, the default web browser in all Macs and iOS devices. Safari attacks Google’s business in several ways. First, as of version 8, Safari suggests a top hit for users’ searches even if they have never gone to that page before. If a user enters a search term to Safari’s address bar, they go to a search result directly from the location bar, bypassing Google search completely. (See picture.) This is a huge threat for Google: if users get search results without going to Google’s search landing page, Google will not be able to show search advertisements. Incidentally, Safari search results are provided by a combination of Bing, Wikipedia, Apple Maps, Yelp, and iTunes, which gain the added benefit of user data from the queries.

Safari Search

Apple is also using Siri, iOS’s voice assistant, to attack Google on this front. When it launched in October 2011 as part of iOS 5, Siri was nothing more than a toy—novel enough to show friends and family, but not great enough to actually matter in the day to day lives of iPhone users. Since then, Apple has invested great resources into improving Siri, getting it to the point where most basic smartphone functions and many search inquiries (sports scores, weather, stock prices, restaurants, etc.) can be done through Siri. Guess which search engine Siri uses. Hint: it’s not Google. Every search that someone makes through Siri is a search that they are not making through Google, a particularly disturbing development for Google given that traditional desktop searches have remained flat while the majority of growth comes from mobile devices. As Siri continues to improve, it is only a matter of time before Apple brings Siri to the desktop, threatening Google’s desktop search business.

Recently, Google’s greatest defense has been its Chrome browser. By investing heavily in creating a technically superior browser to any on the market for much of its lifecycle, Google uses Chrome to keep its search engine as the default for users. Apple has neutered Chrome on iOS by severely hamstringing it. First, there is no way to change the default web browser on iOS from Safari to Chrome. This alone will stop many users from reaching for Chrome on their phones. The default search engine for Safari? Bing. But the big weapon Apple brings against Chrome on iOS is the control that it exerts over apps in the iOS App Store. Apple’s developer agreement bans developers from creating programs that interpret code, preventing Google from implementing its own Javascript engine for Chrome. Instead, Google must use the default Javascript engine for iOS apps, which is significantly worse in performance than Safari’s Javascript engine. As a result, Chrome’s share of the iOS browser market is insignificant. [3]

Apple also presents a huge threat to Google’s ability to capture information about users. The rise of the iPhone and iPad has resulted in an app based ecosystem on mobile rather than a web based one. Unlike on desktop computers, users spend a significant amount of time on individual apps rather than in a web browser on individual sites. Within apps, there are no cookies so an important spigot of user information for Google has been shut off. As users spend more time on mobile and time on desktops remains stagnant, if Google misses on this mobile data, it will find it much more difficult to accurately target advertisements and to reach these mobile users, as Apple’s iAd network dominates on in app devices. As Google spends lavishly on projects like Loon and Driverless Cars to increase the amount of time that users spend online, Apple attempts to capitalize by bringing these users spend their newly freed internet time into its app ecosystem through products like CarPlay and the Apple Watch, thus co-opting Google’s web capabilities.

Fortunately for Google, despite Apple’s considerable resources, Google has several options to counter Apple’s moves. Most importantly, the historical trends of the technology industry favor Google’s web-centric approach over Apple’s app-centric ecosystem. As hardware becomes more powerful and mobile browsers become comparable in performance to their desktop counterparts, webapps will become preferred over native apps, as users prefer easier web access and developers crave the cost savings of developing for the web instead of each smartphone platform. This same trend of decentralization has played out over and over again in the history of the tech industry, from the client-server architecture of the 1980s to the domination of the web browser in the 1990s to the rise of the cloud today. This scenario is Apple’s worst nightmare as it commoditizes its mobile operating system and plays directly to Android’s strengths. Unfortunately for Google, mobile web browser performance today is not yet good enough for this transition to occur. Google must accelerate this improvement as soon as possible. First, they must support a high performance open standard for the web in HTML5 to stimulate companies and developers to create bigger and better products for the web. Then, it must make high performance web browser technologies as widespread as possible, which Google does through the open source Chromium project. Next, Google must increase the performance of the underlying pipes, which they have done by introducing Google Fiber, a loss-leading project that has improved internet speeds at incumbent ISPs just through the threat of entry into a market. Finally, Google must partner with semiconductor manufacturers to produce microprocessors that will power faster and better web browsers. To this end, Google has entered into a partnership with Intel to create more powerful x86 mobile chips. By combining this with their relentless pursuit of the domination of Android, Google may head off Apple’s attacks in the long run.

Finally, there is an interesting opportunity for Google to disrupt Apple’s OS ecosystem from the low end. Today, Macs are more than powerful enough for the work that the majority of their users do: surfing the web, writing emails, etc. Google can develop a cheaper operating system with lower hardware requirements that can perform these jobs as easily. Thus, they can prevent the disintermediation of their business in the desktop by Apple products like Siri and also hurt Apple’s market share on the desktop. Google has begun to do this in their Chrome OS products, although they have yet to fully invest in this business. It will be interesting to observe the evolution of ChromeOS in the next few years and see if it can truly become a substitute for Mac OS X and Windows as the internet performance continues to rise.

Google faces attacks on many fronts from Apple as Tim Cook aims to complete the blood fued that Steve Jobs started. Though only time will tell which of these giants will win the thermonuclear war, it has been fascinating to watch these battles being fought in the last few years.

[1] Steve Jobs, Walter Isaacson, 2011

[2] http://investor.google.com/documents/20100331_google_10Q.html

[3] http://techcrunch.com/2012/09/13/chrome-for-ios-market-share-reaches-2-7/

 


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