Google’s Schmidt: We’re Winning the War Against Apple

| The Back Page

Google chairman Eric Schmidt put it succinctly, his company's Android platform is beating Apple's iPhone. In an interview with Bloomberg, Mr. Schmidt once again likened the fight between Android and iPhone to the Windows vs. Mac platform, and said that his company is "clearly" winning.

“This is a huge platform change; this is of the scale of 20 years ago—Microsoft versus Apple,” Mr. Schmidt said. “We’re winning that war pretty clearly now.”

Google Is Clearly Winning the War

Google Is Clearly Winning the War

It's a bunch of nonsense, however; like everything Mr. Schmidt says, this statement tells only part of the story, the part that tells Google's side of the story. That's his job, of course, but my job is putting the tech world in context, and in this case I think both sides of the story are interesting, relevant, and, more importantly, not mutually exclusive.

The Background

Mr. Schmidt gave an hour long interview to Bloomberg about a variety of issues. Check out the full article for the other topics. One of the things he talked about was the September quarter, when Android claimed 72 percent of the smartphone market, according to Gartner, compared to 14 percent for Apple.

Ouch, Looks like Apple is taking a whoopin', but is the iPhone maker "losing?" Not by a long shot, and Mr. Schmidt is being utterly disingenuous to suggest otherwise. That's because—and I've been saying this for year—Apple and Google aren't even playing the same game.

Apples & Oranges

To wit: Look at another comment from Mr. Schmidt.

“The core strategy is to make a bigger pie,” he said. “We will end up with a not perfectly controlled and not perfectly managed bigger pie by virtue of open systems.”

Hooray for open systems that are poorly managed, but bigger, because everyone knows that bigger is better and MOAR is MOAR BETTEREST!

I am doing my utmost to not go into a rant about the craptacular awfulness that open systems inevitably lead to (you know, kind of like Windows), but there is something utterly fundamental about Mr. Schmidt's comment. Google doesn't care about the quality of its platform.

There is absolutely no need for the company to do so, because all Google cares about is having market share for a platform that it can mine for user data, user habits, user searches, user Web use, user app use, and even user movement via Google Maps. Google will then slice, dice, and julienne that data to further perfect its profile of we, the user, so that it can then sell ads based on that profile.

And, Google, under Mr. Schmidt's leadership when he was CEO, was smart enough to realize that Apple's iPhone would own the market if Google didn't step in with a viable alternative. More importantly, Google was smart enough to realize that Apple would own all that lovely user data and not give Google access to it.

All Google has to be concerned about is making sure that Android is good enough and free enough to capture the budget end of the market. If you think I'm being unfair, look at Mr. Schmidt's comment about using legal tax shelters to keep from paying taxes all over the world.

“It’s called capitalism,” he said. “We are proudly capitalistic. I’m not confused about this.”

In the meanwhile, Apple is fighting a separate battle, one based on hardware profits. Apple wants share, sure, but Apple's business model is to sell premium hardware at a premium price, and to offer customers a viable whole widget ecoystem that will keep them buying more Apple hardware.

The Real Losers

These are two completely unrelated fights. As long as Apple's platform is big enough to be self-sustaining, and as long as Apple is selling all of the iPhones it can make, Apple is wining its fight.

See how neat that is? Apple can win and Google can win, and ne'er the twain shall meet on the field of battle. The real losers in their two wars are every other platform. I'm looking at you, RIM, and you, Microsoft, and neither company will be able to take solace that they're being beaten by two separate enemies fighting two separate wars with rules that those competitors have defined and exploited.

Mr. Schmidt is a shrewd man. He is intelligent, no, he's brilliant. He is an extraordinary businessman, and he is a savvy communicator most of the time*. When it comes to Android vs. iOS, he has worked overtime to spin the battle, and loves to proclaim victory, even while Apple continues to rake in record profits.

*There was that one thing: “We know where you are. We know where you’ve been. We can more or less know what you’re thinking about.”

Image made with help from Shutterstock.

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16 Comments Leave Your Own

Bosco (Brad Hutchings)

I’m pretty sure Eric was talking about this article in which Android’s first POW is unmasked.

Bryan Chaffin

I’m pretty sure he wasn’t, but it’s interesting that Guy has gone Android.

Lee Dronick

Yes, it can be win-win.

Rocwurst

Android is indeed the new Windows in terms of malware, but not in terms of any other metric that matters.

Unit sales marketshare is a means to an end, not an end in itself. The reason companies strive for unit sales marketshare is in order to make profits and achieve other objectives.  However, it is Apple and the iOS ecosystem that is bringing home all the bacon:

- 80% of profitshare of entire cellphone industry iPhone (Morgan Keegan)
- 90% of mobile e-commerce revenue comes from iOS devices (Rich Relevance)
- 88% of tablet e-commerce transactions come from iPads (IBM)
- 67% of mobile ad revenue generated by iOS (Opera)
- 84% of mobile gaming revenue captured by iOS (NewZoo)
- 58% of mobile ad impressions are iOS (Mobclix)
- Average web usage share over multiple web analytics including W3Counter, WikiMedia, StatCounter GlobalStats, StatOwl, NetMarketshare, WebMasterPro, AT Internet, Clicky WebAnalytics etc is: iOS share = 6.16% Android = 2.81% (Wikipedia)
- 65.3% mobile web browser share iOS vs 20% Android (NetMarketshare)
- 69% of mobile ad viewing share is iOS vs 29% for Android (Chitika)
- 94.6% of Tablet web browser share is iPad (Chitika)
- 25% of mobile web share is iPhone vs 16% Android (NetMarketshare)
- iPhone developer revenue 4x greater than Android dev revenue (Distimo)
- IOS developer revenue 6x Android dev revenue (Distimo)
- 43,000 iOS developers vs 10,000 Android developers (AppStoreHQ)
- 97.3% of business tablet activations are iPad (Good Technologies)
- 73.9% of business smartphone activations are iPhone (Good Technologies)

Android is simply the new Symbian - all unit sales marketshare but nothing else.

Lancashire-Witch

I’ve always felt uneasy about Google. I don’t trust them. “Do No Evil” is probably the worst business slogan ever coined; because it invites the retort “but everything else is OK”.

The Chinese Incident didn’t help, but I’m not getting into that discussion again.

Simply put - I prefer not to be one of their customers.

I’ve been down the open road before; and eventually got totally lost.
(So maybe it’s Microsoft & Acer’s fault I’m not willing to try it again - who cares?)

Good stuff, Bryan.

Tiger

They’re winning the war like Buick is against Porsche.

Paul Goodwin

From Bryan’s article: “It’s called capitalism,” he said. “We are proudly capitalistic. I’m not confused about this.”

Well this is capitalism, and Google isn’t winning the war:


From Google Finance

Market Cap
Apple 2012 505B   2004 30B.  Up 16.8x
Google 2012 128B   2004 35B.  Up 3.7x

Apple Net Income.  Up 4.2x   2008-2011
2011   25.92B
2010 14.01B
2009   8.235B
2008   6.119B

Google Net Income.  Up 2.3x   2008-2011
2011 9.737B
2010 8.505B
2009 6.52B
2008 4.227B

Google Q3 2012
Total Revenue $14.101B, 99% from ads, <1% from licensing fees
Net Income. $2.176B.  15.4% of revenue

Apple Q3 2012
Total Revenue $35.966B  
Net Income $8.223B.  22.9% of revenue

Paul Goodwin

And you’re right Bryan. It is definitely Apples and Oranges.

wab95

Bryan:

Just a quick comment (in the midst of a morning too busy for this, but these are the perks bringing in my own funding).

Schmidt, as said earlier, is an intelligent business man who is in, what he portrays, as a ‘war’ with Apple. Whether he believes the ‘war’ bit is unknown and doesn’t matter; that he believes he’s (Google’s) winning said war would conflict with so many known facts that to everyone in the industry, including Bloomberg’s ‘West’ team, Google and Schmidt himself, knows that this is spin, which he can justify by selective metric assessment (it doesn’t merit the rank of ‘analysis’).

The story that followed this on Bloomberg West yesterday featured another analyst, who, not responding directly to this story, cited many of the facts that Rocwurst and Paul Goodwin have so meticulously laid out, and pointed out that Google have nowhere near the ecosystem that Apple have, and that the majority of Android handset purchasers (my assumption is that he was referring to those in West, but not necessarily - it clearly applies to those in low and middle income countries) are so, not because of brand loyalty (he argued that there is none in the Android world) but because the devices are cheap.

Unfortunately, sites such as TMO and others of similar stripe, are in the USA and Europe, which house about 10% of the planet’s population, and as such operate amongst non-representative populations for the rest of the world. The VAST majority live elsewhere. In those settings, many of which I work and travel in, one sees Android handset uptake, usually on a nondescript handset of Chinese manufacture (Samsung and LG are considered premium brands confined to the better-off in these places). This is the majority of the Android market, not the USA and not Europe but Asia and Sub-Saharan Africa, more so the former. These are not markets serviced by infrastructure that will support a cloud-based ecosystem on par with Apple’s, nor are these customers even aware of these services, let alone in search of them. These are not customers who are going to purchase apps at even US $1 on the Android app store. They are not shopping online, and many don’t even browse, but use their devices for phone calls and text messaging (because, as one my lab techs put it - it’s easier to type on a smart phone than on a Nokia feature phone). A few may be able to do email. A few. That’s it.

It’s no wonder then, that 80% of the profits, 90% of e-commerce and consistently, the majority of the web browsing in several locales that capture these data, iOS is the dominant platform.

Now, back to Schmidt’s comparison with Windows (and no, it’s not the 1990’s all over again), not only did Windows have north of 90% of the desktop marketshare, but the profitshare as well. Google’s profit share in mobile tech? South of 20%. It is being run on a non-profit making strategy as a software offering - not where Google make their money. It is fair to ask if this is even sustainable. As this analyst put it yesterday on Bloomberg, the only handset maker making any money with Android is Samsung, whom he referred to as Samsung and the 78 dwarfs, with reference to the other Android handset makers, even suggesting that this is a threat to Google itself, as Samsung, as the 800 pound gorilla in the Android-verse, could set the terms on Android’s future existence, even de facto taking it over, unless another OEM can give it competition.

The only comparisons between Google and MS vs Apple are in two areas:

1) Marketshare: with the vast majority of it being amongst low income settings where not even Google will make a profit (customers providing no valuable eyeballs to online markets)
2) Race to the bottom by hardware OEMs, offering progressively cheaper hardware over time. Even this model is under threat if Samsung kill off the competition.

One has to give Schmidt his due, however, for raising the flag for his company, and citing its strengths and successes where they are. That they threaten Apple in profit-making sectors, however, is belied by the data. Emerging markets remain an open question.

Indeed, Google and Apple are not even in the same business, and any competition between the two, not unlike that between MS and Apple, is at best indirect.

Lee Dronick

“Just a quick comment (in the midst of a morning too busy for this, but these are the perks bringing in my own funding).”

Wab95 that wasn’t a quick comment, that was War and Peace. smile

wab95

“Wab95 that wasn’t a quick comment, that was War and Peace.”

Lee: noted. It was ‘quick’ in that it took very little time to write.

Cheers.

Intruder

And spot on.

wab95

“And spot on.”

Many thanks, Intruder.

This provides me an opportunity to post one more thought, albeit trivial.

The Guy Kawasaki story, mentioned above but posted elsewhere by Bryan, is, in my opinion, a non-story, will have no effect on the balance of power between Apple and Google, and is unlikely to sway even the most malleable of iOS users, the majority of whom were not Apple clients during the period when he was an ‘evangelist’.

In short, most iOS users don’t know who he is, and don’t care what he does or doesn’t use. For Apple veterans, he’s likely to be shrugged off as a footnote from the past.

Intruder

I agree, as I stated in that article thread. There are those who will try to make hay from that article, but in reality it is about as relevant as a former Ford salesman driving a Chevy after leaving Ford a decade prior.

I’m sure that nobody at Apple is losing any sleep over it.

Paul Goodwin

Lots of good points wab95. Oh, and I forgot to mention that in 2004, both Apple and Google were about the same market cap. Just a little over $30B, if I remember right. Pretty astonishing growth for both companies.

I think Google is a great company too. I’m sure increased Android sales will certainly help Google’s ad sales. But given, as wab states (and you can Google this), that the bulk of the online usage for smartphones is iOS, it seems like it will be a while before the Android device sales can be heavily leveraged into a rapid growth in ad sales. Ad buyers pay for views and hits. And if I remember correctly, I read recently where iOS users are accounting for greater than 80% of the online useage of smart devices. So the incentive is there for Google to get with Apple with apps not fight against them.

But, as wab95 also stated, you can’t really get down on Schmidt too hard for championing his company. They do a lot of things well.

Bryan Chaffin

Awesome comments, folks.  wab95, your treatise on the outside-of-the-West perspective is much appreciated.

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