The biggest takeaway from Google I/O 2015 was how different Apple and Google are approaching mobile, each guided by their own mission statement and strategy. After years of fierce competition for smartphone market share, the battle between the two companies has changed. Google's ambitions include connecting the next billion users and obtaining scale across its suite of services which requires supporting an iPhone user base quickly moving towards 500 million users. Apple's ambitions are aimed at making technology more personal and lessening its dependency on Google, its primary competitor. The next battle in mobile has begun and it may be just as fierce as the initial rounds. The battle is moving beyond the smartphone and is now based on which platform is more successful in occupying a user's time with the best experience.
Since the iPhone launch in 2007, the Apple vs. Google battle has not remained constant, instead going through distinct stages, beginning with an arms-race for market share, followed by an Android OEM consolidation phase led by Samsung, and now the large screen iPhone renaissance ushering in the current phase where the battle is moving beyond the smartphone.
Battling over Daily Activations (2009-2011)
The early days of the smartphone war were all about market share. The daily beat of the tech press was focused on which mobile operating system was doing better in terms of sales. Google, and Andy Rubin especially, prided themselves on periodically announcing Android daily activations. One of the rare times Steve Jobs was on an Apple earnings conference call with analysts occurred in 4Q10 to put some cold water on Android activations news. The mission was clear: promote iOS as a platform worth developing apps for. Here was Jobs:
"Last week, Eric Schmidt reiterated that they are activating 200,000 Android devices per day. And have around 90,000 apps in their App Store. For comparison, Apple has activated around 275,000 iOS devices per day on average for the past 30 days with a peak of almost 300,000 iOS devices per day on a few of those days. And Apple has 300,000 apps on its App Store.
Unfortunately, there is no solid data on how many Android phones are shipped each quarter. We hope that manufacturers will soon start reporting the number of Android handsets they ship each quarter. But today that just isn't the case."
The battle was not only fought in the marketplace and press, but also in the court room as Apple began setting up its patent litigation offense against various hardware companies using Android to compete with Apple. Apple's goal with litigation wasn't about the money, but rather pride and to slow competitors down in the marketplace. Market share was everything in the early days of the smartphone race.
Samsung's Reign (2012-2013)
The 2012-2013 time frame was interesting for Apple as Samsung was able to make very strong inroads within the Android ecosystem, capitalizing on the lack of a large-screen iPhone in the high-end of the market and lack of proper competition in the low-end. While there was never much in the way of widespread defections of iOS users fleeing to Samsung, the ability for one hardware manufacturer with such immense distribution network to grab so much power within the Android ecosystem was alarming to Apple. The battle was aired on TV in the form of a very successful line of Samsung commercials mocking Apple customers, not to mention continued battles in the courtroom.
As evidence of how seriously Apple took the Samsung threat, in 2012, Phil Schiller tried to preempt Samsung's big Galaxy S4 keynote in NYC by talking with the WSJ the day prior in order to discredit Android and provide some counter balance to the overwhelmingly positive press coverage given to Samsung. Schiller went on to say:
"Android is often given as a free replacement for a feature phone and the experience isn't as good as an iPhone...When you take an Android device out of the box, you have to sign up to nine accounts with different vendors to get the experience iOS comes with."
It is important to note how Apple positioned Samsung as merely the preferred hardware competitor at the moment. Google, not Samsung, was the ultimate long-term threat as Apple saw that Samsung was gaining market share purely on the back of Android. Without Android, Samsung phones would not be viable competition for the iPhone.
The New Battle
Apple now finds itself with an iPhone user base approaching 500 million users, and strong market positions in key geographic territories including the U.S. (40% sales share), U.K (40% share), and China (25% share). Any concerns related to iOS being crowded out by Android OEMs in a repeat of the Windows era have likely been put to bed. Apple's iOS platform now has critical mass, or the ability to entice developers and third-parties, including Google, Facebook, and Twitter, to support iOS users.
One of the clearest themes from Google I/O 2015 was that Google needs iOS and its 475 million highly-engaged iPhone users for Google's business model to succeed. Looking ahead a few years and assuming continued 10-20% iPhone unit sales growth, it will be nearly impossible for a third-party with a business model dependent on achieving scale to ignore what has the potential to be a 600-700 million user ecosystem (if not larger).
While one can make an argument that Google made a strategic misstep by limiting Google Maps on iOS a few years ago, which ended up pushing Apple into developing its own maps initiative, hindsight is 20/20. Google may have thought it was worth taking the bet at that time as iOS was a very different, and weaker, platform in 2012 than today.
The Apple vs. Google battle has now moved beyond the smartphone. Walk into a carrier store and given the choice between an iPhone or Android-powered smartphone (the two most likely options), Google's services will be found on each. In addition, the prices between an iPhone and high-end Android-powered phone will be roughly the same. While Google may be excelling at machine learning-based cloud initiatives, it is not being positioned as a factor for buying an Android phone instead of an iPhone. Given the limited distribution behind Nexus devices, it is difficult to have much confidence in that line of Android hardware representing a viable alternative for most consumers.
Instead, the smartphone buying decision is likely related more to the other pieces of glass either being worn (smartwatches), in one's purse or backpack (tablets), or at home and on the work desk (desktops/laptops). Extend the exercise further to incorporate third-party devices in the home and driveway, and the entire iOS or Android ecosystem is becoming the much bigger deciding factor for what will be your next smartphone.
Apple wants to be at the intersection of technology and liberal arts. Producing personalized technology experiences will require Apple to maintain control over the variables that come together to create experiences for the user. A key component will be owning critical technologies and services that may otherwise rely or require scale in future initiatives. A prime example would be avoiding the debacle over maps where functionality was limited by a third-party. In the future, mapping will likely be a required core competency for personal transport ambitions. If iOS represents a minority share of the automobile market, such a market position may pose a competitive risk in terms of relying on third-partners for map data.
The same thinking applies to Apple controlling the experience for providing content like movies and music to consumers. Notice how Apple doesn't need to own or produce the content in order to accomplish its goal. Instead, being the broker between the content owner and the consumer provides Apple room to add something new to the experience. Apple could then extend this experience to Android to further entice people to make the switch to iOS (as is planned with Apple Music).
Another way Apple can maintain its consumer experience is to embrace the emotion and feeling found with luxury. As seen with the Apple Watch, relying on materials and looks as the primary differentiation between a $400 and $17,000 device produces certain emotions that would be hard to match on Android or a competing platform where the virtues of luxury don't exist.
Google's ambition for its cloud-based services is increasingly competing more with Facebook than Apple as Google's business model is based on solving technological problems by accessing the world's data. Google wants all smartphone users to use its products, regardless if on Android or iOS. Similarly, Facebook is after the same data. Just like how Facebook unbundled its core app into a suite of apps, Google seems to be following a similar path, transforming into a suite of services and apps. Google wants to be at the intersection of technology and computer science. Judging by its engineering talent, I don't think anyone doubts Google will continue to push the envelope with such initiatives.
Google I/O made it clear that Google needs Apple and iOS. To ignore such a vibrant base of highly-engaged users, especially when other companies like Facebook enjoy a prominent place in the platform, would be highly destructive to Google's ambitions. On the other hand, Apple also needs Google as its services remain very popular among iOS users. However, judging from Apple's prior actions and mission statement to personalize technology, I would expect Apple will continue to try to minimize its dependence on Google as such a situation represents a long-term threat to Apple's mission.
Similar to how the Nexus experience provides the closest thing to pure Android, I suspect Apple wants to continue down the path of being in a position to ship an iPhone and suite of apps and services that make it possible to live within the Apple ecosystem without much interference from Google. While most consumers will end up settling somewhere in the middle, using both Apple and Google products and services, it is this quest to control the entire user experience that ultimately validates the competition between Apple and Google as genuine.
The probability of a world where Android excels as a direct result of iOS faltering is becoming more remote as time goes on. Instead, Google is becoming more reliant on a healthy iOS platform, which improves the chances of iOS continuing to grow and gain additional power. Meanwhile, the Android platform continues to become splintered and less effective at Google's mission of positioning services in such a way as to reach scale.
The primary question is now focused on how successful Apple will be in loosening its dependency on Google services. There are signs that we may see a more aggressive stance from Apple towards replacing many Google services with homegrown alternatives. This motivation will likely come to represent the driving factor for the continued battle between the two companies. While we may see skirmishes from time to time over individual features and services, the much bigger battle is clear: Apple and Google are built on a fundamentally different view of the world and each will now fight to occupy a user's time with the best experience. The battle has moved beyond the smartphone.
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