The Paradox of the Apple Google War Brought to a Whole New Level

By: Hillel Fuld (@hilzfuld)

As hundreds of thousands of people watched or attended Google IO 2012, I think the overwhelming feeling we were all left with, was confusion. But then I remembered, this is Google we are talking about and Google is a confusing company. What is Google? A search company? An advertising company? (most of its revenue comes from ads) A mobile company? (one million Android activations a day!!) Exactly. Confusion.

But why was Google announcing a $200 quad-core tablet running Android and basically killing off products like the Kindle Fire, which, wait for it, runs Android? Why is Google really going forward with this bizarre project called Google Glass? The whole thing was just weird and the demo of Google Glass that included some people skydiving in a Google+ Hangout in real time, plus the fact that it all was supposedly spontaneous and not scripted just added to the weirdness.

But then I stepped back and thought about what was really going on here. It all makes a whole lot of sense. Right now, Google is making its money from advertising, that is true, but is that the future of Google? I highly doubt it. Let me explain.

Why is Google releasing a tablet that will surely make the company close to no money? There is no chance Google can produce such a high quality tablet for much less than $200, so the margins on the Nexus 7 have to be tiny. The answer is the same answer to the question, “Why is Google giving away Android for free?” It is also the same reason that for Google, Android activations are the most important metric and the one mentioned at almost every opportunity. Namely, for an advertising company, what matters most are impressions. Users. The audience. The money is there, it always has been, but first and foremost, Google needs to be everywhere.

That is now. Now, let’s take a look at Apple for a second. Apple is rolling in dough. The company’s revenue comes from hardware, the same way companies have made money for generations. If there is one area that Apple is truly struggling with, it is advertising. iAd, as of the moment I write these words, is an operational failure. Apple has tried desperately, in such a non-Apple-like fashion to do everything to make it succeed. They have and will continue to lower the entry prices for developers, but when it comes to advertising, Apple has what to learn from Google.

Back to Google. If Google is now primarily an advertising company, what does the future hold for the company? Well if recent announcements are any indication, the future of Google is not in advertising. It might very well be in hardware.

While the Nexus 7 was not by any means actually built by Google (it is Asus hardware), Google was apparently very involved in the process of its manufacturing. This is not the case with Android devices made by Google’s partners including Samsung, HTC, Sony, and the rest of the long list.

Putting the Nexus 7 aside, Google announced two very important products, both shed some light on where Google is going. The Nexus Q and Project Glass. Q is an interesting project that I will go out on a limb and say, will fail for so many reason, I am not even going near it now. Let’s talk about Project Glass for a second.

Google thinks the future of computing is not the desktop. It is not even the thin laptop or the tablet. Nope, not the mobile phone either. It is a device you wear on your face that does not stand in the way of your senses, but rather enhances them using augmented reality, accelerometers,  location sensors, and web connectivity. Is Google right? Quite possibly.

More interesting than the glasses themselves or even the wild demo Google pulled off on stage is the business model behind them. Will they be free and drowned in advertising popping up in your face (literally) day and night? The answer is a big fat no. The price will be high (not as high as the current preorder price of $1,500, but high) and Google has no intention of incorporating ads in Project Glass. It will be integrated software (Android) with hardware that is made in-house and together, will offer a superior experience and justify the premium price tag. Sound familiar?!

So Google (and Microsoft, but that is a whole other topic), the company that is best known for its free web suite of services that it can afford to give away by serving you targeted ads, is now going out into the world of hardware, and Apple, the master of hardware is trying every trick it knows to serve better ads.

Now, this is just the tip of the iceberg when it comes to the complexities of the Apple Google war. Let’s not forget that Google Maps, the default maps in iOS just got the boot and Apple officially unveiled its own 3D mapping system. How can we forget the whole iOS/Android war in which Jobs vowed to try and destroy Android that he believed copied iOS? But then, somehow in iOS5, Apple borrowed a thing or two from Android and its notification system.

Of course, the drama continues in the world of entertainment and content. There is the TV, the Google one, the Apple one, both present and future. There is iTunes/App Store and Google Play. Both offer songs, apps, movies, TV shows, books, magazines, etc etc.

The point is, if you would have asked me five years ago whether Google and Apple were each others’ biggest competitors, I would have laughed. “Google is a search company and Apple makes computers for rich people” is what I would have said. That has all changed and the companies are closing the gap every single day.

The paradox I speak of in the title is the fact that Apple is kicking butt on the revenue and profits side, which is a dream-come-true for well, any company. Yet, Apple looks to Google to learn how to leverage software to reach consumers through advertising.

Google, on the other hand, is kicking butt on the market-share side of things (web and mobile) but now looks to Apple for lessons on how to monetize that audience via hardware, as opposed to advertising.

I think we can all agree, this is a classic example of “The grass is always greener on the other side”, except in this case, that is some seriously expensive grass.

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