Apple vs. Google : This isn’t the 80’s

April 27th, 2011 § 1 comment

Update: This story by Jean-Louis Gassée does a great job of showing how Apple’s “Failure” in the 80’s was a result of decisions and circumstances that simply aren’t true today.

You know the battle is heating up when average consumers start staking their claim in their respective territories of a platform battle. Both my mom and my mother-in-law have opinions about whether the iPhone is better than the “Droid”. Having no real idea what it actually meant one of them championed the “openness” of Android. I’m guessing that for most people ideas about the relative merits of one mobile OS1 over another begin at their local wireless carrier store. You know, the bastion of well informed, unbiased and intelligent salesman waiting to educate the public about this incredibly important issue. AKA: A bunch of 22-year-old morons who spent 5 minutes on the internet and really really really want to make a sale. Would you like GPS navigation with that smartphone?

Unfortunately it’s that 5 minutes of Googling that seems to be shaping much of the debate around the issue. Unable to form new and complex models talking heads trot out tired historical models and try to squeeze Apple and Google into the roles of former combatants. So uninspired are they that they can’t even find a model with different actors so Apple fills the role of Apple while Microsoft is played by Google and it’s Mac OS vs. Windows all over again. And clearly Windows (aka Android) is going to win because .. well, uh, Apple is closed and expensive!

To my mind the desktop battle of yore was “won” in two parts. First off, Microsoft didn’t want to sell hardware; they wanted to license their OS. This allowed them to step above the cut throat competition of making cheap hardware and focus on making their software work with as many hardware combinations as possible. Perhaps it didn’t work so well but it worked. Apple, in a desire to control their product from a soup to nuts perspective, opted to build their own hardware which allowed them to spend less time worrying about various hardware combinations and more time focusing on their OS and user experience. The end result was that you could buy a Mac with a superior OS or spend half as much and get a Windows computer that got the job done.

So far the model seems to fit the iPhone vs. Android comparison. Only Apple makes iPhones and they cost more than many of the myriad of Android phones. I’m biased but I also believe iOS also offers better overall user experience for this premium. The flaw in this, however, is the scale on which we are talking about. When you are talking about spending $1500 vs. $3000 that Mac OS premium is hard to justify. But if you are talking about $50 vs. $100, or even $50 vs. $200, consumers are far more willing to overlook the price difference. They may even see that price difference as a rational for upgrading to an iPhone. Then if we really want to get serious we can look at the tablet market where it doesn’t appear anyone can beat Apple’s iPad prices2.

The second phase of the desktop OS battle was about software. As Microsoft’s dominance grew software manufactures started to focus more and more on the OS that would earn them the most money. Why spend as much money developing a Mac OS version of your software when it was going to generate 1/10 the return. This meant that even if a user wanted to switch to a Mac because they were sick of Windows they would not only have to repurchase all their software, but it might not all be available. Fast forward to the late 90’s and Microsoft has >90% of the desktop market and Apple is on the brink of bankruptcy. So does this mean game over for the iPhone? Is it’s death inevitable? Hardly. There are two key differences here.

  1. The Apple App Store is widely considered to have both more, and higher quality apps than Google Marketplace3. This may not always be the case but Apple clearly has a huge lead here.
  2. iOS users are more willing to pay for apps making it a more lucrative target for developers.

iPhone vs. Android If anything Apple is in the shoes of Microsoft here as anyone who already has an iPhone would have to make significant monetary sacrifice to switch to an Android device. All that money they spent on high quality apps would be down the drain and replaced by mostly free, but ad supported and lower quality Android apps. If there is even an Android equivalent for their favorite app. Android users, on the other hand, have invested very little in terms of software into their phones. Since most of their apps are free and they give up very little in switching to iPhone and gain in availability and quality of apps.4

Then of course there is the fact that the past decade was a very different story as first the iPod and now the iPhone has ushered in a new generation of Mac users making Apple the most profitable computer manufacturer in the world5. Yes, you read that right. In fact they are the only computer manufacturer that actually grew their computer sales last quarter in a year-over-year comparison. So perhaps the Apple vs. Microsoft model will work out in the long run. We’ll have to check back on the Desktop OS war in 5 years and see how Microsoft is doing.

Of course the elephant in the room on this issue seems to be profitability. Most of Apple’s detractors seem to have a blind spot for their +$300B market cap and the fact that despite the fact that they represent 25% of smartphone sales they hold over 50% of the profit. Now one could argue that profit is not a guarantee that a product will succeed but with margins that big and $60B in the bank Apple can afford to play hardball if they want to. At this point they could start a 3-month iPhone give away6 if they valued market share over profitability and it would be but a hiccup in their earnings report.

  1. Operating System []
  2. This Tablet Comparison Chart has the classic tech review pitfall in that it compares raw specs but it’s still an interesting chart. []
  3. As John Gruber points out, Where Are the Android Killer Apps? []
  4. Horace Dediu has a brilliant theory relating Android’s lack of high quality/paid apps as a reason that it’s not a “sticky” OS. How sticky is Android? []
  5. http://www.gartner.com/it/page.jsp?id=1632414 []
  6. with a 2-year contract of course []

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