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An iPhone App War?

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The business world is sometimes a funny place. Friends become enemies, enemies become friends, and companies are friends and enemies at the exact same time. It can make your head spin in circles. The recent rivalry between Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) is an excellent case example. Unfortunately for Apple, it also highlights that company's growing weakness.

Fight, Fight, Fight!
Google is the clear winner in Internet search, reaping a massive fortune from the ads it places online. It has beaten back competition from upstarts to major players like Yahoo! (YHOO). It has used its dominance in that business to fund its expansion into new businesses, some of which have been successful and others that have floundered or outright failed.

Being able to fail is one of the nice benefits of having loads of cash and a dominant position in your industry. Microsoft is another company that has followed this same path. Note that some of Google's pet projects are aimed directly at Microsoft products and services, like offering online “software” that can replace MS Office.

Google's new “computer” is another example that takes aim at Microsoft, but also aims at Apple. The device is a mixture of an iPad and a laptop. While it isn't likely to change the world, the low price point and laptop-like look and feel are certain to be compelling to a large number of customers that might otherwise purchase an Apple i-something.

Moving on to Phones
One of Google's strengths today is its dominance in mobile operating systems. Android and Apple are the two big players when it comes to cell phone operating systems, though Microsoft and Nokia (NOK) are making a renewed push to get back in the game. However, Google is more concerned with being at the heart of the phone than making money off of phone sales.

This is a key differentiation between Apple and Google and one that exposes a key Apple weakness. Google is very happy to let other companies use its mobile operating system to gain the chance to make money off of the use of the system. Apple keeps just about everything close to the vest. Thus, Apple needs to sell more devices to make more money, while Google just needs to get more phones into customers' hands regardless of who makes them.

Moving on to Apps
So, Google moving aggressively into the mobile app space is a logical next step for the device agnostic company. This is particularly true after Apple made the decision to trim some Google apps out of its new mobile operating system with replacements of its own. When the Apple apps disappointed the market, Google had a clear opening. It took it.

This is good for Apple because it has more applications for its products, a key differentiation over the also-ran mobile operating systems. Google benefits because it touches more people in more ways. Consumers benefit because they have more choices and the competition between Apple and Google over apps forces both companies to up their games.

Apple, however, has only one platform to exploit in the mobile space. Google has two: Advantage Google. While there still isn't a clear winner in the mobile advertising space, Google is quickly trying to assert its dominance. Its open business model allows that to happen. Apple, which would love to be dominant in the space can only hope to control the “Apple world.” That world, however, could slip away and Google is helping the process along.

Key Risk
For many years Apple was a market darling, and perhaps rightly so. However, as with so many things in the market, investors forgot the old saying that “trees don't grow to the sky.” It appears that reality is starting to set in, however, with Apple shares dropping materially since about the same time the company initiated a dividend (something the market seems to think indicates a slow growth tech company). Google, on the other hand, has held up quite well.

GOOG data by YCharts

What's the reason for the divergence? Part of it is the fact that people are realizing that Apple sells products and it is getting harder and harder to sell an ever increasing number of those products. Unless the company can continue to bring out game changing offerings, it's going to struggle eventually. Google, on the other hand, keeps piggybacking on every product it can to sell more ads.

That's a winning and, so far, a repeatable model for the company. The more pies it sticks its fingers in, regardless of who owns the pie, the more money it can make. Apple is stuck wishing it had more pies.

Yours,


ReubenGBrewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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