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The Valley giants both want to determine how users access the mobile Web. Eric Schmidt's exit from Apple's board may be the shot that starts the race in earnest
Over the past three decades, a few titanic rivalries have defined the technology industry's megatrends, ultimately determining which products eventually end up in consumers' and companies' hands.
Now, adding to the annals of competition that include Microsoft's (MSFT) clashes with Apple (AAPL) in the '80s, IBM (IBM) in the '90s, and Google (GOOG) in this decade, the new defining rivalry in tech may be between Google and Apple. Google CEO Eric Schmidt's resignation from Apple's board on Aug. 3 highlights the degree to which these companies are more foe than friend.
By most measures—revenue growth, stock appreciation, magazine cover stories—Apple and Google are the two most successful and influential companies of the past decade. Yet their visions for how the computer industry will shape up in the next one could hardly diverge more. "They are both very innovative companies with very different ways of innovating," says Henry Chesbrough, director of the Center for Open Innovation at the University of California at Berkeley. "They've both been very successful, but there's a contest of different approaches going on here."
Google is the standard-bearer for a wide-open world of Web standards in which programmers should be able to run nearly any software on almost any computing device. From Google's perspective, the more the merrier—so long as those programs, devices, and Web sites create places for Google to sell online ads.
Open World vs. Tight Control
Apple's view is sharply different. The company keeps its ecosystem of software developers carefully manicured and maintains tight control over what software can be sold for its iPhone. The reasons range from filtering out schlock applications to what some observers say is putting the kibosh on applications that compete with Apple's own offerings or those of iPhone wireless carrier AT&T (T). That may have been why Apple blocked Web-calling software Google Voice from the iPhone last month.
Apple and Google take different approaches to computer hardware, too. Google seeks out many hardware makers to manufacture cell phones and other devices that run its Android operating system, and it will probably take the same approach if it releases its Chrome OS software as a commercial product. Apple doesn't let anyone else build Macs, iPods, or iPhones. "Apple thinks it's all about selling hardware. There's a deep, deep confidence at Apple that they can continue to make the best devices—and why shouldn't there be?" says Trip Hawkins, CEO of game developer Digital Chocolate and founder of game giant Electronic Arts (ERTS) in the 1980s.
Until now the companies' differences have been papered over a bit by Schmidt's presence on Apple's board, which he joined in 2006. Both companies insist their relationship is fine, and to be sure, there's collaboration between the two. "Eric has been an excellent board member for Apple, investing his valuable time, talent, passion, and wisdom to help make Apple successful," Apple CEO Steve Jobs said in an Aug. 3 statement.
Then Jobs continued: "Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple board member will be significantly diminished since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest."
Probes by Both the FTC and the FCC
Some observers say less abstract reasons contributed to Apple's decision to bump Schmidt. In May, The New York Times reported that the Federal Trade Commission was investigating whether Schmidt's Apple directorship violated antitrust rules prohibiting companies from sharing directors. On the day Schmidt resigned from Apple's board, Richard Feinstein, director of the FTC's bureau of competition, confirmed that his agency was still investigating the fact that Genentech CEO Arthur Levinson sits on both companies' boards. The Federal Communications Commission on July 31 said it is investigating why Apple refused to let Google Voice be sold on its iPhone App Store.
Given the Obama Administration's signals that it will be more active on the antitrust front than the Bush White House, Schmidt's removal is a pragmatic step by Apple to stay out of trouble, analysts say.
Until now, Google and Apple resolved conflicts by having Schmidt recuse himself from discussions about the Android operating system as a competitor to the iPhone. But given how central the mobile Web is to the computer industry's ambitions for selling hardware, software, content, and ads on a new class of pocketable devices, the tensions between the companies in this area couldn't be swept under the rug simply by having Schmidt step out for coffee.
On a broader level, Apple and Google are vying for the upper hand in answering this era's central technological question: Where should most computing happen? Google's answer is that most computing tasks should happen in the cloud, via software that runs in massive Internet data centers housing users' data, files, and contacts so they're accessible from anywhere.
That's the thinking behind its Android smartphone software and Chrome OS, a thin layer of operating system code that could replace Apple's Mac OS or Microsoft's Windows on PC-like devices. In both cases, Android and Chrome OS's main function is to provide access to the cloud, as well as enough local computing power for whenever users lack a Web connection.
Less and Less Need to Play Well with Others
Apple's vision for the future is very different. Its business is about selling elegant, powerful, high-margin machines that put much of the computing power in your pocket (iPhone), in your briefcase (Macbook), or on your desk (iMac). For that it relies more than any other tech company on so-called "native code" written for a specific machine. "Apple, more than any company in tech history, has been able to create its own proprietary environment," says Hawkins.
In the years ahead, Apple may expand its product portfolio to include pretty much everything consumers need to inform and entertain themselves. Sources say the company will introduce a tablet-style gizmo in the coming months that could be used as a portable TV or for reading digital books. There's nothing to stop Apple from creating TVs that could also be used to view videos purchased on iTunes. The broader this alternate universe becomes, the less Apple would need to work well with others.
Microsoft's epic struggles with IBM, Apple, Netscape, and Google have often put it at the center of the battle to define tech's trends. These days the strongest signals about where the tech sector is heading aren't emanating from Redmond, Wash. Now the fight is centered on Silicon Valley. With Schmidt's departure from Apple's board, a new era of tech rivalry may well begin.