Siri, the iPhone’s voice-activated “virtual assistant,” kicked off this year’s Apple Worldwide Developers Conference in June by cracking jokes about San Francisco’s weather, Silicon Valley’s venture capitalists and other subjects only software engineers could find funny (“How many developers does it take change a light bulb? None, that’s a hardware problem”). But it wasn’t long before Siri launched a few verbal jabs at Google, as well as the Asian manufacturing giants that now churn out millions of iPhone-esque devices to run on its Android mobile software. “I’m excited about the new Samsung,” Siri deadpanned in her digital twang. “Not the phone—the refrigerator. Hubba, hubba.”
Siri’s gentle ribbing masked a deeper fallout between Apple and Google, once strategic partners. Before he died, Apple co-founder Steve Jobs told his biographer that Android was “grand theft” of the iPhone concept. “I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong,” he said. “I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this.”
Many assumed Jobs was referring to the avalanche of patent infringement lawsuits Apple has launched against Samsung, HTC and others. But in recent months it’s become clear he had other plans too. At the same June developer’s conference, Apple unveiled a new mapping application that will replace Google Maps on the iPhone and iPad. Then, earlier this month, Apple revealed that iPhones and iPads would no longer ship with Google’s popular YouTube app pre-installed. Even Siri, though still a beta project, is considered by some to be an eventual replacement for Google’s ubiquitous search engine on future Apple machines. “Apple wants to cut the cord—any ties it has to Google,” says Kevin Restivo, a senior analyst with research firm IDC. “It’s a classic turf grab. The more control you have over the smartphone operating system and the user experience, the more lucrative it is.”
The stakes are huge. The global smartphone market, now worth about $50 billion, is expected to grow to as much as $237 billion by 2016, according to some estimates. And Apple and Google have very different ideas about what the future of the industry should look like. Apple, a notoriously control-oriented company, believes in building closed systems that allow it to dictate the user experience, making money from the sale of devices, music, TV shows and applications. Google, by contrast, favours a more freewheeling approach, handing out its software and services to whomever wants them and then selling all those eyeballs to advertisers.
The coming battle promises to reshape the industry as we know it. Although some tech bloggers have complained recently about a slowing pace of mobile innovation—a theory based mainly on the observation that most new phones look like carbon copies of Apple’s iPhone—the war for consumers’ wallets promises to yield an avalanche of new mobile products and services, ranging from digital payment systems to health-monitoring applications. “The Apple and Google we know today will be very different companies,” Restivo says. “Apple won’t be purely a hardware maker. And Google is quickly migrating away from its search-only business model.” And as they increasingly encroach into each other’s territory, the sparks are going to fly—with consumers poised to reap the benefits.
It wasn’t long ago that Apple and Google seemed to be a perfect match for each other. In 2007, Eric Schmidt, then Google’s CEO (now executive chairman), was on stage with Jobs as the first iPhone was introduced. “You can’t really think about the Internet without thinking about Google,” said Jobs, who wore his trademark black mock turtleneck, jeans and grey New Balance sneakers. At the time, Schmidt sat on Apple’s board and the two companies were seen as complementary. Apple built sleek, Web-enabled devices. Google indexed and delivered the Web’s billions of pages to users. Schmidt even joked onstage about a merger of the two companies, perhaps called “Applegoo.” Jobs chuckled.
But Jobs wasn’t laughing later that year when Google took the wraps off its Android mobile software, based on technology it had purchased two years earlier. Or when, in 2008, it launched its open-source handset alliance, a consortium of hardware, software and telecom companies that pledged to work together on developing feature-filled smartphones. The final straw came in 2009 when Android-powered touchscreens made by HTC and Samsung began hitting the market in large numbers. That August, Apple revealed that Schmidt would be leaving Apple’s board of directors as Google entered more of its core businesses.
Much to Apple’s chagrin, Google’s open-source Android project has been spectacularly successful. Android has risen to control nearly 68 per cent of the global market as of the second quarter of this year, according to IDC. By contrast, Apple’s share of the market is just 17 per cent, although sales of the iPhone have slowed in recent months as consumers wait for a new generation of the device, the iPhone 5, to be released this fall. Meanwhile, Nokia, Microsoft and troubled BlackBerry-maker Research In Motion each count for less than five per cent of the market, effectively making it a two-horse race.
Market share figures don’t tell the whole story, however. Unlike Apple, Google doesn’t make or sell phones, and its mobile advertising business is estimated to have generated just US$2.5 billion (a good chunk of which is believed to come from iPhone users) of its nearly $37 billion in 2011 ad revenue. By contrast, Apple is believed to earn more than half of its profit, which amounted to nearly $26 billion in the 2011 fiscal year, from sales of the iPhone alone. But with a plethora of cheap Android devices flooding the market, Apple’s enviable profit margins are now at risk.
In an effort to slow Google’s advance, Apple has turned to the courts, launching suits against Android handset makers in dozens of countries around the world. These include a $2.5-billion patent infringement filed in California against Samsung, which also happens to be one of Apple’s key component suppliers. It is akin to a proxy war between two superpowers. “Samsung is just a stand-in,” says Robin Feldman, a professor at the University of California’s Hastings College of the Law. “The larger battle is between Apple on one side and Google and the Android phone makers on the other. And it’s being fought in courtrooms across the U.S. and the world. This is about domination of the smartphone market.”
But while lawsuits can tie up competitors and besmirch reputations, Apple and Google both know the real victory will be decided in the marketplace. So while the lawyers argue, engineers in both companies are engaged in a mobile arms race. “This is not just about personal vendettas,” says Charles Golvin, an analyst at Forrester Research. “It’s about the much greater business opportunities at stake.”
The jockeying to win over the hearts, minds and wallets of consumers has seen Google and Apple engage each other on a number of fronts. In 2008, Google launched the Android Market, which aimed to replicate the success of Apple’s App Store. Apple retaliated in 2009 by rejecting an application to its mobile App Store for Google Voice, which allows users to make free calls to other phones within North America, as well as offering free features such as voice mail and text messaging. Analysts interpreted the move as an effort to protect Apple’s key carrier partners—namely AT&T, which had signed an exclusive five-year deal to sell the iPhone in the United States.
An even bigger threat to Apple emerged last year when Google made a bold, $12.5-billion bid for Motorola Mobility. While Motorola already makes Android devices like the Droid line of phones, the move will allow Google to more closely integrate its software and hardware, blunting a key Apple advantage in the process.
Other attacks have been subtle. Apple, for example, irked Google’s executives by shipping the iPhone with default browser settings that declined to accept cookies, the bits of code that advertising companies—like Google—use to track people’s behaviour on the web. Google responded with a workaround that bypassed the iPhone’s privacy settings and effectively allowed the tracking of users without their permission. Once exposed, the ruse led to an investigation by the U.S. Federal Trade Commission, which last week ordered Google to pay a $22.5-million fine.
And then there are the dizzying number of competing services, all of which, analysts predict, will unleash a new wave of mobile innovation. To get you where you’re going: Apple’s new Maps application vs. Google Maps. To fill your phone with multimedia content: iTunes vs. Google Play. To supply you with local weather forecasts, traffic conditions or restaurant recommendations: Apple’s Siri digital assistant vs. Google Now. To allow for mobile payments: Apple’s upcoming Passbook vs. Google Wallet. To store your information: iCloud vs. Google Drive. The list goes on. “Just like any business, they want to do anything to keep you in one, single ecosystem,” says Ken Dulaney, an analyst at Gartner Research.
Yet even as the bullets fly, both sides are aware they can’t rid themselves of each other completely. Apple knows its users still want Google’s search engine, and Google still wants iPhone users to watch YouTube, which is why a Google spokesperson told Maclean’s it’s “working with Apple to ensure we have the best possible YouTube experience for iOS users.”
So who is likely to come out ahead? Gene Munster, an analyst at Piper Jaffray, says he’s betting on Apple over the next few years. As the smartphone wars enter their third inning, (the first being about the phones themselves, the second over apps), Munster argues the next battlefield will focus on integrated services that can be used to sell advertising. He notes that Apple has so far inked deals with Yelp (for restaurant reviews), Fandango (for movie tickets) and Open Table (for restaurant reservations), in the belief that such information is ultimately more useful to smartphone users than mere access to the web—particularly if it can be dialled up quickly and seamlessly. In Apple’s view, an iPhone user looking for a restaurant recommendation can just ask Siri where to eat, bypassing Google entirely. “If you look at the searches that are monetizable,” says Munster, “Apple appears to be going after the ones you can actually make money on.”
Of course, that assumes Siri works as advertised. So far it has failed to live up to expectations, getting stumped on basic questions or delivering inaccurate information. “It’s Apple’s attempt to get people to think about search differently,” says IDC’s Restivo. “But right now it’s more of a punchline than a competitive alternative.” Tim Cook, Apple’s CEO and former supply-chain guru, has nevertheless promised to “double down” on Siri’s core artificial intelligence technology, which, in fairness, is a field that has stumped computer engineers for decades. Not to be outdone, Google recently said it was updating its own voice-search application so its web searches would feel more personal and, effectively, Siri-like.
With each blow and counter-blow, Apple and Google are showing they’re prepared for a knock-down, drawn-out battle for industry supremacy. And that can only be a good thing for consumers. “There’s constant innovation in this space that far outpaces what we’ve seen in the PC world,” says Forrester’s Golvin, adding that the pitched battle between Apple and Google suggests there’s little risk of a comfortable duopoly forming any time soon. “We’re seeing constant innovation in displays, memory, sensors and image processing.”
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