Monday, August 3, 2009

On Schmidt Leaving Apple

Eric Schmidt resigned from Apple's Board of Directors. Some yahoo claims this is explained by serious and growing competition between the companies in browsers and operating systems and application sales.

When Apple took on Schmidt in 2006, the companies promised to offer significant synergy -- particularly in open standards for online communication and providing alternatives to the once-unavoidable products from the monolithic and anticompetitive Microsoft.

Browsers No Bother
At the time Schmidt joined Apple, Safari had been out for over three years. More critically, Safari's rendering engine had been open-sourced for over three years. The KHTML team, OmniWeb's developers at OmniGroup, Nokia , and other groups have been making products from the same code base for years, both before and after Schmidt joined Apple's BoD. The fact that WebKit gained the support of Google's browser developers, who included it in the Chrome browser, did nothing to undermine either the standards Apple hoped to foster or Apple's ability to deliver products based on solid, fast code. The fact that Nokia incorporated the rendering engine to make products directly competitive with Apple's own handhelds suggests that corporate competition need have little to do with the technology behind rendering engines.

Claiming that Apple and Google have some kind of irreconcilable conflict because each distributes a browser is frankly silly. "Entrench[ment] in the web browser game" is hardly reason to find the firms -- one, a premium hardware vendor with products distinguished by software; the other, an online services company hoping to reduce hardware costs to increase the addressable market for its services -- in some kind of conflict. Apple knew the world could use WebKit to build browsers. Had Apple not wanted the world to do so, Apple could have made its code improvements available in a less user-friendly format than an oven-ready Cocoa framework. Apple wanted WebKit to become popular so that the online experience would increasingly depend on verifiable standards -- that is, would cater to non-Microsoft browsers -- in order to make the world a better place for Apple customers. The fact that other non-Microsoft browser users would benefit from standards and consistency was in no way an injury to Apple's objective of avoiding being frozen out of the online world by MSFT-controlled secret protocols and other ancient evils common from the land of Redmond.

OS No Obstacle
Google's entry into general-purpose operating systems offers little problem for Apple. Schmidt recently approved Google's foray into general-purpose operating systems, but this isn't a threat. Why? Look at the market segments approached by each. Google seeks to make devices cheaper by creating a license-free OS -- so it can increase its addressable market. Google's threat is to Microsoft's business model, which is to increase devices' cost through operating system licensing fees. At the low end of the hardware market, the OS is a material charge that moves the needle on profitability. Consider commodity PC maker Dell, which suffers so badly from OS costs that it must earn advertising revenue by filling new machines' desktops with ad-ware. The low-end box is where Google's OS products will make a difference, not the high end where users have costly software investments that depend on Microsoft's desktop APIs.

Google's OS will free users from desktop APIs by leveraging the Google Gears technology it developed for delivering full-featured applications on desktops. Google will continue to be able to deliver these on desktops through browsers, meaning that Apple's' products will continue to be part of the addressable market for Google's products and services. Apple and Google aren't an an either/or proposition. Google simply makes ultra-low-end products possible -- and thereby access to third-world markets that don't yet exist, because devices are just not cheap enough there to be affordable.

At the high end, Apple already commands an enviable position. There's little suspicion that Google will soon compete in such a space.

Flap Over Google Apps
The author of the piece I lauch at seems to think Google's telephone application is a concern for Apple, and is behind inter-company friction. BS. What interest could Apple possibly have against Google making Apple's internet-connected devices more valuable through the offering of a voice application? The only party unhappy with this prospect would be a carrier company, who presumably wants to sell minutes instead of allowing users attached to a LAN to make calls through fast wireless networks. (If the application supports sufficient call quality to enable 3G wireless calls, carriers would really brim with irritation: they would support calls with unlimited data plans and lose minutes charges. Imagine.)

The friction here isn't about Apple and Google, it's about carriers fighting to keep competition from devices. As with DRM (which Apple seemed to champion, but only at labels' demand and only until they could negotiate their way out of it after the model had proven a failure), Apple's support of the minutes-billing-system and other carrier-caused crippleware (instant messages with a per-message fee? Why is SMS different in kind than AIM or other IM?) will eventually prove not to come from the heart at all.

Mobile Phones (and their applications)
To suggest that the phone rivalry is heating up is to ignore that there isn't a single Android device that competes head to head with any Apple product on features. Android is a tool to enable lowered OS licensing fees -- as on desktops, to enable increasing the size of the addressable market for Google's service offerings. I have yet to see evidence that Android is an iPhone OS competitor.

Indeed, Android's support for so many hardware variations will certainly make application development much less accessible to users (applications depending on features not present on specific phones, or that assume different key layouts or the like, will not offer much in the way of a user experience). Without the application base, Android will compete in niches in which a certain phone and its attendant applications make a compelling value argument. (The hardware variety issue, which Apple doesn't fear because it controls the hardware, is a real problem for Android: Google expects 18 models by year-end.) Apple's marketing approach is quite different. Apple doesn't care whether its competitors use Nokia or Google operating systems that offer users a WebKit-based Internet; Apple just cares that the Internet works great for mobile users with WebKit applications so that its customers like what they see. If MSFT's mobile offerings are obliterated in the process, so much the better.

Apple and Google share a strong interest in ensuring that Microsoft doesn't establish a position in mobile devices that precludes competition on the basis of product quality. Creating product classes that ensure the possibilty of pursuing corporate objectives by offering customers meaningful product choice works in favor of both companies. The fact that their offerings have no overlap is of no consequence, provided the choice is real: Google is offering software-only licensing to third party hardware vendors, and Apple is offering a soup-to-nuts integrated solution delivered through Apple-controlled retail channels. Google will take share from the market segment most impacted by licensing fees, and Apple will take share from the market segment most responsive to its (traditionally) high-cost premium products. Each will develop revenue entirely differently from the products (except that Google's mechanism will allow it to derive revenue even from Apple's products, though less revenue than Apple would derive). Provided competition can exist -- a condition both companies require, and a condition made more likely by widely-adopted standards-- both Apple and Google both benefit in Mobile space to a much greater degree than if the space were ceded to Microsoft or to vendors conspiring with carriers to lock users into a limited range of premium-fee applications and services.

Apple and Google aren't really competitors in the mobile space, or in mobile applications.

The article claiming that Apple and Google are now eating each other's lunches and that the departure of Schmidt was based on animosity and competition is simply bunk. The fact that Schmidt's company's products now appear in so many niches in which Apple products compete makes the threat of antitrust oversight more of a nuisance than either company wants to suffer, regardless that there's no merit in the worry (yet), and with Schmidt bowing out of strategic talks on operating systems, mobile platforms, online stores, developer relations, content contracts ... well, what's left Apple would want Schmidt to share his insight about?

The departure isn't made inevitable by growing competition, it's made reality by effort to ensure no anticompetitive concerns are colorably raised -- and formalizing it in Schmidt's withdrawal form Apple's board changes little. The places where Apple and Google best cooperate -- making good code that tends to free users from dependence on Microsoft products -- are alive and well (in the form of the companies' numerous open-source development programs and for-a-fee products and services), and in some places involve active cooperation, such as on WebKit, which powers both firms' broswers. Where active cooperation isn't present, the mere fact that Microsoft isn't ceded territory and must fight tooth and nail (and lose share on the way) protects the marketplace for users and their suppliers of hardware and software.

Google and Apple will continue to share a desire for standards and interoperability and cross-platform access -- and toward that end their valuable cooperation will continue at the operational level even if at the strategic level the need to have Schmidt on the Board is diminished. It's not like Schmidt and Jobs haven't got each other's number if something comes up.

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