Going for the Jugular

Apple and Google are trying to fundamentally undercut one another.

Apple's business model is predicated on selling hardware at fat margins. In order to earn those margins, Apple must pioneer new technology platforms to drive mass market adoption and establish prices on their terms. Apple successfully commercialized desktops, laptops, mp3 players, phones, and tablets. Because Apple was first to nail the magic usability formula in each of these form factors, it set the price point and owned the mindshare of the form factor. The power of being first is profound: the average Apple laptop sells at more than 2x the ASP of the rest of the industry, and the iPhone, iPod, and iPad command the highest ASPs in their respective markets. With Glass, Google is trying to 1-up Apple at its own game. Although Glass is dramatically less useful than a phone, it still represents Google's attempt to prevent Apple from pioneering and commanding new technology markets. There're rumors circulating that Glass will cost $199 at launch. If Glass launches at that price point, Google will effectively shut Apple out of the eyeware computing market entirely. Apple cannot make money selling glasses at $199.

Apple, on the other hand, is trying to disintermediate mobile Google search. Apple has app-ified mobile, and is trying to keep users searching within apps. One of the driving visions of Siri was to be a search engine of search engines. Although Apple hasn't yet empowered developers to plug into Siri, they will in time. When Siri transforms into an intelligent search engine of search engines, expect to see Apple make a serious push to kill Google. The future of search isn't 10 blue links; the future of search is answers. Although Siri is still limited in what it can do, Apple is slowly encroaching on Google's turf, particularly as an increasing percentage of searches are performed on mobile devices.

It's fascinating to watch the two leading tech mega-giants battle it out on a global scale. Although Apple and Google are very asymmetric companies that capture value at very different points of the value chain, they are increasingly encroaching on one another's territory. Perhaps Apple will nail TV where Google failed, and perhaps smart watches will be the next computing form factor, though I have my doubts. Regardless, I believe that Google has the upper hand. Disrupting search is dramatically more difficult than disrupting Apple's hardware margins. Remember, your margin is my opportunity.