Sunday, April 11, 2010

The knives are out - Apple goes after Google!

My last post dealt with the differences between Apple and Google, and how a major war was likely between the two. Over the last 4 months, a lot of this has played out in ways similar to what I predicted.

Apple has gone after HTC, in what many believe is a proxy fight against Google and Android. Going after HTC gives Apple several advantages - HTC does not have the financial clout that Google has. Any judgement against HTC will dissuade others from stepping on Apple's technology patents. At the least, this will be a long drawn out legal battle, and will muddy the waters for Android quite significantly. In that period, Apple can increase its technological and marketplace lead over Android.

Apple has announced iAd - this is a much more serious threat to Google, because it attacks the very core of Google. Like everything else Apple touches, they came in late to the advertising game, but they have come in with a really well thought out implementation which make it extremely difficult for Google to counter. The nature of mobile devices today, is such that people dont spend much time on the browser per se, and instead use applications that are specifically designed to do one task well. Because these applications dont connect to Google at all - Google has no effective way of targetting ads.

Apple's current iPhone development guidelines charge $99 from developers who want to sell paid apps in the App Store, but dont charge anything from developers selling free apps. I expect that this policy will be changed within the next year - anyone using iAd in their free apps would continue to get free placement in the AppStore, but anyone relying on other advertising services would have to pay $99 to offer even their free apps in the store. This single move, combined with the fact that iAd offers very generous 60:40 revenue sharing with the developers is likely to move developers towards iAd very quickly.

iAd ads are served up by the OS - which has a very good idea of your current location based on WiFi, GSM triangulation, or GPS, depending on your device. The OS also knows your iTunes user id, and hence details of your credit card and your billing address. It has details of your past purchases on iTunes, as well as on the AppStore. All this information can be used to efficiently target ads at the user. Also, iAd offers much more compelling ads, with video, built in games, etc. And the ads are relatively unobtrusive, because when the ad is closed you are taken back to the application. iPhone, iPod Touch and iPad also represent the cream of the user community - the people with high disposable incomes and spending power. All these are likely to create impetus for a quick shift to iAd from the advertising community.

How can Google compete against iAd - I think Google will soon realize that it is pointless and likely impossible to compete against iAd on Apple's platform. Their $750 million investment in AdMob might be worth a lot less now. Their best bet would be to implement something similar in Android - but even here, Apple already has a patent on embedded advertising controlled from the OS.

Google belatedly realized the implications of this patent and has filed for a Location Based Advertising patent. This could take some of the sting from Apple's patent if successful - but unfortunately for Google, Location Based Advertising has several examples of prior implementations in Japan and other markets. It is unlikely that Google can get this patent - and even if they do, it is unlikely that they can successfully defend it. Apple's OS based advertising however has absolutely no prior implementation as a threat.

But all this is moot - Apple is not in this game to make money selling advertisements. They want to make sure that they remain in full control of the ecosystem, and they can sell more devices that become even more valuable because they can access content that is subsidized by ads in a verifiable way. This is very similar to the Hulu model where TV episodes are offered free in return for the user agreeing to see ads. In Apple's case, they can offer much wider variety of content for free - and because the ads are played by the OS itself, they can enforce that the user actually sees the ads. If Apple makes money from showing these ads, it is just gravy for Apple - but for Google the money from Ads is their biggest source of revenue. Apple is really going for Google's throat with iAd.

There are other subtle ways in which Apple is targetting Google. For the last 2-3 months, there has been speculation that Apple will replace Google as the default search provider on the iPhone - and possibly cut a deal with Microsoft to position Bing as the default search provider. However, this was seen as a move that would piss off Apple's user base, as Bing is clearly nowhere near as good as Google in web search. Such a move by Apple would have been seen as ineffective, because most users would have immediately switched their default provider back to Google. Apple however took a completely different path. Instead of picking a default search provider, they just removed Google's branding from the Search functionality, and just called in "Search Web". When the user searches, results are displayed from Google, Yahoo, and possibly even Bing. This kind of collating of results creates an advantages for the user - because you can get the best results from all search providers at one shot. From Google's perspective however, while their search results are available on the iPhone, they cant make money off it - because Apple strips off the ads and other things in the results.

Several years back, there was a major fight between web publishers and Google - with the web publishers complaining that Google News was displaying articles from websites, without showing the ads that were present on the websites. Only when users clicked on the "Read more" link would they be taken to the original website. In an age of information overload, it is natural that most people never bothered to click the "Read more" link, and instead got all their news from just the main Google News page. The clock has come full circle now - with Apple displaying the search results from Google's website, without displaying the Ads and other links in the website! It will be interesting to see how Google counters this move of Apple, without weakening its position on Google News, Google Reader, Google Books, etc. It will be brilliant if Apple just offers links like "More results from Google", "More results from Bing", etc - and place these alphabetically, so that Bing would come before Google.

This is just the beginning - expect to see more such initiatives over the next few months. Google is going to regret the day it decided to compete with Apple.