Apple Has Ceded The Cloud To Google And Here's Why
Success in the cloud will come from aggregating an unimaginable volume of data and using AI to make sense of it all.
Two technology giants, with two battle plans
About 12 months ago a crack opened up in the technology market landscape, with Apple on one side and Google on the other. As the year progressed, and as the two companies made a stream of product announcements, the crack widened.
Today, that initial crack has become a chasm.
On one side of the chasm Google is using its mastery of web software, massive data and a growing competence in machine intelligence to create a new layer of value-added web services that will sit above those we use today.
On the other side is Apple who wants to become the world’s leading premium consumer electronics brand: the recent acquisition of Beats Electronics, last week’s announcement of plans to enter the healthcare and smart home markets, several high profile recent hires from the luxury goods sector and the company’s’ hardware-centric revenue model demonstrates that Apple has a very different vision of the future to Google.
There are still, of course, some overlaps - Apple has Siri, which is a cloud-based service that uses machine learning. Apple also has Apple Maps and iCloud, both of which the company continues to develop and let’s not forget that a broad and growing range of digital content, software and services elevate the company’s hardware from merely excellent to indispensible, at least for many of Apple’s 900 million hardware customers.
Meanwhile, Google still has a foot in the hardware space, as is clear from products like Glass, Chromebook, Nexus and Chromecast and ventures in the robotics and automotive fields.
But when viewed from a high level the difference between these two companies is far greater than what they have in common: but not only it is clear that Google and Apple are positioned on opposite sides of a chasm, they are working on very different battle plans.
It remains to be seen whether Apple’s plan - which is based on developing premium-priced electronics and supporting services will ultimately be more effective than Google’s plan - which is based on developing the very deep-level network intelligence that will take web services to a completely new level.
The following chart identifies just how different Google and Apple are:
Google and Apple now occupy two different parts of the market landscape which are so different and the terrain in each is so challenging that neither company can dominate both at the same time.
To continue the analogy, if Google has mastered desert warfare then Apple is unmatched when it comes to jungle warfare: the desert lies on one side of the chasm while the jungle is on the other.
Apple knows it cannot confront Google in the cloud and so it has decided to accelerate the growth of its consumer electronics businesses, where the main competition is coming from Samsung, LG and Huawei.
Apple has a far better chance of winning a battle with Samsung, LG and Huawei than it would if it decided to cross the chasm to take on Google on Google's terms, which I think would be a suicide mission.
To be clear, I'm not saying that Apple will withdraw from the cloud altogether, but its use of the cloud will be to enhance its own hardware products and ecosystems while minimising its dependence of Google, where it can.
Why do I say that Apple has ceded the cloud to Google?
There is absolutely no way that Apple is going to develop deep-level search technologies. Nor is the company busy assembling the massive-scale data assets that are so important to Google's advertising business. As these data assets become richer and larger in scale, Google will increasingly need machine intelligence to make sense of it all – in order to provide more value to users and to advertisers.
Because Apple is not under anywhere near as much commercial pressure to develop technologies like these it has, in effect, ceded the cloud to Google.
As far as Google is concerned, there was no decision to make: there is absolutely no way that Google has what it takes to compete with Apple in the consumer electronics sector: Apple is simply in a different class: products like Chromecast, Google TV and Nexus are little more than toys compared with what Apple has delivered.
And so there we have it: two of the world's most valuable companies which are each staking their claim in two very different parts of the market: Apple wants to own the premium-priced consumer electronics market while Google is on a mission to own the cloud.
When it comes to revenue and market capitalisation, Apple is presently comfortably ahead of Google:
But these two companies will be around for decades to come, and over that time period, a lot can change.
Which will ultimately be more valuable: hardware or software?
Looking into the far future I think Google has the best commercial prospects.
The reason is that the current trajectory of Google's software engineering efforts is heading towards machine consciousness which will change the world to an extent that will transcend all previous human inventions.
(I'd say many companies, including Google, already have achieved machine learning and machine intelligence and so the next stage is machine consciousness).
While Apple will continue to enjoy harvesting incremental revenues as it enters new consumer electronics markets with its branded, premium-priced strategy, Google is I'd say playing a long game and if the company can first achieve and then commercialise machine consciousness then everything will change.
As an analogy, the internet is clearly having a profound effect on the structure and operation of the media and content industries. The internet is also having a major impact on other industrial sectors, such as education, retail and communications and on government and defence as well.
But the scale of change that would result from machine consciousness would be far, far greater than what the internet has catalysed.
And so while Apple is currently way out in front when it comes to revenues and market capitalisation, Google's strategic direction and R&D programs might at some point give birth to a technological beast that will recast the entire economy.