Apple Rejects Google Now; EU to Investigate

Google today announced via their blog that they are filing a complaint with the Justice Department and EU regarding Apple’s recent rejection of Google Now for iOS.

“It’s clear that Apple is leveraging its OS monopoly to ensure Siri is the leading personal assistant software,” said Kent Walker, Senior Vice President and General Counsel at Google. “We applaud innovation and recognize that Apple has earned its dominance in smartphones, but that does not give them the right to abuse that dominance to eliminate competition in services.”

The iPhone, which was launched in 2007, is on 70% of the world’s smartphones, and 35% of all phones worldwide. Microsoft is in a distant second place, with less than 10% of the smartphone market. Much of the iPhone’s dominance can be traced to its app store, with over 800,000 apps; Microsoft’s equivalent store has less than 100,000, and most industry observers say its apps are of much lower quality.

“Had there been a competitive OS before 2011 (when Windows Phone 7 became widely available), there may have been room for a duopoly,” said analyst Bob Beginerle. “But iOS simply had too much momentum.”

Apple has received criticism that its services, such as mail, maps, calendaring, and messaging are inferior to those of Google, Facebook, and even Microsoft, but most experts think it’s only a matter of time until iCloud, the name for their collection of services, has more market share than any of its competitors.

“Because Apple has the final say on what runs on their operating system, most customers simply default to iCloud services, including Siri,” said blogger Ben Thompson. “What has to really worry Google is if Apple bans alternative ad networks as well.”

In 2011, Bill Gurley wrote The Freight Train That is Android:

AdWords is an highly respectable castle, and Google would clearly want to put a “unbreachable moat” around it. Warren himself is on record suggesting that Google’s moat is pretty good already. But where could you extend the moat? What are the potential threats to Google’s castle? Basically, any product that stands between the user and Google…

So here is the kicker. Android, as well as Chrome and Chrome OS for that matter, are not “products” in the classic business sense. They have no plan to become their own “economic castles.” Rather they are very expensive and very aggressive “moats,” funded by the height and magnitude of Google’s castle. Google’s aim is defensive not offensive. They are not trying to make a profit on Android or Chrome. They want to take any layer that lives between themselves and the consumer and make it free (or even less than free). Because these layers are basically software products with no variable costs, this is a very viable defensive strategy. In essence, they are not just building a moat; Google is also scorching the earth for 250 miles around the outside of the castle to ensure no one can approach it. And best I can tell, they are doing a damn good job of it.

The alternate reality depicted above is the reality of a world without Android. Given enough time without viable competition, it is very reasonable to believe that iOS would have gained a natural monopoly in smart phones,1 just as Microsoft once did in PCs. And in a monopoly, one serves at the pleasure of the king.

The fact Google is able to compete on iOS is evidence enough that Android is a wild success. Apple needs to allow Google’s services; if they didn’t, they would risk competition on the services layer vis a vis Android, and offer customers a valid reason for leaving iOS. Or, to put it another way, if Android didn’t exist, it wouldn’t matter how much iCloud sucked.

Google wins, whether or not Android wins.2 Winning is in the eye of the beholder.3

UPDATE: See the follow-up article, If Not for Android, Where Would Google Be?.

  1. Although every player in mobile, including the carriers, would have fought this result tooth-and-nail. I leave it as a thought experiment to the reader to consider what this says about the reasons Android has been successful
  2. And to be fair to Tom, we actually mostly agree on this count
  3. Android serves other purposes as well: it gets more people online, which flows directly to Google’s bottom line, and it gives valuable signaling data to Google’s data engine.

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