On The Future of Apple and Google
When Tim Cook was interviewed by Charlie Rose after Apple’s mega launch event a few weeks ago, he scoffed at any mention of competitors, highlighting only Google as Apple’s arch-rival.
Apple and Google are entrenched in a modern version of the PC war, and are the only two players with relevancy at the operating system level. Here are some thoughts on why this is important and what’s next as we enter the golden years for mobile and approach the early beginnings of the post-mobile era:
- Android is now the operating system of the world. It dominates any non-Apple, non-PC application. We still think of Android as a smartphone OS. But almost everything truly smart will run Android – new TVs, IoT devices, your home appliances etc. Android is just a fork of Linux, a runtime, controlled by Google. But the kernel is sort of unimportant. It’s what Google puts on top, all the software that uses Java and native APIs which make Android now more extensible than Linux for connected devices. Why build your own embedded Linux services and APIs when you can tie into Google services?
- However despite Android taking less than a decade to become the most dominant operating system of all time, iOS continues to distance itself from Android at the high end. Part of this is the iOS-first paradigm that app developers work under. E.g. in leading edge app categories such as on-demand services, all of these are iOS-only out of the gate, and with iPhones now increasing share vs Android in the US, Apple’s lead is actually widening. Remember two years ago when people said Android would crush iOS (the PC vs Mac fallacy) and that profits, apps, developer / ad revenue and consumer mindshare would all go to Android? They were wrong.
- If it’s not obvious now, mobile platforms evolved totally differently than PCs. There are important structural reasons for this—mobile benefited from competition at both the OS and hardware / chip layer, whereas in PCs these layers were both monopolies and innovation effectively stopped for 10-15 years. However, there are lessons to be learned from Mac vs PC in terms of how a developer ecosystem emerges: a platform only grows when developers sell software and make money. This is how the term ‘killer app’ was coined. Without ecosystem players making money, platforms stop evolving rapidly and atrophy. The problem with Android isn’t market share. It’s lack of the best apps, less usage in emerging categories, less killer use-cases and in turn… a reduced ability for developers to make money. Android first is still a myth. Despite it dominating in share worldwide.
- Payments have arrived on mobile. Commerce is now as easy as a thumb print. Downloading apps and paying is practically as easy as loading web pages. It’s all secure and just works. Apple Pay is 3 years ahead of Google in almost every regard. And since a lot of these killer use-cases anchor off commerce, Google will scramble to accelerate efforts in payments. But it’s going to be difficult to do so organically. Google Checkout and Google Wallet both failed. I expect Google to acquire Square to catch up around payment IP and merchant access, and to attempt to acquire Stripe1. There are a lot of pieces to this puzzle and without tight control of the handset’s payment IP, Android will remain way behind iOS on user experience in mobile commerce. iOS could even use its tight integration to get ahead in an area where Google is thought to dominate: mobile web. Can you imagine if Safari used Apple Pay, and mobile websites could accept payments with a thumb print?
- Services like payments both quantify Apple’s user experience lead and help qualitatively diagnose the effects of Android fragmentation. E.g. NFC and technologies like this will never have uniform rollout or consistent messaging or user experiences in Android, even if NFC catches on at the POS due to Apple Pay. Why? Android now lags an amount equal to its weakest link. The entire platform is not necessarily years behind iOS, but elements of it are—and that means its aggregate user experience is. Though Google is ahead in services, these weak links hold Android back. Apple devices are now optimized at the hardware level to degrees we have never seen before. The iPhone 6 has two NFC chips and two chips responsible for gyroscopic movement and device acceleration. Apple is simply years ahead when it comes to system integration.2
- New frameworks for devices to interact with the physical world have arrived and will further Apple’s lead. These are important to the growth of the platforms. These include BLE, iBeacon, NFC and other areas adjacent to discovery and the purchase funnel. These short range technologies (when made developer-friendly through APIs) allow phones to connect with the nearby world (the ‘edge’ or last 50 feet), much like GPS allowed phones to connect with the outdoor sky 10 years ago. This short range RF stack is maturing rapidly, but it’s still a little bit like GPS was 5-10 years ago. Back then the apps sucked—remember the first Garmin device you had to plug in to your cigarette lighter, which had no real apps or expansion capability? Or the first time you used maps on a Nokia series 40 phone? The applications were bad, the devices sucked, and the developer tools were non-existent. Now every single app you download uses location and you can get a car delivered to your house in 5 minutes, all enabled by GPS.
- Tying these types of complex APIs / services together requires lots of power, which is precisely why high end smartphones are really defined by their ‘performance per watt’ of power consumption. This is a ratio that Apple dominates3. But the Watch is where Apple’s chips / hardware / OS vertical integration will really shine. That’s because with wearables, there is a sort of third axis beyond performance and power: volume. The Moto 360 is double the volume of the small Apple Watch, an unpleasant difference and one that almost no one will stand for at a given price tier when holding the two devices. If wearables follow fashion, you could make a case for Apple owning this category. It won’t be possible to own it like the iPod, because watches require ecosystem complements (Apple Watch requires an iPhone, Android wear requires an Android phone), but It’s now very apparent: Apple has a drastic advantage with wearables because it owns not only the OS, but also the semiconductor stack, the branding, the industrial design, the stores, and more of the direct distribution—wearables aren’t subsidized by carriers. So in a world of attaching computers to your body, the better metric is performance per watt per volume (or size). If it’s 50-100% more svelte, 50% faster, much more tightly integrated, all the popular apps arrive first, payments work easily and it talks to iBeacons around you, then Apple could dominate the mid and high end of this category4.
- Who knows what form wearables will take in 5 years. But it’s clear the mobile era is now spawning new platforms, which deeply impact how Google and Apple are evolving. The Apple Watch is a fine tuned system, deeply tied to everything else Apple, accelerated by innovation straight from embedded mobile IP. And just like the iPhone, Apple profits when you buy it. Meanwhile, When you use Google powered devices, Google parses through troves of data about you and ultimately profits off usage. Google is ambitious to a level we have never seen, building drones, cars and robots, all of which will be controlled through permutations of Android. And this ‘platformification’ of mobile operating systems and frameworks is about to accelerate by what’s known as ‘system wide network effects’.
- System wide network effects are network effects that take hold when adjacent parts of an overall system are built out — e.g. smartphones, wearables, sensor networks etc. Each one of these categories makes the other much more valuable once it’s built out. These network effects effectively unlock compounded value from the previous layers. People expect value from new categories like wearables and sensor networks overnight. But the reality is that the pieces need to work harmoniously, tied together by software. And only after the infrastructure is in place can developers go and create cool new things. Wearables and sensors and connected devices are interesting – but much more so when tied together with killer apps. And platform history tells us that only after infrastructure is laid do developers write software. This was even true for the internet back in the 90’s. It wasn’t until the web browser and email and other killer apps came along that you really understood the value of the internet, even though it had connected people years earlier.
- These system wide network effects in mobile, together with new classes of connected devices, are helping close the divide between the digital world and the physical world. It will continue to fall away gradually as we mature technologically. In 5 years, it’s likely that the notion of an app won’t exist like it does today. Everything around you will feel like an app, whether run on stationary screens like VR, your wearable, or on objects that navigate around you with smart software, like cars, robots and drones.
It’s provocative to think about where Apple and Google each go next. In mobile there’s a term called ‘permissionless innovation’, the basic premise of which is you don’t need anyone else’s permission to innovate. The beauty of the modern mobile era is that it isn’t held back by anti-innovators like the carriers or monopolists like Microsoft and Intel who gated the pace of innovation in previous platform eras. The mobile stack has decoupled these previous incumbents from control.
Today, Google is snapping up robotics companies and investing in autonomous vehicles, all of which will run futuristic versions of its operating systems and have the promise to measurably improve the way humans live. And Apple is still showing us that it’s the best company in the world at melding software and hardware to produce impossibly beautiful consumer products.
All of this innovation is underpinned by software, software that is figuratively eating the world. But to me the most exciting thing in tech today is not whether we’ll all be wearing smart watches a year from now. It’s that innovation will continue accelerating through the golden era of mobile and well beyond, to what none of us can quite see next.
For various reasons Stripe will not likely sell to Google ↩
Apple added these extra chips to make prediction of movement more accurate, better control how the antenna propagates etc. Putting two chips in each subsystem is only necessary in so far as you want the user experience to be closer to perfect. ↩
The iPhone 5s is still ahead of every other phone in the world performance-wise after over 1 year in market – unbelievable ↩
Not to mention the Watch has an entire computer-on-a-chip, the S1, that some are speculating will be upgradeable, which could increase lock-in ↩