Google, Apple Buying Startups to Thwart Each Other

By Clint Boulton  |  Posted 2009-12-12

Google, Apple Buying Startups to Thwart Each Other

Almost no one following high tech will disagree that Google and Apple's relationship has evolved from friends to frenemies.

The evidence to support the companies' increasing competition is overwhelming, from Apple's rejection of Google Voice and Google CEO Eric Schmidt's dismissal from Apple's board.

Now the Wall Street Journal has reported (paywall warning) that Google and Apple are trying to buy some of the same companies to keep the other from acquiring them.

Specifically, Google tried to buy digital music provider Lala Media before Apple acquired it for $85 million last week. Meanwhile, Apple allegedly tried to buy mobile display ad specialist AdMob before Google settled on it for $750 million.

A few years ago, no one might have guessed that Google would go for a streaming music provider like Lala.

But Google's mission is to organize the world's information online to render it easily findable to consumers, and the company recently added a music search service, Google Music, which includes Lala as a partner. Perhaps Google believes owning Lala would give it a nice alternative to Apple's iTunes music store.

For Apple, AdMob would mark a strategy shift into online advertising, where Apple is absent. But AdMob rose to power offering ads within iPhone applications and houses a lot of data about iPhone apps and the iPhone App Store that could be very useful to Google. Ian Schafer, CEO of marketing agency Deep Focus, said:

"If Google is taking on Apple for mobile OS market share, they just scored a huge competitive advantage. Google will know more details than ever about how people are using iPhone apps, how they are engaging with advertising within those apps, and users' loyalty to those apps."

Accordingly, the Journal said Apple eyed AdMob as a defensive maneuver. Enderle Group analyst Rob Enderle noted:

"Streaming is increasingly seen as the future of media, and while there are third-party apps that support it, Apple as a company hasn't. Google is building an empire of advertising-funded media, and streaming is the best way to build out this model with this type of media. Google is about advertising, and AdMob is consistent with a core competency. Apple gets virtually no revenue from advertising, and that is a huge pool Apple doesn't play in."

Competitive Angles Have Crystallized

"So these recent moves are consistent with legitimate strategies from both companies, and the properties did seem to end up with the firms that needed them the most. Lala is closer to Apple's media core, and Apple has largely cornered the mobile media market; Google is the leader in online advertising and has clearly cornered that market. Both are affectively assuring their respective near monopolies." 

The Google Voice debacle set this cold but warming confrontation off like a wildfire. Last summer, Google submitted a version of its Google Voice phone management app to the Apple App Store, but Apple rejected it.

Apple said it denied Google Voice because its features compete with iPhone's feature set, but Google Voice cannot connect calls. That is set to change after Google bought softphone maker Gizmo5, which will enable Google Voice to connect those calls. This is yet another step where Google is moving closer to Apple's turf; but the rabbit hole goes deeper.

Google offers Android as an open-source, mobile operating system alternative to proprietary platforms such as the iPhone, and the Android-based Motorola Droid is selling well. But rumor has it that Google is building its own phone to sell, similar to the way Apple distributes the iPhone. This so-called Google Phone will feature Google Voice, allowing to Google to do on an Android phone what Apple barred it from doing on the iPhone.

Google and Apple are also vying for mobile application dominance. Google recently launched Google Maps Navigation, a free GPS application for some Android phones that obviates the need to buy a GPS device or application to run on Apple's iPhone.

This GPS app is not yet available for platforms other than Android. Meanwhile, Apple, which uses Google Maps on its iPhones, acquired mapping software maker Placebase this year, and it is believed Apple will try to replace Google Maps with this technology.

There are other areas where Google and Apple are crossing swords that don't involve phones or Google Voice. Google built the Chrome Web browser and Chrome Operating System. The former competes with Apple's Safari browser, while the latter will be a computer platform alternative to machines running Apple's Mac OS X.

The competitive fronts have crystallized, Enderle agreed:

"The way Steve [Jobs] handled the firing of Eric Schmidt from his board was very personal, and I think that has focused Google more solidly on Apple and Apple more solidly on Google.  Much like Google's initial focus on destroying Microsoft appeared largely driven by a personal dislike for that company that cut across its executive leadership, these recent moves appear to be tied to a personal dislike that has grown between the CEOs.

"We often talk about excessive power and the connection to 'evil' behavior, but, in my experience, excessive power can also result in avoidable battles between two companies that aren't natural competitors."   

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