Google Bought HTC, So Apple Is Doomed (Again)

on September 27, 2017
Reading Time: 11 minutes

Vlad Savov, writing for the Verge, penned an article entitled: “Google sets its sights on the iPhone with HTC deal.” (Everything in block quotes will be from the article unless stated otherwise.)

The article argues that:

1) With the purchase of HTC, it is clear that Google is serious about becoming a hardware company;
2) And Google is becoming a hardware company because Apple is a threat to Google;
3) Which means Google is going to war with Apple; and
4) In the Author’s opinion, Google is likely to win this war.

GOOGLE IS GOING INTO HARDWARE

“The reason why Google acquired what looks to be the majority of HTC’s phone design and engineering team is simple, and it’s been obvious for over a year: Google is serious about becoming a hardware company.”

THE IPHONE THREATENS GOOGLE

(T)he iPhone is a direct threat and counter to Google’s overarching goal of being ubiquitous on every internet-connected device.

Apple’s not-so-secret advantage is in having tight control over every aspect of the iPhone user experience.

If Google were to leave the battle to forever be between the iPhone and Android, between an integrated piece of modern tech and a mere operating system, Apple’s device would always win.

GOOGLE’S RESPONSE

(Google) can design its own, premium-tier device that can go right up against the iPhone. The HTC deal today makes sure of that.

(Google is) trying to make a better smartphone … (because) either you integrate … or you get left behind by those who do.

Apple and Google are drifting toward a direct confrontation.

To make it perfectly clear, the Author is not alone in his assertion. Others agree:

Google Just Made a Big Move in Its War Against the iPhone. … The (purchase of HTC) is a big play by Google to make its Pixel smartphone a more formidable opponent to Apple’s iPhone. ~  Time

 

With HTC, Google could finally have the firepower to destroy the iPhone ~ Raymond Wong, Mashable

 

 

THREE QUESTIONS

I have (at least) three questions regarding his article.

1) Is Google really surpassing, or about to surpass, Apple in hardware quality?
2) Is it a good strategy to challenge Apple where Apple is strongest?
3) Won’t Google’s new hardware strategy conflict with Google’s existing Business Model?

Let’s take a look at these questions, one-by-one.

 

 

PART ONE: HARDWARE

TO THE SWIFT

The striking thing about Google’s transition to being a formidable competitor on the hardware front is how swift it has been and will be.

Excuse me? You say Google’s transition has been swift? Google has put out a Google-branded smartphone every year since 2010. And every year pundits assert that this is the year that Google will finally take back share at the top of the market from Apple. And every year, the sales numbers from Google’s own phone end up being a “rounding error” that is reported as a footnote in Google’s quarterly returns.

Apple’s iPhones account for 12% of global smartphone shipments, while Samsung’s devices comprise 23%, according to International Data Corporation. Google’s own phones account for such a small slice of the market that they’re not even specifically mentioned in the IDC’s survey, and are simply lumped into the “Others” category. ~ Time

Is Google moving swiftly towards hardware? Not hardly. If anything, Google’s “transition” from a software maker to a maker of integrated hardware has been a slow, tortuous and — so far — totally unsuccessful slog.

 

 

GOOGLE IS GETTING BETTER AT HARDWARE FASTER THAN APPLE IS

(T)he Pixel turned out to have the best smartphone camera of its time — and it arguably still does. On day one, Google’s Pixel had already won one of the biggest battles against the iPhone: that of having a better camera.

 

(I)n my estimation Google is closer to catching up to Apple’s hardware design and engineering than Apple is to recreating Google’s online empire.

 

I still see a more logical and obvious progression for Google than I do for Apple.

 

CAMERA COMPARISONS

The Author rests much of his argument on the premise that the Pixel’s camera is better than the iPhone’s — a clear sign to him that Google has already surpassed Apple in hardware quality. First off, I’m not sure that the camera — while very important — is the be-all and end-all for deciding which company is “ahead” in hardware quality. But setting that aside for the moment, is it even true that the Pixel’s camera is better than the iPhone’s?

Apple iPhone 8 Plus: The best smartphone camera we’ve ever tested. – DxOMark

 

 

JEDI MIND TRICKS

Did you notice the Jedi Mind trick that the Author tried to pull here? His contention is that Google is challenging — and may even have surpassed — the iPhone as an integrated hardware/software solution. And he does this by pointing to what? A single feature of the Pixel — its camera. A single feature — no matter how good it may be — can never constitute proof of integration. And it is in integration where Apple easily surpasses its competition.

(Apple) designs both the hardware and software for all of its products, including the iPhone. Because of this, it can create new software that takes advantage of the device’s hardware, such as the iPhone’s Portrait Mode camera feature. This shooting mode takes advantage of the double camera system available on the iPhone 7 Plus and new iPhone 8 Plus, making it possible to capture photos with more depth. It would be difficult for Google to do this today since there are so many types of Android devices different manufacturers that all of them have different specifications. ~ Time

 

 

HARDWARE COMPARISONS

It seems to me that — contrary to the Author’s assertions — there is plenty of evidence to suggest that it is Apple — not Google — that is ahead in smartphone hardware and that their lead is rapidly increasing.

That’s right, your new iPhone is more powerful than a MacBook or a Windows PC. ~ Paul Brody‏, @pbrody

 

The iPhone’s Powerful A11 Bionic Chip Absolutely Smokes Android (Updated). ~ Jonny Evans, Apple Must

 

iPhone 8 Is World’s Fastest Phone (It’s Not Even Close). ~ Tom’s Guide

 

Geekbench Chief: Android Stagnates While iPhone Soars ~ Mark Spoonauer, Tom’s Guide

 

 

CPU COMPARISONS

Even the Author acknowledges that Apple’s biggest advantage over Google may be in their chip designs. But he goes on to dismiss that advantage as mere “potential”.

Maybe Apple’s investment in developing in-house CPUs, GPUs, and the proprietary Face ID system will pay off in granting it a technological edge in the future, but as of right now, those are potential advantages, whereas Google’s online lead is already in evidence.

Apple’s advantage in chip design is merely potential? The new A-11 chip that is contained in both the iPhone 8 and the iPhone X  say otherwise.

Apple’s chip strategy has given it a big advantage—and arguably made its mobile chips the best on the planet. ~ WIRED‏, @WIRED

 

APPLE BECOMES A CHIPMAKER TO ONE-UP SMARTPHONE FOES ~ Tom Simonite, Wired

 

The ‘Bionic’ part in the name of Apple’s A11 Bionic chip isn’t just marketing speak. It’s the most powerful processor ever put in a mobile phone. We’ve put this chip to the test in both synthetic benchmarks and some real-world speed trials, and it obliterates every Android phone we tested. ~ Mark Spoonauer, Tom’s Guide

 

 

 

 

The latest Geekbench figures show that Apple’s processor development teams have utterly beaten all comers when it comes to processor performance. And Apple’s SVP of Hardware Technologies Johny Srouji, has confirmed the company began to design it that way way back when the iPhone 6 was the smartphone everybody wanted.

‘This is something we started 10 years ago, designing our own silicon, because that’s the best way to truly customize something that’s uniquely optimized for Apple hardware and software,’” Srouji told Mashable.

Srouji confirmed that when the company begins to design silicon, it starts by looking three years out, which means the A11 Bionic was under development when Apple was shipping the iPhone 6 and its A8 chip.” Back then we weren’t even talking about AI and machine learning at a mobile level” Srouji said, “The neural engine embed, it’s a bet we made three years ahead.” ~ Jonny Evans, Apple Must

 

As these articles and these charts show, the iPhone does not appear to be in danger of being caught by competing phones. If anything, the evidence suggests the opposite — that Apple’s mobile hardware is starting to distance itself from its competitors. And the best is yet to come.

These charts exist because of decisions Apple made 3 years ago. What’s in the pipe for 2020? ~ Matthew Panzarino‏, @panzer

 

 

PART TWO: STRATEGY

But let’s not nitpick. Let’s say the Author is right and Google IS making significant progress toward catching and even surpassing, Apple in hardware. Does that then necessarily mean that Google is going to start stealing share from Apple’s customer base?

 

 

STRATEGY IS ABOUT ATTACKING WEAKNESS, NOT STRENGTH

I don’t know if, as the Author contends, Google is truly serious about wanting to challenge Apple in the integrated hardware space. But if it is true, it’s an abysmal strategy.  Whether you are a military entity or a corporate giant, you don’t win by attacking your opponent where they are strongest.

(T)he way is to avoid what is strong is to strike what is weak. ~ Sun Tzu, The Art of War

There is nowhere that Apple is stronger than in integrated hardware and software solutions. Attacking them there is mere folly.

Refrain from intercepting an enemy whose banners are in perfect order, to refrain from attacking an army drawn up in calm and confident array:–this is the art of studying circumstances. ~ Sun Tzu

 

It is a military axiom not to advance uphill against the enemy, nor to oppose him when he comes downhill. ~ Sun Tzu

 

In contested ground, do not attack. ~ Sun Tzu

 

 

 

THE ANCIENT ART OF DISRUPTION

If you subscribe to Techpinions, you’re sure to be steeped in Disruption theory. There are some aspects of disruption theory that are new. But there are some aspects that have existed since the dawn of strategic theory. And one of those truths is that you don’t attack a strong opponent where they are strong, you attack them where they are weak or, better yet, where they’re absent.

Strike into vacuities. ~ Sun Tzu

 

To advance so that one cannot be resisted, charge against the empty. ~ Sun Tzu

 

To be certain to take what you attack is to attack a place the enemy does not protect. ~ Sun Tzu

 

Appear at points which the enemy must hasten to defend; march swiftly to places where you are not expected. ~ Sun Tzu

 

You may advance and be absolutely irresistible if you make for the enemy’s weak points. ~ Sun Tzu

 

Do you know what it looks like when a tech company — even a giant tech company — violates those strategic principles and goes up against another company’s best?

— It looks like Bing, where Microsoft went head-to-head with Google Search.

— It looks like Zune, where Microsoft went head-to-head with the Apple iPod.

— It looks like Microsoft’s $7.2 billion dollar purchase of Nokia, where Microsoft tried to out-Apple Apple in smartphones.

— It looks like Google’s $12.5 billion dollar purchase of Motorola. (See what I did there?)

Never fight against heavy odds. ~ Thomas J. “Stonewall” Jackson

If you want to take on a tech giant (or any opponent), you don’t hit them where they’re strongest, you hit them where they’re weakest — or better yet, where they have no presence at all.

As water seeks the easiest path to the sea, so armies should avoid obstacles and seek avenues of least resistance. ~ Sun Tzu

In other words, don’t attack the opponent where they are — hit ’em where they ain’t.

— Microsoft didn’t succeed by making hardware that was better than IBM’s.

— Amazon didn’t succeed by making a better brick and mortar bookstore.

— Facebook didn’t succeed in challenging Google’s online advertising empire by making a better search engine.

Apple banged its head against the Microsoft Windows operating system for years, and years, and years and all they had to show for it was 5% market share and near bankruptcy.

— Apple didn’t succeed by making a better desktop operating system than Microsoft. They succeed by making an integrated music solution where Microsoft had none. And they succeeded by making a smartphone operating system, where all Microsoft had was a watered down version of their desktop operating system.

Challengers don’t succeed by doing what the incumbents are doing better. They succeed by doing what the incumbent isn’t doing or cannot do well.

 

 

PART THREE: BUSINESS MODELS

If you know the enemy and know yourself, your victory will not stand in doubt. ~ Sun Tzu

 

The greatest help in meeting any problem is to know where you yourself stand. ~ William Faulkner

Does the Author of this article fully understand the differences between the business models of Google and Apple? I doubt it. For if he did, he would never have written this article.

 

 

APPLE’S BUSINESS MODEL

Apple’s Business Model is fairly straightforward. Apple appeals to its target customers by creating an ecosystem of many parts that work seamlessly together. While the ecosystem is the draw, Apple monetizes its products through the sale of its hardware. The purchase of Apple hardware is the “golden ticket” that lets one enter the “Apple World” ecosystem.

 

 

GOOGLE’S BUSINESS MODEL

Google’s Business Model is a little more complex than Apple’s. Google appeals to its hardware manufacturing partners by creating an operating system and giving it away for free. This, in turn, allows Google’s manufacturing partners to appeal to their customers by selling their hardware cheaper. Google monetizes by gathering the data of the end user and selling it to advertisers in the form of targeted advertising.

 

 

DIFFERENCES BETWEEN THE BUSINESS MODELS

Apple and Google’s Business Models are entirely different and incompatible.

Apple’s Business Model works well at the high end because it targets those who are price insensitive, those who are willing to trade money for convenience and ease of use, those who are willing to pay to avoid advertising, and those who are willing to pay to insure their privacy. In other words, they’re willing to pay to avoid Google.

Google’s Business Model works poorly at the high end because — regardless of how well Google’s hardware works — Google will still sell their customer’s data to advertisers. Google’s end users are usually more than satisfied with trading their privacy and exposure to a bit of advertising for lower cost hardware. However, a high-priced Google phone destroys this value proposition because it eliminates all of the up-side while retaining all of the down-side.

Further, Apple does not have to concern itself with hardware partners because they design both the software and the hardware. Google has a good relationship with their hardware partners because they create a high-quality product (the Android operating system) and give it away for free. The moment Google starts making their own hardware, they create a conflict of interest with their hardware manufacturers.

First, the creation of a Google hardware phone causes Google to directly compete with their hardware manufacturers for sales at the high end of the market, which is also the most lucrative end of the market.

Second, the creation of a Google hardware phone creates an internal conflict of interest within the Google software team. If they want to sell a premium hardware product that competes with Apple, then they want to tailor their software to work with their hardware, just as Apple does. But the more they tailor their software to work with their own hardware the less well it will work with the hardware it is not designed for.

Further, while Google is currently incentivized to provide their hardware manufacturers with their best version of Android, when Google makes their own hardware, they are placed on the horns of a dilemma. They can either retain their best software features for themselves and make them exclusive to their own hardware — at the expense of their partners — or they can share their best with their partners — at the expense of their own hardware.

 

“Well, so what?” say the pundits. “Google’s hardware partners, like Samsung and others, have nowhere else to go, so they’ll have to simply take what Google gives them and be satisfied with it.”

In fact, that’s almost exactly the argument the Author makes:

If Samsung doesn’t like that, it can try selling Tizen phones instead of Android.

These exact same arguments were made when Microsoft created its own hardware for MP3s. And its own hardware for mobile phones. And for tablets. And what was the result? Microsoft’s hardware manufacturers haven’t entirely disappeared, but they haven’t thrived either. And Microsoft’s increases in hardware sales have been more than offset by the lost sales of their hardware partners.

This is not that hard to understand, yet pundits seem determined not to understand it. Third-party manufacturers are not going to stick around if they don’t make a profit. And the more successful Google is at making their own hardware, the less successful their manufacturing partners will be at competing against Google’s hardware.

 

 

CHANGING A BUSINESS MODELS IS HARD

 

Changing a Business Model may seem all fine and dandy on paper, but in reality, it’s a nightmare. I challenge you to name a company that has both changed its business model and retained its relevance. Historically, there are a few exceptional companies who have accomplished it, but that’s what they are — exceptions. In the vast majority of instances, changing one’s business model is nigh on impossible because the things that make a company great at doing what it does are the very things that make it lousy at doing what it doesn’t do.

 

 

ATTACKING THEIR BEST CUSTOMER

Finally, is it really in Google’s interest to compete with Apple? Apple is, after all, their best customer. Even though Apple only has 12-15% of the smartphone market, Google makes more than half of their profits from customers on Apple’s platforms. Google currently pays Apple 3 billion dollars just to be on their platform. If Google attacks Apple, Apple will be incentivized to cut ties with Google. Is it really worth it to Google to sell a few extra Pixel phones if it means endangering the Goose that lays the golden eggs?

 

 

CONCLUSION

One who knows when he can fight, and when he cannot fight, will be victorious. ~ Sun Tzu

Maybe Google feels this is a battle they have to fight. For their sake, I hope not. This is a fight they cannot expect to win.

Wars are not won by fighting battles; wars are won by choosing battles. ~ George S. Patton

 

 

ADDENDUM #1

Over at Technically Incorrect, Chris Matyszczyk has a different take. He argues that Google will fail in consumer sales because Google is inept at consumer marketing. He makes a pretty convincing case. You can see it for yourself here.

And in case you’re wondering whether HTC has better marketing chops that Google? Yeah, not so much. See video commercial here and associated article here.

 

ADDENDUM #2

Over at MacWorld, the Macalope uses his inimitable style to eviscerate a similar article making a similar argument. You can view the Macalope’s article entitled “Fourth time’s the charm: Google to win again”, here.