Apple and Google square off over smartphone supremacy

By: USA Today
By: USA Today

Apple CEOSteve Jobs is expected to take the wraps off the fourth edition of the company's prized smartphone today. It doesn't matter that the iPhone is now in its third year and that what is likely to emerge is merely an update. Legions of tech geeks, Apple competitors and ordinary consumers will be hanging on Jobs' every word.

With back-to-back-to-back best sellers in the iPod, iPhone and iPad, Apple "comes up with more good ideas than any other company on Earth," says Richard Doherty, an independent analyst at the Envisioneering Group.

About 5,000 independent developers — the folks who dream up the apps for the iPhone and iPad — are expected to attend the Apple Worldwide Developers Conference in San Francisco this week, the company's biggest confab of the year.

"More new millionaires walk out of that conference" than any other, Doherty adds. "And that includes Microsoft's and Google's."

How times have changed. What was once mainly a competition between Microsoft and Apple for the hearts and wallets of desktop and laptop users has morphed into a battle for supremacy in burgeoning smartphones and tablet computers. And onetime chum Google is shaping up as Apple's leading rival. Microsoft is mostly an also-ran in those markets, certainly next to Apple, Google and, in the case of phones, BlackBerry-maker Research In Motion.

If the iPhone that Jobs is expected to show off is close to the prototype device that was "lost" in a bar weeks ago, it will sport a front-facing video/chat camera, among other new features. The handset may also be the first to run the previously announced iPhone OS 4.0 software, which will bring multitasking, or the ability to run multiple apps at the same time.

Meanwhile, Google and its partners are bringing out fresh versions of its Android mobile software for smartphones and tablets. Google is also cooking up a "cloud," or Internet-based, Chrome operating system. RIM, too, is freshening its software.

Consider:

• Smartphones. Android has been out for less than two years, yet in the first quarter edged out the iPhone for second place in smartphone sales after market-leading BlackBerry, according to market research firm the NPD Group. Market share is down 12% for phones based on Microsoft's Windows Mobile software, which is in the process of its own total overhaul later this year.

• Tablets. Apple expanded beyond traditional computers with the iPad touch-screen tablet that is taking the world by storm. Meanwhile, Google's Android and Chrome will power a series of tablets and netbook computers later in the year. Microsoft has touted tablets for years, but its pen- or stylus-based machines haven't even sniffed the kind of mass-market success Apple is generating with the iPad. At last week's Wall Street Journal All Things D conference, Jobs suggested that tablets will ultimately replace more traditional desktop computers and laptops, though how soon and to what extent remains to be seen.

Microsoft CEO Steve Ballmer is undaunted. "People are going to be using PCs in greater and greater number for many years," he said at the same conference. "Nothing people do on a PC is going to become less relevant tomorrow."

• TV/media viewing. Google recently announced Google TV, a new initiative to bring the Internet to the television. It is working with companies such as Sony and Logitech on new TVs, Blu-ray players and set-top boxes that will open up websites on your TV screen as seamlessly as TV channels. To date, no product in the category (think Boxee, Roku, TiVo) has seen huge numbers, and that includes Apple TV. Microsoft introduced an "extender" product a few years ago to run PC video on TVs, but it never took off.

The race to mobile ads

Mobile advertising is shaping up as a new battleground. Google dominates mobile advertising with its AdWords subsidiary and recent $750 million purchase of AdMob, a company that delivers ads to mobile customers. Apple, which had bid for AdMob, purchased smaller firm Quattro Wireless and recently announced the formation of a new unit, iAds, to compete with Google.

"There's not an advertiser we speak to that isn't dying to have a strong competitor to Google," says Doherty. "This is a huge deal."

According to researcher Gartner, about $924 million was spent on mobile advertising in 2009. That figure is expected to soar to $13 billion by 2013.

IAds is positioned as a way to help Apple's community of app developers make more money by inserting ads into their programs. At Apple's App Store, about 200,000 apps are available. Apple keeps 30% of any revenue.

For iAds, Apple's take will be 40%.

"If you look at advertisements on a phone, it's not like on a desktop," Jobs said at an April event to introduce the new OS 4 operating system for the iPhone, which is expected this week. "On a desktop, it's about search. On mobile, search hasn't happened. People aren't searching on their phones. People are spending their time in apps."

Charles Wolf, an analyst at Needham & Co., says Apple's chances of catching up to Google in mobile advertising are not high. "This is a really tough challenge for Apple," he says. "There's no reason why it shouldn't pursue the mobile ad market, but Google is such a giant force already. Apple starts in a much more difficult position."

There's nothing difficult about the position in which Apple finds itself with the blockbuster iPad. Announced by Jobs in January, the iPad has already sold about 2 million units since it went on sale in April. Analysts expect it to easily get to 4 million by the end of the year.

"The iPad really took me by surprise," says Wolf, who has covered Apple for 25 years. "I thought it might sell 1 million units in the first quarter. Never in my wildest dreams did I see 2 million being sold in two months."

By comparison, it took Apple two years to sell 2 million iPods, he says.

The rivals square off

At Apple's conference this week, the goal is to get software developers focused on the iPhone and iPad and not that other growing platform, Google's Android, Doherty says.

Android was announced in 2007, a few months after the iPhone first went on sale. It started off slowly, with just a handful of wireless carriers offering it to customers. But over time, the generous pricing to carriers — Android is offered free to manufacturers — helped it gain serious momentum. Verizon, Sprint, AT&T and T-Mobile all have several Android phones in their portfolios, while the iPhone is available in the U.S. only from AT&T for now.

At its recent developers conference in San Francisco, Google played up its rivalry with Apple, taking several well-positioned shots at its former ally. Google search and mapping are standard fare on the iPhone, and Google CEO Eric Schmidt used to sit on Apple's board of directors. He stepped down last year when it became apparent that Google and Apple were now competing.

At the conference, Google executive Vic Gundotra explained the company's decision to take on Apple with a mobile phone offering. "If we did not act, we faced a draconian future where one man, one company, one carrier would be our future," he said, leaving no doubt that the "man" was Jobs.

Jobs responded last week at "D" in less-personal terms. "We want to make a better product than they do ... and we do."

Few critics have said that Android matches the appeal of the iPhone, though Google's software is a formidable rival that keeps getting better.

Wolf sees Google winning the mobile race in sales volume. NPD has Android's market share at 28% in smartphones. Wolf sees that growing to 40% to 50% within the next three years, mainly because of the appealing pricing, especially in emerging markets where Apple isn't strong.

"Apple will continue going after the premium market, which has higher margins," he says.

Microsoft's future in mobile is more tenuous. Though industry partners still sell tens of millions of phones based on Microsoft's mobile software, Ballmer conceded at D, "We're dealing with the fact that we're no longer in front of that path." Microsoft is pinning its mobile fortunes on Windows Phone 7, a completely overhauled version of its mobile software. The software looks promising, but Windows Phone 7 won't be coming out until later this year. With Apple about to beef up the iPhone, and improvements made by other rivals, it is worth asking if Microsoft's efforts in mobile will be too little, too late.

Still, Microsoft had a big hit in Windows 7, its latest computer operating system upgrade, which was well received both by tech analysts, the blogosphere and customers.

In its most recent quarterly report, Microsoft reported a 6% jump in revenue from the year before.

Yet, unlike Apple, you rarely see Microsoft fans lining up to be first on the block to get the latest product.

"Apple has perfect pitch for the consumer," while a big part of Microsoft's business is aimed at corporate customers, says Roger Kay, an analyst at Endpoint Technologies.

At his conference appearance last week, Jobs explained that in the consumer market, "Every person votes for themselves.

"If enough of them say yes, we get to come to work in the morning."

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