Apple has ridden the iPhone to 14% of the smartphone market in three years. Google's original plan to let hardware partners make phones running its Android software has garnered only a sliver of the market. So Google, risking the ire of Android phonemakers, is launching its own Nexus One phone.
The 125,000 apps iPhone users can download bolster the popularity of Apple devices and give it influence over how people use their phones. Rather than use Google's search, iPhone users can fire up the New York Times app for news or Yelp for local restaurants. Google is well behind with 18,000 Android apps.
Google's core business is advertising, with virtually all of its revenue coming from the text ads that pop up alongside search results. Apple aims to break into the mobile advertising business Google has been eyeing by creating new ways to advertise within apps on the iPhone and other Apple devices.
Apple still gets almost 40% of its revenue from Mac computers running its operating system. Now Google is developing Android to run competing machines and has designed a separate operating system, Chrome OS, for simpler computer Web surfing. Both companies will soon back tablets, too.
While Apple has become the world's largest music retailer, Google just began using its search engine to direct people to Apple rivals to play and buy songs. Google owns YouTube, and Apple is adding more video to iTunes, reportedly including a push to offer cable-like subscriptions to shows from CBS, ABC, and others.
Apple and Google, with $23 billion and $22 billion in cash and short-term securities, respectively, are competing increasingly for the same startups. Google won out in bidding for the ad service AdMob, then Apple outbid Google for the music site LaLa Media last year. Apple is adding people and processes to better compete for deals.