There’s a simple reason why Apple’s stock just passed $500 and its $464 billion market cap recently passed that of Microsoft and Google combined. It’s that Apple makes a great deal of money on everything it sells. There are no speculative Internet initiatives designed to attract eyeballs in hopes of one day generating revenues. There’s no creating software whose success depends on the quality of other people’s hardware.
Google Chief Executive Officer Larry Page wants to take a page out of Steve Jobs’s playbook. While Google has had incredible success getting other phone makers to adopt its Android mobile software, Google paid $12.5 billion for Motorola. Though patents were one reason for the purchase, increasingly there are signs that Google will use Motorola to create a more integrated, Apple-esque approach. According to documents unearthed by the San Jose Mercury News, the company is building huge hardware-testing labs, including pricey anechoic chambers for testing the performance of antennae on mobile devices. A Google@home division at 1600 Shoreline Blvd. in Mountain View, Calif., will have labs that screen out all outside wireless signals—possibly to test a new set-top box for streaming music in the home. Since Motorola is the market leader in cable set-top boxes, it seems likely such a device could also be used to distribute TV, movies, and other fare—maybe to win a beachhead in the “digital living room” before Apple brings out its own, much-rumored TV.
Rarely, if ever, has a company as successful as Google contemplated a change as risky as this. The company owes its enviable profitability to its focus on software. It costs a lot to create brilliant algorithms, but once you have them, they print money. Hardware companies need to spend billions on parts, hire contract manufacturers, and pay for an army of customer-service reps. The current data suggests that it’s not much fun making consumer gear unless you are Apple.
Of course, the rewards are huge, too. “If done right, this can be of huge value for Google shareholders,” says Bill Whyman, an analyst with International Strategy & Investment Group. But “if all of a sudden, they’re stuck with millions of units of excess inventory, investors will start to question whether this is the company they thought it was.”