Apple and Google: Another Step Apart

Over the past three decades, a few epic rivalries have helped define the evolution of the tech industry. In the 1980s, IBM (IBM) and Microsoft (MSFT) fought it out as the personal computer overtook the mainframe. A decade later, Microsoft's battles with browser pioneer Netscape Communications and firms such as Sun Microsystems (JAVA) catalyzed the explosive growth of the Internet. Now, as the Web wends its way into billions of lives via smartphones, TVs, and other non-PC devices, the tech universe is starting to realign around two new centers of gravity: Apple (AAPL) and Google (GOOG).

The two tech titans have often cast themselves as allies. Both would doubtless say they share a common enemy in Microsoft. But the resignation of Google CEO Eric E. Schmidt from Apple's board on Aug. 3 shows that try as they might to make nice, the companies increasingly are on a collision course. Google may well be Apple's most dangerous rival in the burgeoning smartphone market, where handsets powered by its Android mobile software go head to head with the iPhone. The search giant recently announced it is working on an operating system called Chrome OS to power PC-like devices that could compete with Air notebooks and iMacs that use Apple's operating system.

In another skirmish, Apple refused in July to let Google distribute an iPhone application that would let consumers make cheaper calls—and potentially cut into revenues for Apple's phone carrier partners, such as AT&T (T). "As Google enters more of Apple's core businesses," said Apple CEO Steve Jobs in a statement, "Eric's effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest."

Where there are conflicts, they'll be easy to spot, since these companies' philosophies are actually polar opposites. Google is the chief advocate for a wide-open world of Web standards, in which programmers should be able to run just about any software on virtually any computing device. By yearend, dozens of Android-based handsets are expected to come to market, including models from Dell (DELL), Motorola (MOT), and Samsung. Rather than let a thousand flowers bloom, Apple keeps its ecosystem carefully manicured. Take iTunes: Countless software developers sell their wares on Apple's online store, but the applications are designed to work only on Apple devices. The company's ultimate goal is to create an alternate, more exclusive universe, where consumers gladly play by Apple's rules as they use its stylish, easy-to-use products. Says Henry Chesbrough, executive director of the Center for Open Innovation at the University of California at Berkeley: "They've both been very successful, but there's a contest of different approaches going on here." Neither Apple nor Google would comment.

Don't look for one of these tech heavyweights to knock out the other. Yet if history is any guide, Google's approach may win out over the long term. Recall that in the early 1980s Apple lost its lead in the PC market when Microsoft enlisted the aid of hordes of software developers and dozens of PC manufacturers. Now, if Google can marshal such a united front, Apple could again be swamped by the collective innovations. What's more, Google is a driving force behind a megatrend in tech: cloud computing. While Apple makes its money selling powerful, high-margin devices such as Macs and iPhones, Google is leading the charge toward a future in which consumers could use cheaper gadgets to gain access to their contacts, files, and other media housed in massive Internet data centers.

WEB TELEVISIONS?Yet while skeptics have been casting doubts on Apple's go-it-alone strategy for years, the company shows no signs of slowing down. Its stock has doubled since February, to 160, while Google's is up by just one-third since then, to 451. And while Google's got only a few Android phones on the market after years of effort, Apple has been churning out a steady stream of hits. Sources say the company is gearing up to introduce a tablet-style gizmo in the coming months that could be used as a portable TV or for reading digital books.

Further out, there's nothing to stop Apple from creating Net-connected televisions with easy access to its iTunes library. "Apple, more than any company in tech history, has been able to create its own proprietary environment," says William M. "Trip" Hawkins III, the founder of game giant Electronic Arts (ERTS) and currently CEO of Digital Chocolate, which develops games for the iPhone.

Of course it will be consumers who ultimately decide where they'd rather frolic: in Apple's walled garden or Google's wild meadow. But for now, at least, there's plenty of growing room for both.

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