Apple and Google: Returning to calmer waters

There is an Indian proverb (or maybe it is Confucian, who knows) that says that there is no worst enemy that the one who was your best friend. And this is because he or she knows you well. In 2007,when unveiling the iPhone, Eric Schmidt, CEO of Google came on stage and announced that Google had developed specific applications for the device, and in fact, the first and probably most famous ad of the iPhone showed Google Maps. Schmidt was on Apple’s board and the two companies seemed to have found a set of synergies that allowed them to look forward to a great future together.

And then Google created Android and the Nexus. And then Google looked at what it had done and saw that it was good.

And Apple did not like it as much.  Why would Google come up with a strategy that upset its longtime partner so much? Our blog post of January 24 “The battle for the smart phone” details our views:  controlling its own destiny away from the influence of the very successful closed ecosystem of Apple or the who-knows-what-will happen ecosystem of Windows Mobile. Google feared that at some point a company controlling the gateway between Google and the final customer could penalize its applications and favor either their own or someone else’s. For a company that so far has only been able to monetize traffic via advertising, the prospect of its traffic being disfavored was not an option.

How successful has Nexus One been so far?

It took the iPhone 74 days to sell one million devices; in the same period since its introduction, Google had sold a mere 0.13 million. Granted that the market of black screen multi-touch sensitive screens is more crowded now than in 2007, but the sales of Nexus have been, in my opinion, deceiving. What effect has this had in the market cap of the company? We have said in many occasions in this same blog that the stock market is not a complete representation of a company’s fares, but it is certainly an indication of what capital markets think of it, particularly when compared with others in the same industry. The graph above shows the evolution of Apple, Microsoft and Google since January 1^st 2010. Apple has increased 13%, while Microsoft and Google have dropped 5.3% and 8.7% respectively. Capital markets, then, today believe that Apple will do better that they thought it would do at the beginning of the year. The contrary is true for Microsoft and Google.

It seems that Google and Apple will not fight the big war after all. Two days ago, the CEOs of both companies were caught having coffee together in a bar in Palo Alto. They were chatting amicably. You and I know that this is not by chance; Jobs had called Google evil not a month ago and ha sued HTC, the manufacturer of the Nexus One, for more patent infringements that one can imagine. HAving as your enemy your former best friend is not a good idea. If Google and Apple had to make a public statement that they would cease hostilities without a formal press release, is there a better way than staging a cup a coffee?