Apple announced its financial results on July 25 and Alphabet/Google on July 26. After-hours trading drove Alphabet’s market cap up over Apple’s. The chart above is a non-scientific indicator of expectations about the future of both companies. The expectations favor Google’s continued growth.
Apple reported a drop in iPhone shipments and a drop in Mac shipments, both confirmed by IDC, as well as a decline in the average selling price of iPhones as the company struggles to compete with Android phones with the new low-cost iPhone SE. Every financial report places Apple’s hopes for renewed growth on the iPhone 7, which is due to be announced in September.
Alphabet, on the other hand, handily beat expectations, increasing revenues year over year by 20 percent and increasing GAAP net income by 24 percent. Alphabet rode the shift to mobile, capitalizing on changes it began making two years ago to its dominant search and advertising platforms to help brands reach consumers on their smartphones.
Apple is in a tough spot. The company is boxed in trying to keep iPhone margins and average selling prices up in the face of Android phones, including the HTC 10 and Samsung Galaxy S7 in the flagship price category and the Nexus 5X in the midrange category, that are every bit as good.
A smartphone maker would have to try to make a bad Android phone. It’s almost impossible because of the increased quality of components such as the Qualcomm 600 and 800 series of mobile systems on a chip (SOC) and Mediatech’s line of Hilio SOCs, which require little more than a surface mount production line and a plastic enclosure to build a phone.
The weighting of Android smartphone prices keeps dropping as the quality continues to improve, putting downward pressure on the premium that consumers will pay for an iPhone, especially outside of the U.S. Great Android phones can be had for $250, and next year the price will be below $200. And phones in the $99 category, such as the ZMAX PRO (review will be published next week) and the BLU Vivo XL 4G, aren’t bad.
Alphabet helps brands shift to mobile
Most brands haven’t won a spot on consumers’ Android and iPhone home screens where consumers are spending more and more time. Most brands lack the infrastructure and scale, and they can’t recruit the iOS and Android platform development specialists they need to build an app. Google offers a great solution: mobile search integrated across all of the platforms. For instance, someone searching with an intent to buy will see prices and nearby map locations where they can buy the product, complete with links to dial the store’s telephone number, driving directions and instructions to buy it online.
For brands that have managed to reach the consumer’s smartphone home screen, Google indexes the results inside mobile apps. Search results link into the app, offering a richer mobile app experience compared to the web. In addition, Google is working on linking to mobile app search results, even if the consumer doesn’t have the app on his or her phones. Google will host the app, called streamed apps, and execute it remotely, resulting in a richer app experience for viewing the search results and providing an offer to download the app.
Google has put its ads where consumers are looking—in search and video—and has given brands programmatic mobile ads based on the consumer's context at the moment, showing ads at the right time.
AOL and Apple’s closed innovation models,
and Google’s open innovation models
Long before AOL lost its lead, many internet users experienced the difference between AOL's walled garden and the richer open internet. When the tipping point was reached, web users left AOL en masse to get the best internet experiences at websites such as Yahoo search, YouTube and MapQuest.
Apple’s secrecy prevents the company from trying new product designs and collaborating with large innovative tech communities. The company asserts that when they release a product it is exactly what the consumer wants.
Voltaire once said, “Perfect is the enemy of good.” Apple’s obsession with perfect prevents the company from releasing a good product and making it great. With a couple of exceptions, such as Swift and WebKit, Apple doesn’t engage the open source community.
Google unabashedly produces incomplete products and previews them with their developers. The battery-burning, oddly shaped and buggy Tango tablet gained a huge interest in developer communities, which prototyped augmented reality (AR) applications for over two years before a production version was available. A production release of Tango machine vision was introduced last month with Lenovo Phab 2 smartphone for AR apps, including Lowe’s and Wayfair’s home decorating apps that let consumers add virtual products and wall and floor treatments to the reality of the rooms in their homes.
Google telegraphs its direction well in advance with preview and beta releases of their hardware and software products, such as streamed apps, app indexing, accelerated mobile pages (AMP), DayDream virtual reality, self-driving cars and machine learning.
Apple is a hugely successful company that is too dependent on its hardware to innovate where it needs to: as a media company monetizing its interaction with its users. As a media company, it ranks ninth to Google’s first place and Facebook’s second place. While everyone waits for the iPhone 7, Apple’s conquest of television and the Apple Car to be perfected, Google and Facebook are iterating furiously out in the open, bringing huge tech communities under their tent and creating a relationship with tech communities that help them innovate new products.