Alphabet’s Google Declares War on Apple Inc. with $1.1B HTC Investment

HTC Google Apple

Why has Alphabet’s Google just invested $1.1 billion in HTC to acquire the company’s phone design and engineering team? Because it is dead serious about the hardware business. With the success of Google Pixel and Pixel XL last year, Google now has the confidence that it can produce Google-branded smartphones that are as good as the world’s top flagship phones.

Why is it being seen as an attack on Apple? And I’m not even going to talk about Samsung here, although this deal holds a lot of implications for the South Korean electronics giant’s smartphone business. For this piece, we’ll only cover the rivalry between two “All-American” companies that have all their hardware products manufactured overseas!

In terms of hardware and software being created by the same company, Apple is the undoubted monarch – at least, in the smartphone space. Microsoft is right there in the larger devices segment with its Windows-powered Surface devices, but it hasn’t quite re-entered the smartphone market with something powerful enough to threaten Apple. The elusive Surface Phone could be that device, but there’s nothing official yet about such a mobile device, although rumors abound and the company keeps hinting at it from time to time.

Google, however, has had the software for mobile phones for a long time, and its dominance in the OS space with Android is almost absolute. I say almost because Apple’s iOS is the only mobile operating system that’s keeping Google from completely dominating the mobile OS space.
IDC: Smartphone OS Market Share Chart
That’s why this is being seen as an attack on Apple. The huge investment in HTC’s smartphone division is practically a declaration of war. What Google is essentially telling Apple is that it wants a big share of the smartphone market, and is willing to put its money where its mouth is.

Interestingly, it’s Apple that first started this rivalry. In case you didn’t know, Siri does not use Google Search, it uses Bing. Moreover, Apple Maps was created especially to shake off iDevice user dependence on Google Maps.

While Apple pushes hard into the services segment with products like Apple Music and Apple Pay, Google is going the other way: pushing into the hardware segment with its Pixel and Home devices.

The rivalry is only going to escalate from here on out, but the truth is, Google is moving much faster with its objective than Apple. The HTC investment is proof of that because Apple hasn’t made any significant investments in software of late. Yes, they did put $1 billion into Didi Chuxing, the car-sharing giant that sent Uber packing from China, and they’re focusing heavily on AR; and they’re also investing in autonomous automobile technology. But in that last area, Google is far ahead with Waymo, which has done more than 3 million miles of testing on autonomous mode.

Apple Pay isn’t the huge success everyone thought it would be, and adoption rates are still quite low. As of June 2017, only 24.5% of eligible users have ever tried Apple Pay as a transaction method. Of those, only 22.7% actually used Apple Pay in the month of June 2017. And that’s a full three years after the service was launched, with multiple iPhones, iPads and Mac PCs/laptops released during that time.

Also in June, ARS Technica deduced that a little over 1 million Pixel smartphones were sold, and they deduced that from the number of Pixel Launcher downloads recorded by the Play Store.

Apple clearly has some amount of momentum going for it in the services segment, and the company is looking to double its services revenue by 2020.

Google knows that it has a long way to go with its hardware ambitions. Google Home has extremely limited market share in the smart home speaker space because Amazon is hogging about 70% of that market this year. And with new Echo products being recently released, that could go up even higher.

On the Chromebooks front, Google is yet to come out with its own brand, and it’s not likely that it will any time soon. Chromecast dongles have hit a major milestone of 30 million units, and Google sits pretty on a 35% market share in the streaming devices space.

In a way, both companies seem to be struggling to get an edge over the other. Apple wants faster growth in the service segment, and Google seeks more sales for its hardware products.

And that’s the real reason for the heavy investment in HTC. Google wants some kind of edge against Apple in the hardware space. With iPhone sales regularly topping 200 million units every year, Google Pixel is far, far behind. But in the services segment, Apple Music has a capable rival in Google Play Music; there’s also the Android Pay / Google Wallet angle to deal with Apple Pay, as a competitor.

So, who’s actually winning? In our opinion, both are. Both Apple and Google need to diversify in opposite directions. Google is primarily an advertising company with its fingers in several other pies such as software applications, hardware, artificial intelligence, self-driving cars and so on. Apple is primarily a smartphone maker that also makes other hardware and software products, and has a growing presence in the services segment.

I’m talking purely from a revenue perspective. Advertising and iPhones are their respective primary sources of income. And that’s what both of them want to change in order to remain sustainable and relevant ten, twenty years down the road. Neither company lacks the money or the cash flow at this point in time. What they lack is strong revenue diversification.

The truth is, neither company can actually “win” against the other. Apple isn’t going to let iPhone sales drop at any cost, and Google won’t yield its ad dollars to anyone else, including Facebook. What’s more likely to happen is that their core revenues from their strongest product and service lines will gradually reduce over time, making way for new revenue streams from newer products and services. That’s the whole point of the HTC investment; and that’s the reason for Apple’s recent moves in AR, mobile payments, self-driving car technology, entertainment and other areas.

Both companies will keep growing in terms of overall revenues. Apple will keep pushing on the services front to complement its iPhone and other hardware revenues, while Google will keep hitting the hardware market over and over again with new products and new versions of existing products.

In the end, both companies will help consumers benefit the most. New technologies will be introduced, new services will be released, and consumers will have greater choice than ever before. The biggest beneficiaries of this battle for growth are you and I, the average Joes and Janes of this world. We’re the ones that are ultimately going to get the spoils of war.