Mobile computing war: Apple, Google fight getting personal

For one it is a betrayal. For the other a matter of survival. A divide that even friendship could not bridge. Divergent philosophies and, more importantly, differing business visions have now left Apple and Google on the opposite sides of a mobile computing war

It looked like the beginning of a beautiful friendship. Three years ago, Eric E Schmidt, the chief executive of Google, jogged on to a San Francisco stage to shake hands with Steve Jobs, Apple’s co-founder, to help him unveil a transformational wonder gadget - the iPhone - before throngs of journalists and adoring fans at the annual MacWorld Expo.

Google and Apple had worked together to bring Google’s search and mapping services to the iPhone, the executives told the audience, and Schmidt joked that the collaboration was so close that the two men should simply merge their companies and call them “AppleGoo”.  

“Steve, my congratulations to you,” Schmidt told his corporate ally. “This product is going to be hot.” Jobs acknowledged the compliment with an ear-to-ear smile.

Today, such warmth is in short supply. Jobs, Schmidt and their companies are now engaged in a battle royal over the future and shape of mobile computing and cell phones, with implications that are reverberating across the digital landscape. This month, Apple sued HTC, the Taiwanese maker of mobile phones that run Google’s Android operating system, contending that HTC had violated iPhone patents. The move was widely seen as the beginning of a legal assault by Apple on Google itself, as well as an attempt to slow Google’s plans to extend its dominion to mobile devices. 

Apple believes that devices like smartphones and tablets should have tightly controlled, proprietary standards and that customers should take advantage of services on those gadgets with applications downloaded from Apple’s own App Store.

Google, on the other hand, wants smartphones to have open, non-proprietary platforms so users can freely roam the Web for apps that work on many devices. Google has long feared that rivals like Microsoft or Apple or wireless carriers like Verizon could block access to its services on devices like smartphones, which could soon eclipse computers as the primary gateway to the Web. Google’s promotion of Android is, essentially, an effort to control its destiny in the mobile world.

While the discord between Apple and Google is in part philosophical and involves enormous financial stakes, the battle also has deeply personal overtones and echoes the ego-fuelled fisticuffs that have long characterised technology industry feuds. (Think Intel vs AMD, Microsoft vs everybody, and so on.)

Yet according to interviews with two dozen industry watchers, Silicon Valley investors and current and former employees at both companies - most of whom requested anonymity to protect their jobs or business relationships - the clash between Schmidt and Jobs offers an unusually vivid display of enmity and ambition.

Google is Reportedly Packing Up and Preparing to Leave Chinese Market

I haven’t written much lately about the ongoing game of chicken between Google Inc. (NASDAQ: GOOG) and the Chinese government over the search company’s announcement in early January that it planned to stop censoring its organic results but it

Google Packing Up and Leaving China?
looks like this story is finally reaching a conclusion. Despite the many opinions on both sides of the issue, it always seemed hard to imagine that Google would actually abandon the Chinese market which is the largest in terms of users — over 384 million at the end of 2009 (CNNIC) — and will undoubtedly represent a substantial share of global online revenues in the not-so-distant future. Well according to an article from the Financial Times, it seems that neither side in this showdown has been willing to back down and now it is “99.9 percent” certain that Google will shutter its Chinese search operations (ie – the Chinese version of its site at www.Google.cn).

In addition to the FT’s sources from inside Google the other indication that things had reached an impasse include the statement this past Friday by the Minister at the Ministry of Industry and Information Technology (MIIT) (link in Chinese) that Google’s violation of Chinese content regulations would not be tolerated.

While it is clear that Google would like to remain in China as a matter of good business it seems they are more resolved to abide by their company mandate to “Do No Evil.” Apparently they have concluded that Chinese censorship is an affront to that mandate and they can no longer submit to it. So if this story is true and Google plans to close down its Chinese search operations, it will probably take several months to actually execute on the plan while trying to maintain its non-search business operations that will remain in China.

The company’s non-Google.cn businesses include a research center based in Beijing and a sales force that sells advertising to Chinese companies on Google.com search pages that are made outside of China. Whether the fallout from this incident will cause Chinese advertisers to steer clear of Google even outside of its own borders remains to be seen but executives at the company know that they have to handle their withdrawal as diplomatically as possible — if that can even be done at this point.

Google had been the number two search engine with over 35% share in Q4 2009 behind domestic search darling Baidu, Inc. ((ADR) NASDAQ: BIDU) which accounted for almost 59% of searches. Since China only accounts for around 2% of Google’s revenues it would seem that now is the time it can afford to take the moral high ground. The only question is how will shareholders react to the moral high ground when China’s markets start generating revenues more in line with its user base and Google competitors like Microsoft — which has stated that it has every intention of complying with Chinese content regulations — start seeing an impact on their bottom line.

Even more significant than its online search revenues is the growth of mobile search revenues. Google was much more evenly matched in terms of market share in mobile search but I have to assume that the closure of Google.cn will also eliminate the company’s ability to be a search provider for the over 233 million mobile Internet users who are just beginning to adopt more advanced 3G smartphone devices. That market can become substantial and Google will be ceding its strong position to Baidu and the handful of U.S. competitors that remain.

Drive to tap into China demand spurs partnerships

CNOOC’s tie-up with Bridas of Argentina has an intriguing side-effect – it makes the Chinese group a partner of BP of the UK.

They will both have stakes in Pan American Energy, the Argentinian joint venture owned 60/40 by BP and Bridas.

The deal is the latest to set western companies working alongside China’s state-controlled oil groups.

Royal Dutch Shell has teamed up with PetroChina for a joint bid for Arrow Energy, the Australian gas company; Total of France is expected to work with CNOOC to develop Tullow Oil’s assets in Uganda; and BP has formed a partnership with China National Petroleum Corp to develop the giant Rumaila oil field in Iraq.

The circumstances of each deal are different. In Iraq, for example, where the projects are technically straightforward but have political and security risks, having a Chinese partner provides important benefits to BP. Samuel Ciszuk of IHS Global Insight says CNPC brings political clout because it is state owned, as well as a “skilled, cheap workforce and a willingness to invest in a low-margin project”.

Yet while these partnerships have a variety of motives, there is often a common ambition behind them – western companies hope to build on their respective relationships to secure greater access to the Chinese market.

The big international oil groups such as BP and Shell, Total, and Exxon-Mobil and Chevron of the US, face a fundamental problem: their core markets are in decline.

The International Energy Agency, the think-tank backed by developed countries, estimates that even without any new policy measures to raise fuel efficiency or encourage biofuels, US oil demand will fall by an average of 0.7 per cent per year between now and 2030.

In the rich countries of Europe, the expected decline is 0.4 per cent per year; in Japan it is 1.8 per cent per year.

Meanwhile, the latest IEA figures for monthly oil demand are a sharp reminder of the vigour of the Chinese market, showing an “astonishing” 28 per cent increase in apparent demand in January, pushing the US crude price over $82 per barrel for a time last Friday. The IEA expects China’s oil consumption to grow by an annual average of 3.3 per cent per year, assuming unchanged policies.

Faced by that outlook, western companies have few options. They are building up their businesses producing and delivering natural gas, for which developed country demand is still likely to grow.

They could concentrate on the “upstream” exploration and production side of their operations, already the largest and most profitable, and increasingly operate as suppliers to refiners and distributors in China and other emerging economies. However, their business model has for more than a century been based on integration: controlling the whole of the value chain from finding the oil to delivering the refined fuel to consumers.

Moving away from that risks exposing them to greater volatility in their earnings by making them even more dependent on the prices of oil and gas.

The big problem for western companies is working out what they have that China needs, given that it already has three successful and ambitious large oil groups of its own, in CNPC/PetroChina, Sinopec and CNOOC.

One possibility is technology, such as the skills to exploit China’s reserves of “unconventional” gas, which needs special techniques to be commercially viable. Another is access to oil and gas production.

The Chinese companies, in return, want to build up their oil and gas reserves; assets western companies can still offer. If western companies are to get more access to China, it is likely to be only in return for access to future production for the Chinese.