Fred Vogelstein - Battle of the Titans - How the Fight to the Death Between Apple and Google is Transforming our Lives

What this means is that Apple versus Google isn’t just a run-of-the-mill spat between two rich companies. It is the defining business battle of a generation. It is an inflection point, such as the moment when the PC was invented, when the Internet browser took hold, when Google reinvented web search, and when Facebook created the social network. In this massive reexamination of how technology, media, and communications intersect, two of the most powerful companies in the world to dominate that new landscape are in open warfare.

Yes, invariably this reminds you of previous fights among entrepreneurs in Silicon Valley, such as Apple versus Microsoft in the 1980s or Microsoft versus Netscape in the 1990s. But the stakes are infinitely higher now. In the 1980s personal computing was a nascent market, and both Apple and Microsoft were new companies. In the 1990s people saw the potential of the Internet, especially in a device that fit in your pocket. But wireless bandwidth was still too slow and expensive. Today, 1.8 billion cell phones 6are sold worldwide every year, and in five to ten years most of them are going to be smartphones. No one knows how big the tablet market is going to be yet, but the tablet is already becoming an important new technology for people to read books, newspapers, and magazines, not to mention watch TV or play video games. In other words, the stakes of this battle are infinitely higher than any earlier struggles.

It’s not just that there is a lot more money to be made and lost in the Apple/Google fight than in previous Silicon Valley battles. It’s that the fight feels—to the players, at least—like a winner-take-all situation. Why? Because they’re not just fighting over which side has the hottest devices, they’re battling for control of the online stores and communities these devices connect to—the so-called cloud. A lot of what we buy via Apple’s iTunes store—apps, music, movies, TV shows, books, etc.—doesn’t work easily on Android devices or at all, and vice versa. And both companies know that the more money each of us spends on apps and other media from one store, the less likely we are to switch to the other. They know we will ask, “Why rebuy all that content just to buy an Android phone instead of an iPhone?” Many companies have free apps that work on both platforms, but even having to redownload them, and re-set them up, is enough to keep many users from switching. In Silicon Valley parlance, it’s a platform war. Whether your example is Microsoft with Windows and Office, eBay with auctions, Apple with the iPod, Amazon with books, Google with search, or Facebook with social media, history suggests that the winner in fights like this gets more than 75 percent of the market share, while the loser struggles to stay in that business.

This is a big deal. In the coming years most of what we consider information—news, entertainment, communications—will get funneled through either Apple’s or Google’s platform. Doubt me? It’s already happening. We now spend as much time connected to the Internet as we do watching television, and more and more of our access to the Internet comes through smartphones and tablets. Think about how much time you spend staring at your phone or tablet now—not just responding to email, reading the news, tweeting, facebooking, watching a video, playing games, or surfing the web. Include the seconds you spend in elevators, standing in line, at stoplights, in the restroom too. Now ask yourself this question: Who controls what you see on your television? Your cable company. Who controls what you see on your smartphone? Ultimately, it is Apple and Google.

I remember when, as a contributing editor for Wired , I first started thinking about the mobile revolution. At that time the top-selling phones worldwide came from Nokia, RIM (which makes the BlackBerry), Sony Ericsson, and Motorola. Then the iPhone was announced. It quickly seemed inevitable that Apple and Google would end up fighting. Few agreed with me. An editor friend of mine said the idea seemed preposterous. How could Apple and Google compete when they were in entirely different businesses? he asked. Technically he was right. Apple makes money selling the devices it creates. Google makes money selling online advertising. What he and many missed is that those are now only means to a much bigger end. Both companies see themselves as becoming new kinds of content distribution engines—twenty-first-century TV networks, if you will. They won’t make content as the TV networks do today; but their control of huge global audiences, and their enormous balance sheets, will enable them to have a big impact on what gets made and who sees it.

This may seem counterintuitive. It’s hard to imagine the geeks at Apple or Google producing Mad Men . But makers of movies and TV shows essentially care about only two things: How much is their project going to cost? And how many people are going to see it? No two companies have more reach than Apple and Google. Fewer still have more money. Together they controlled $200 billion in cash alone by mid-2013. That’s not only enough to buy and/or finance an unlimited amount of content for their audience; it’s actually enough to buy most of Hollywood. The market capitalizations of News Corp., Time Warner, Viacom, and CBS total that much combined. Although most people don’t think 7of Apple and Google as entertainment giants, Apple through iTunes controls roughly 25 percent of all music purchased and 6 to 10 percent of the $18 billion home video market. Meanwhile, Google is investing millions of dollars in original programming for YouTube, which is already a video destination for tens of millions of consumers around the world.

This isn’t to suggest that there won’t be enormous room for new and old companies to build substantial businesses of their own in this new world. In early 2013 Netflix boasted 30 million subscribers, as many as HBO. Two years ago it looked to be a company that might not make it. Studios jacked up the price of their content to unaffordable levels. Movie and TV-show selection fell and customers started to leave. So Netflix—a technology company based in Los Gatos, not a Hollywood studio—started financing its own programming. Its first stab at this, the series House of Cards , with Kevin Spacey, has been an enormous hit. Amazon and Microsoft are getting production facilities up and running too. Meanwhile, Facebook, with more than 1 billion members—half the Internet—has become a favorite stop for Hollywood agents looking to use this giant global audience as another way to finance and distribute their clients’ work.

But despite the power of Facebook, Amazon, Netflix, and Microsoft, at the moment they all still have to largely go through two companies—Apple and Google—to get to the increasingly massive audiences using smartphones and tablets for their news, entertainment, and communications. What this means is that the Apple/Google fight is not just a story about the future of Silicon Valley. It is about the future of media and communications in New York and Hollywood as well. Hundreds of billions of dollars in revenue are at stake, and for at least the next two years, and probably the next five, these companies, their allies, and their hangers-on will be going at it full bore.

In many ways what is happening now is what media, communications, and software moguls have been predicting for a generation: The fruits of Silicon Valley’s labor and those of New York and Hollywood are converging. This is as close to tragic irony in business as one ever gets. For two decades—the 1980s and 1990s—a procession of celebrated media executives marshaled the best technology they could assemble to position themselves for the new world they saw coming. They spent hundreds of billions of dollars buying one another to bulk up. But their timing was so off, their innovations were so bad, and their mergers were so disastrous—such as AOL’s purchase of Time Warner in 2001—that by 2005 convergence had become a discredited idea, and few dared to mention the word.