What’s the state of the smart phone market these days? It’s a two horse race between Google and Apple. One of the more jarring headlines pointed out that iOS and Android owned 92-percent of smart phone shipments last quarter.
What does that say about Nokia, Microsoft, and RIM? They’ll die eating the crumbs. Then it struck me. What if Apple and Google had agreed to carve up the smart phone market to the exclusion of their competitors?
The Palo Alto Accord
In the business world collusion is a nasty word which implies secret deals to keep prices artificially high, or to prevent one gangster from entering another mobster’s turf.
In the very instant that the question above came to me I remembered a Gizmodo (often referred to as TMZ for nerds) article and photo of Apple’s CEO Steve Jobs and then Google CEO Eric Schmidt, recently kicked off Apple’s board of directors, talking over lattes in a Palo Alto shopping center.
Other than the two CEOs nobody knows for sure the conversation details, but I have an idea and it has played out well since that epic meeting which I will call The Palo Alto Accord.
Think of it as an event more similar to the Yalta Conference in 1945 whereby President Franklin Roosevelt, Prime Minister Winston Churchill, and General Secretary Joseph Stalin of the Soviet Union carved up Europe.
In this case, it seems plausible that Jobs and Schmidt met to outline their respective strategies for conquering the smart phone market to the exclusion of Nokia, Microsoft, and RIM. I believe they may have agreed in principle to do exactly what we see taking place today.
Apple took the high road with iOS to gain the lion’s share of revenue and profits as a premium player. After all, Apple is not known for getting down and dirty in pricing wars.
Google, on the other hand, took the low road which provided Android to nearly all smart phone manufacturers and cell phone companies to do with as they please. That resulted in high fragmentation of the low end of the market, avoided confrontation with Apple, but gave dominance to Google through Android’s proliferation.
Google’s management team must be smart enough to know that Android could not compete with Apple at the high end, so why not own everything else? That’s exactly what has happened.
Android devices seldom have the build quality or exacting construction standards or ease of use which Apple employs in the iPhone and iPad. Android users cannot upgrade their devices as easily as iPhone users. Cell phone companies don’t even want users to upgrade their devices– except by purchasing a new device.
It’s more than plausible that The Palo Alto Accord between Jobs and Schmidt was intended to carve up the smart phone market into two distinct camps, both of which could thrive and prosper over time. Apple would ignore the low end of the market, while Google and their smart phone manufacturing partners and cell phone makers would avoid creating quality products and an ecosystem that just works.
Unfortunately, someone forgot to tell Samsung about the accord, and the Korean chip maker has managed to carve out a profitable segment of the industry with the popular Galaxy brand, which co-exits somewhere between Apple’s iOS devices and the rest of the Android pack.
There once was a time when Apple and Google were good friends. The Palo Alto Accord notwithstanding, those days are obviously gone.
Or, are they?
The public face is one of competition mixed with acrimony and sprinkled with the mixed emotions of disdain and admiration. Google derives the lion’s share of their smart phone revenue from Apple’s iOS devices, and a few of Google’s apps are among the most popular on the iPhone.
On the other hand, the great unwashed masses of Android users seem willing to avoid purchasing anything made by Nokia, Microsoft, or RIM, but a small percentage are eager to upgrade to Apple’s iOS devices.
For Apple and Google, The Palo Alto Accord is win win. For everyone else except Samsung, it’s lose lose.
About Kate MacKenzie
Kate you missed one key element to why they’d do this…to avoid the Microsoft type government interference for owning too much of a market. Better to split it yourselves than have the government start poking in and restricting thing you don’t want restricted. Still, it’s all a little far fetcher for me even though I had considered this idea many times.
Interesting. And plausible, as you say. Now that we find Apple and others involved in illegal ‘non-poaching’ agreements it has even more plausibility. And this ‘accord’ actually makes some sense. How else do you explain that Google and Apple have yet to go head-to-head in court? How else does one explain Motorola dropping some lawsuits against Apple?
This would not surprise me at all. Apple can rally the troops against Google, and Google can do the same against Apple, but in reality they both need each other. What neither of them want are additional competitors or the likes of Microsoft, Nokia, Huawei, or anyone else that could take revenue slices from their pie.
When I first read this I thought it was totally tongue-in-cheek and that Kate was taking us for a ride on the humor train. The more I think about it the more plausible it becomes. Great leaders are like great chess players. They’re not thinking about the next move, they’re thinking a hundred moves ahead. Look at what their ‘alliance’ has done to the smart phone marketplace. Microsoft, Nokia, RIM, are all has-beens with pitiful market share and no prospects for returning to the glory years unless they come up with a product that is to the iPhone what the iPhone was to smart phones in 2007. That’s not likely to happen. So, Apple dominates the industries revenue and profits while Google owns the low end. The Android smart phone has become the new feature phone.
Clever, those guys. Clever.