The winds of change have blown through the tech industry since Google decided to become more than an advertising company. Enormous profits tend to change how a company’s executives view their companies and Google, Microsoft, and Apple have changed through years of success.
Here’s a look at three different technology companies that compete against each other, all wealthy, all disruptive in their own ways, but each with a different position on the corporate spectrum.
First, allow me to reverse the order and start with Apple as our favorite Mac and iPhone company gained massive success before either Microsoft or Google.
From the Mac onward, Apple has taken up a roost on the premium end of the technology bench with well designed and attractive products that do not compete on price. Everything about nearly every Apple product smacks of quality; from the box to the plastic that wraps a product, to the materials used in manufacturing, Apple’s wares speak to the company’s desire to differentiate its products from competitors at every point; look and feel, software and hardware, and especially price.
In the middle of the spectrum is Microsoft with Windows and Office. Microsoft once dominated the desktop and notebook world, owned the enterprise with Windows and Office, and nearly put Apple out of business back in the mid-1990s with Windows ’95, a point and click OS that was ‘good enough’ to push Apple, once synonymous with the Mac, to near extinction.
Microsoft rested on its laurels and profits and completely missed the mobile device revolution launched by Apple’s iconic iPhone and to a less extent, the iPad. While Microsoft slumbered Google pushed an iPhone clone OS into the mobile industry and the Windows and Office maker’s presence went from low to near obscurity. Microsoft found itself in the unenviable position of competing against a superior iOS and iPhone standard at the premium end, and against an inexpensive but similar rival at the low end. For a company that makes money selling software, the disruptions brought by Apple and Google were an enormous danger.
Google, on the other hand, is not a true technology company in the traditional sense. The company sells advertising and that accounts for about 90-percent of revenue and profits, but those massive riches help to fund development of Android OS and Chrome OS which powers inexpensive Chromebooks which compete against Windows-powered notebooks. Remember, Windows has a price tag. Chrome OS does not, so pound for pound, PC manufacturers can make more money selling a Chromebook than a low priced Windows device.
That is disruption. Google’s disruption is cheap, and it isn’t so much the technology as it is the price. Android OS and Chrome OS are free, and both compete with Apple and Microsoft, but only Apple seems somewhat inoculated against the infection of cheap.
The Real Battle
The real battle is between free and cheap vs. premium. Google reigns at the low end, while Apple maintains dominance at the high end with smaller marketshare but with massive profits. Microsoft is pressed in the middle but has made some progress changing the business model from the upgrade treadmill to an annual subscription plan, an action which helps to buffer the Windows maker from cheap Android products.
Meanwhile, everything about Google’s disruption can be identified and attached to a single word. Cheap. Android is free so every cell phone and tablet maker that uses Android on their hardware suffers from the same fate as every PC manufacturer that installs Windows on their devices. Lowest common denominator. Why buy a $850 Samsung Galaxy-whatever when a $300 Chinese knockoff has similar hardware and runs most of the same software? Why buy a $2,500 HP, Dell, or Microsoft notebook when it runs Windows; the same Windows found on $499 tablet notebook hybrids without a keyboard?
Apple differentiates iPhone, iPad, and Mac from Android devices and PCs, through hardware and software integration, thereby commanding a higher price, which means large gross margins, which are translated to higher profits. Google does not make much money with Android OS or Chrome OS. Microsoft struggles to maintain profits with Windows, but has managed to move Office away from the upgrade routine to a subscription model, thereby overcoming some of the danger of competing on price alone.
Cheap is a dangerous business to be in. Google can afford to give away products for free because the company’s revenue stream– and profits– are not tied into hardware. That’s not the case for Microsoft or Apple, though the latter has more success with differentiation and has largely managed to avoid the battle over cheap.
Cheap can be disruptive to a company or market but does not have a history of sustainability. Successful differentiation is more important and profits– regardless of where the originate within the chain– are required for a company to stay in business.