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Michael Baxter

Apple and Google under threat

Written by: Michael Baxter on March 15th 2013

Category: Thought for the day

They are surely the world’s two fastest growing companies of the last decade and a half. Google went from zero to a market cap of $270 billion. Apple went from loss making to become the world’s biggest company. But now both companies face new challenges. Can they overcome them?

Look at Apple and make a skin deep analysis, and you could say its threat comes from Samsung.  The South Korean company’s new smart phone has created the kind of buzz normally reserved for Apple launches. From  a camera with more megapixels that you can shake a stick at, a video player that knows if you are not watching and automatically pauses, the features are impressive. Although I am not convinced by the automatic pause. Some people, after all, go for a pee while the ads are being played. But maybe that is the point. The automatic pause function can ultimately be used to make sure we watch all the ads.

At face value Samsung’s apparent triumph is good news for Google, because, of course, its new phone is not merely a potential world beater, it is an Android, with Google software firing away.

A deeper challenge faces both of the US techs, however, and that is regression to the mean. As far as smart phones and tablets are concerned, the Apple model is now understood. It is hard to think of any inalienable reason why Apple, or indeed Samsung, BlackBerry, Nokia, HTC or Sony, will produce better products that anyone else. As for Google, its traditional market is under threat. To survive, it has to innovate and why should Google innovate better than its rivals?

Google is no longer the sole means by which most of us search. Forget about Microsoft’s rival product Bing; Google’s challenges run far deeper than that. Smart phones and tablet apps provide alternatives, as do searches on Facebook or LinkedIn. But even if we do choose to use Google as the means by which we navigate the world wide web, a new study from eBay suggests that Google’s key words advertising is not what it used to be.

When Google key words was first introduced to the world it seemed like the most cost effective advertising medium ever invented. By sponsoring key words and only paying when people clicked on those words and visited its web site, an advertiser could hit its target audience more accurately than had previously been thought possible.

Over time, as the world woke up to the benefits of advertising on Google, the price of sponsorship was subject to an auction process, and the cost of sponsorship went up and up, raking in the bucks for Californian tech giant. But eBay has found many of the largest Google advertisers are paying for clicks that they might get anyway, even if they hadn’t sponsored certain words. Think of it this way. You are a butcher and sponsor the phrase ‘best sausages’ and you know most people who type those words want to buy sausages. Now suppose you are a major player in your sector, say you sell books. And let’s say your name is Amazon. Do you pay to sponsor words such as books, or even specific book titles, or do you reason that if Google is any good, and its search engine provides what the customer needs,  then your products should appear top of the rankings anyway. The eBay study has found many of Google’s major advertisers pay for click throughs that they would get even if they weren’t paying for them.

But then again, there always was this fundamental problem with key word sponsorship. If a search engine works the way it is supposed to, it should automatically put the most relevant results of a search in top position. If your product is relevant, why advertise? So this is a dilemma for Google. If it tries to carry on improving its search engine there will be less need for advertisers to sponsor results. If it does not try to improve its search engine, it may lose market share to rival products.

Then there is Android. There is evidence that some hardware companies are using the Android system but disabling the Google applications.

But Google has a cunning plan. It is trying to reel us in via its offering of free products, from Gmail to its free word processor, so that it can then sell advertising to us. On my Gmail account I have noticed an ad has appeared. In fact the ad was promoting ‘Money Week’.  I clicked on a button that said ‘why this ad,’ and was told that its selection was based on Google’s study of my emails. Google knows what interests me from my Gmails, and so it tries to target ads accordingly. Does that not strike you as a tad scary?

Finding out as much as possible about its users by scanning emails and presumably Google documents, and via Chrome web history, is where Google’s next big money opportunity lies. The company has said that one day it will know so much about its users, that it will only send them information and news that it knows they will find relevant. Setting aside the obvious privacy issues, I find this quite worrisome. If Google only feeds us stuff it thinks we will like, what about chance discoveries, when we suddenly discover a new food, drink, item of clothing or book that we may not have considered. What about our news? If we are only fed news confirming our beliefs, won’t this create more bias in the world?

As for Google Plus, I think the company is trying to create a situation in which you pretty much feel you have to be on the product. I encountered this myself recently, and was told that for Google to recognise me as the author of certain articles, I needed to be on Google Plus.

These all provide legitimate reasons for concern, but then again, from a money making point of view, I get it. Google has enough information about many of us to target ads more accurately than advertisers had previously dreamt possible. I think that as these new opportunities come to bear fruit, Google can return to its noughties growth trajectory for several more years.

As for Apple, its challenge is easier to explain but harder to implement. For Apple, producing new phones and tablets is important, but to grow it needs to do it again. That is to say create another market, a new opportunity, come up with a new disruptive technology.  To achieve that, much depends on Jonathan Ive. Personally, I think it can do it again, whether its new product will be a watch, a TV, or something else, I am not sure, but I am guessing it won’t be an iRon.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: Gmail advertising, regression to mean for Apple and Google, threat to Apple and Google, threat to Google key word advertising

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