Tech wars: Google vs Apple vs Microsoft

Microsoft has made it abundantly clear it is seeking to capture some of Google's dominance in the search engine space. Deals with Yahoo! and the introduction of search engine Bing were the first steps in trying to narrow the huge gap with Mountain View (Google's headquarters). Apple's iTunes and Microsoft's Zune compete directly in the music space.

Apple is widely considered the premier designer of sleek, hip electronics hardware, while Google remains the god of internet advertising and applications. But Google's Android mobile operating system is a clear (and increasingly successful) shot across Apple's bow, and Apple's $275m purchase of Quattro Wireless in January is a transparent sign it intends to compete for advertising with Google.

Google, to some extent, has consumers on side in ways that Apple or Microsoft don't. It gives away a lot of stuff for free, so consumers get killer apps such as GoogleDocs, while electronics manufacturers have open-source access to its Android mobile operating system (OS) and the upcoming Chrome OS. Google is also building a very solid enterprise business with its bargain-priced apps. In other words, many of the things Microsoft charges for, Google gives away for free in order to serve its own long-term advertising end game.

Conversely, Apple targets and dominates the high end of the computing market, with more than 90 per cent market share for computers priced over $1,000, according to some estimates. And despite a devotion to high-priced products in a lousy consumer environment, Apple seems to be winning market share and increasing margins via the power of its seemingly magical brand.

Tech on the go

While the Google/Apple axis (sometimes referred to as 'Goopple' in the technology blogosphere) is a major threat to Microsoft on the PC side, the larger tech battleground itself is shifting. Growth in computing is moving from PCs and traditional mobile phones to smartphones and tablets, where Microsoft is lagging Apple and Google by a multi-year margin.

Where they compete:

According to market researcher Gartner, global smartphone sales grew by 50 per cent, year-on-year, in the first half of 2010, with over 61m smartphone handsets sold, or 19 per cent of the world's 326m mobile phones. Gartner predicts nearly 20m tablets will be sold this year, rising to around 55m in 2011. That far outstrips the growth in PCs lately, which rose 21 per cent in the second quarter before easing back to just 7.6 per cent in Q3.

And where are all those new smartphone and tablet sales going? Yes, you guessed it, to Goopple. Both Apple's iPhone and the endless wave of Android-powered phones are steadily gaining smartphone market share at the expense of Blackberry-maker Research In Motion, Nokia, Palm, and especially Microsoft. And as more and more consumers stuff their smartphones with apps, the more attached they become to their current choice of platform.

Microsoft's best hope to regain ground in mobile is its Windows Phone 7 operating system, which launched last month. But that's still three years behind the iPhone, and in today's environment, that's an eternity because technology is adopted so quickly. In the 1980s, it took Sony almost 10 years to sell 50 million Walkman personal stereos. Apple sold 40 million iPhones in 2010 alone.

The tablet market could also keep Microsoft behind. Apple sold two million iPads in less than two months after launch and is widely predicted to sell over 7m this year, doubling to 14.4m in 2011, effectively legitimizing a class of gadget that seemed initially more for geeks than the mass market.

And what's more, many traditional Microsoft hardware partners are seeking alternate software solutions. Dell is embracing Android in many of its new mobile devices while Microsoft's number-one customer, Hewlett-Packard, recently acquired Palm to secure the latter's webOS operating system.

As in smartphones, Microsoft is playing catch-up in the new tablet market, only announcing the tablet-friendly Windows Embedded Compact 7 OS in June.

The blockbuster effect

Still, Google and Apple aren't the natural competitors in the way Microsoft and Google are. Apple, far more than Microsoft or Google, has a business model that chimes with that of a Hollywood film studio. It requires blockbuster hits in order to bring in big profits, which it has consistently enjoyed over recent years with the iMac, iPod, iPhone and most recently, the iPad. Google's primary operations will continue to revolve around Internet advertising while Apple’s success hinges on the appeal of its hardware.

While all three tech giants will be chasing the same dollar, euro, and yen on many platforms, it seems likely that Google will continue to find itself the target of the rest of the field. Players like Mozilla and News Corp may join Microsoft in trying to knock Google off its internet advertising revenue and search perch.

Table: Apple, Google, Microsoft in numbers

Looking forward, the Google-versus-Microsoft battle will remain a war waged over multiple battlefields, ranging from internet search and browsers, to operating systems and enterprise solutions. Both tech conglomerates realize that growth drivers must be had at the other's expense. Microsoft must poach market share from Google's dominant internet position, but on the other hand, Google must branch out from the web into some of the many markets which Microsoft has a foot in.

When it comes to market perceptions, there's a clear loser, and it's Microsoft. Yes, it's the only one of the trio to pay a dividend, although its shares yield less than two per cent. But it's widely seen as having lost the battle for dominance of the internet, is a late-comer to the smartphone party and now Google's free software is chipping away at its Windows/Office dominance.

That's reflected in share price trajectories. Since Google's IPO in August 2004, its stock has risen over 450 per cent, while over the same period, Apple shares have jumped more than 1,200 per cent. Microsoft has posted a paltry 16 per cent advance. That's left it much cheaper, rated at 15.4 times historic earnings compared to Google's 26.4 and Apple’s 19.1, but it's a discount that appears justified.

But the future won't be plain sailing for the other two, either. Google might be dominant in developed markets, but it's a different story in China, where its market share has dropped to 21.6 per cent from 35 per cent a year ago. according to Beijing-based research firm Analysys International, the market is dominated by domestic player Baidu, with a 73 per cent share.

And Apple's dominance of the smartphone market shouldn't be taken as inevitable, either. According to research group NPD, Android-powered smartphones outsold those equipped with Apple's iOS mobile operating system by two to one in the key US market during the third quarter.