Steve Jobs is walking the same path as Walt Disney. As soon as California’s Disneyland was completed, Walt knew he had made a terrible mistake by not securing the surrounding real estate. He had built this wonderful destination but his oversight allowed hotel chains and restaurants to come in and make more money off his customers than he did. So Walt immediately went to Orlando, FL and built Disneyworld the right way.
The moral of the story is that Steve Jobs is not someone you want to depend on for your livelihood. His goal is to build a closed digital neighborhood where Apple (AAPL) controls who makes money and who doesn’t. I'll bet that in one of those Apple board meetings that Google (GOOG) CEO Steve Schmidt used to attend, he realized that Jobs was on the verge of building AppleWorld and he's been scared ever since.
Once you enter AppleWorld, you have no reason to leave. This strategy began with iPod plus iTunes and has taken off with iPhone plus App Store. Apple quickly realized that apps would one day overtake .coms. They knew that mobile devices would overtake PCs. And last but not least, they knew that they had a two year head start to completely control this mobile community. This did not sit well with Eric Schmidt. He had always envisioned Google as the king of the Internet age. He knew that his only hope was to build a competing community. So Schmidt left the Apple board under bad terms and Google has worked to develop the Chrome OS, the Android OS, the Nexus One, Youtube, AdMob, Google Tablet, etc. into their own community. But what happens if these Google innovations fail to catch on? What if nobody uses the Nexus One? It leaves Google completely dependent on the Apple and Microsoft (MSFT) communities for its success. Exactly what Schmidt has been trying to avoid.
Google has no moat around its search. Users can change their habits in a day and they will. Steve Jobs thinks that mobile advertising is terrible and is ready to revolutionize it with Apple's purchase of Quattro. Why should he allow Google to make money off the billboards in his neighborhood? Apple stock is at $210. Google stock is at $585. 24 months from now, the two stocks will have changed places and Apple will be at $585 and Google will be at $210.
There is a reason why Google is behaving like a company in trouble and burning all of their partnership bridges, it’s because they know exactly what’s coming. Schmidt knew it two years ago. The competition from Microsoft, Twitter and Facebook has reduced Google search into a commodity. The stock market hasn’t caught on but it soon will. The high valuation that Google commands because of its history of high growth will begin the process of deterioration that is the destiny of all maturing large caps. Google’s business will remain an important player in the evolution of the Internet age but the writing is on the wall. Sell Google, buy Apple.
Disclosure: Long AAPL