How Apple Forced Google Into a Panic Purchase of Motorola Mobility

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 |  Includes: AAPL, BBRY, CSCO, GOOG, MSFT
by: Richard Saintvilus

Apple (AAPL) recently became the world’s largest company according to its market capitalization, surpassing Exxon Mobile (XOM). While this event should not have come as much of a surprise since Apple was already the largest technology company by market cap, just slightly ahead of Microsoft (MSFT), surpassing Exxon in that prestigious category is an event that nobody could have ever predicted 14 years ago. If you recall, Apple needed an 150 million investment from Microsoft to avoid what appeared at the time as inevitable bankruptcy.

Upon the announcement of the Microsoft’s investment, Apple’s chief financial officer Fred Anderson, who had been assigned to run the company's daily operations until a successor to outgoing CEO Gilbert Amelio was found, said "the deal strengthens Apple's viability. It's a new era in terms of Apple and Microsoft working together." Indeed it was the dawn of a new era. Only Microsoft and the rest of the world had no idea how significant this deal would turn out to be. Now here we are, only a short 13 years later, Apple having surpassed Microsoft, the same company that gave it its “second wind” and now Exxon as the world’s largest company? This leads me to wonder, has the world shifted its diet from “greasy foods” to “fruits”? If you got that intended pun, great! If not, maybe I’ll win you over as you continue reading.

Apple overtook the top spot by a mere 3 billion dollars, relatively speaking of course. Though it was aided by the slight recovery of the market during the latter part of last week, the feat remains remarkable. Apple recorded a market value of $337 billion compared with ExxonMolbil’s $334 billion. Apple clearly has established an empire. In fact, considering its new status as “the world’s company,” it begs the question, how long will this last? It is clear that we are now in the “I-age” (copyright pending). But if I have learned anything in this market, it is that prolific empires simply never last. Basically, preserving an empire not only necessitates enormous resources and managerial capacity, but it is also a mammoth challenge to grow it further; Microsoft and Cisco (NASDAQ:CSCO) being prime examples. But Apple has the two main ingredients that could sustain its empirical dominance; it has plenty of resources and its managerial capacity is second to none.

Contrasting the Competition

It’s easy to point to Research In Motion (RIMM), Google (NASDAQ:GOOG) and Microsoft as the major players in Apple’s space. But when a company is now the largest in the world, one can argue that the competition is now Apple against “the field” (to steal a golf term). The super bowl winning team always gets everyone’s best effort when it comes to town. Ticket sales tend to rise, but the home team fans often leave disappointed. This is to say, Apple has taken everyone’s best shot and the company is not going anywhere. Speaking of taking shots, Google took one at Apple on Monday when it announced that it had acquired Motorola Mobility (NYSE:MMI) for $12.5 billion dollars. Tech Crunch author, Greg Kumparak explained it this way:

  • They’re buying 20,000 employees (almost doubling their headcount.) They’re buying an absurdly daunting armory of over 24,000 patents (I mean, come on: Motorola has the patent on the cell phone.) But there’s one more thing that Google’s buying, and it’s one that shifts up the Android game all together: nearly 30% of Android’s existing market share in the U.S.
  • After years of owning next to none of the hardware market share for theirown software platform (even the so-called “Google phone” Nexus devices are made by HTC and Samsung), Google has just become Android’s 2nd biggest manufacturer.

As Greg correctly explained, Google saw an Apple advantage and wanted to take it away. But will it be enough? One of Apple’s advantages has always been its platform unification whereas (until Monday) others such as Google’s Android, had more of a fragmented platform. When compared with the unified IOS of Apple, there were some major differences; particularly in the area of hardware configurations. From a customer’s perspective that is something that might be overlooked, but from the standpoint of development, it raises questions. Developers tend to follow the platform that supports the largest population or “seats.” In Apple’s IOS, developers only need to create the app once and it becomes supported across all of Apple’s platforms.

Until Monday’s announcement, developers for Android would have to first select the platform, then they would need to decide on the hardware vendor and finally, they would have had to also create ports for the hardware. For developers, that’s a significant amount of work and “red tape” to bring an app to market. I suspect these issues caught up to Google and it was forced to take some action; one of which being its acquisition of Motorola Mobility.

So, clearly in the apps space and hardware space there is a virtuous cycle where Apple has locked up the market pretty tightly. So it’s hard for the others to get in; RIM in particular. Apple likes to win its customers one at a time. It does not worry about the enterprise nor does it try to please the IT department. Its M.O. is to please the individual and not the enterprise. This is where others have failed.

Summary

These days, to get attention discussing Apple, one has to talk down the company. The thinking is, where there is so much positive talk about the company, it is easier to stand out if one “makes some waves.” Mention Steve Jobs’ health, bring up its inability to find new markets, or its inability to use excess cash, it goes on and on. But clearly, Apple is sailing on smooth tides and as the largest company in the world, there is no other better suited to wear that bull’s-eye. It seems, becoming the world's largest company was too much for some to bear. You’ve got to be something special, when you mind your own business and still cause everyone else to panic and react; even a company like Google.

Disclosure: I am long MSFT, CSCO.