Yes, you read the title right. Of course, everyone knows that Android has been the bane of Apple's (NASDAQ:AAPL) recent existence. However, this article will explain why Apple is uniquely positioned to win the mobile war by harnessing the success its arch-rival operating system, Android.
You see, soon you may not need to choose between Apple, Android, Microsoft (NASDAQ:MSFT) or Blackberry (BBRY). Soon, your smart phone will be capable of running a combination of these operating systems simultaneously...but not just any combination. Indeed, Apple is the only vendor capable of offering iOS in concert with Android, thus using Android to win the war against Android.
The technology that will allow this to happen is called a "hypervisor," which delivers "virtualization" or "virtual machine" ((VM)) enablement. A growing number of IT media outlets are taking note of the fact that hypervisors will begin reshaping the smart phone landscape in 2013. This will affect many companies, including Apple, Blackberry, Google (NASDAQ:GOOG), Microsoft, Nokia (NYSE:NOK), Samsung (OTC:SSNLF) and VMWare (NYSE:VMW). To assess the investment implications, I consulted with Jayme Fishman, CEO of Second Decimal, LLC, and one of Pipeline Data's most trusted technology visionaries.
Starting with the mobile virtualization landscape, Red Bend and VMware are currently the top players. Red Bend is partnered ARM because it uses a Type I approach, which leverages a second copy of the OS and run two systems in two different regions of the processor. In contrast, VMware will go the Type II route, which leverages the underlying host hardware (not in parallel). VMware has already inked deals to embed this technology with Motorola, LG and Samsung.
A recent PC World article positions mobile virtualization as having the ability to create a personal user interface and work interface on the same device. This is being pitched as a security benefit to corporate IT departments that support Bring Your Own Device (BYOD) policies. Employees that participate in BYOD programs could have a secure virtualized operating system controlled by their company running alongside a personal version. They would effectively be running two instances of the same system (i.e. two separate instances of Android, one for work and one for personal use). Users can seamlessly toggle between them, but the security will block the sharing of data and give IT comfort that the personal instance will not pose a threat to the corporate infrastructure. That's a great solution to a major issue, but the real significance of hypervisor technology could be far more important. Imagine running two completely different systems on the same device...like iOS and Android.
Don't believe it can happen? Consider this - a reported three million plus people are using Parallel's virtualization software to run Windows on their Apple computers. Before the advent of that innovation, who would have it possible? Of course, and conspicuously, Windows PCs still can't run OSX. Fishman expounded on this subject:
A long time ago MSFT decided to embrace an open distribution strategy that allowed them to stamp their software onto any machine that wanted to OEM it. The strategy appeared unstoppable as they throttled past Apple and nearly put them out of business. Apple, however, remained focused on controlling every aspect of the hardware and software for their products. The focus on integration and quality paid off when computing went mobile and users craved slick capable devices that were seamlessly integrated with the software. AAPL never relented in its approach to having a closed OS that only runs on their hardware. Consequently, if you want one machine with both operating systems you need an Apple product by default.
Still not a believer? What if I told you Apple's control of every facet of design for their products has given them an advantage that MSFT is reportedly interested in pursuing? In a recent letter to shareholders Steve Balmer announced a strategy in which MSFT would create more products where they own the hardware and the software. The reasons for this shift were left unsaid, but one can only assume that it is recognition of the success of Apple's long term strategy.
Google has followed part of MSFT's OEM strategy by creating an open source operating system and allowing it to be installed on any device. As such, they have experienced a rapid ascension in market share without control over the hardware. That means they have to watch vendors like Amazon use a flavor of their OS to create a closed Android market where Amazon customers can purchase Android apps to run on their Kindle devices. Those same devices block access to Google's own GooglePlay Android marketplace.
At the same time, Android's success has meant trouble for Apple. It did not take all that long for the platform to stabilize and give birth to numerous app markets that compete with Apple's iTunes market. It also allowed for the likes of Samsung to create well designed devices that cost less than the iPhone. This was partly because Android is inexpensive and partly because Samsung generally accepts lower profit margins than Apple. Samsung has also achieved "cool" status thanks to a series of highly effective marketing initiatives.
The success of Google, Samsung and Amazon has led to a lower stock price for Apple. However, the advent of mobile hypervisor technology could turn the table in Apple's favor - if it allows Android to run virtually on their phones. We believe it will. In doing so, it will be the only vendor that can offer an iOS / Android combo phone, consolidating all the major apps and OS benefits on a single device.
I know what you're thinking. The app market does not allow for it because Apple has iTunes and everyone else has a different Android app market. Good point, but what is to stop Apple from creating its own Android App store much in the same way that Amazon did when it launched its Kindle App market? You probably also are wondering if Apple would ever allow for its closed system to run another OS that it does not control. Remember the aforementioned Parallels?
Consider the fact that Apple has droves of developers who have already ported their apps to Android. It would not be a stretch for those developers move copies of their Android apps to an Apple Android market. Not only do I bet they would do it - I also bet the majority would be willing to pay another Apple developer license fee for the privilege. That's because they are smart enough to know that customers would flock to a device that can run iOS and Android simultaneously. Thus, that is where they could sell the most apps. There is only one vendor who can offer such a device. Apple.
By the way, the impact on tablets could be even bigger -- consider running Windows server on your iPad. The death of the PC is rapidly approaching. Also consider the proliferation of mobile VM could pull apps back from cloud computing. The devices would be able deliver versatility and power that were not possible when they were first released. At the same time, their specs are increasing (128 GB iPad, rj45 ports on Android tablets, etc).
The way we see things shaping up, we believe Apple will regain its footing in the marketplace. Consequently, we believe that Samsung will lose momentum. Samsung's investment in embedding the alternative Tizen operating system comes too late to create a competitive alternative alluring enough to pull users from more mature app markets. As such, hypervisor technology gives its competitors a leg up by allowing them to use Android in conjunction with their own successful operating systems.
Google is always a threat and has a proven consistent ability to produce market changing technology. Meanwhile, their acquisition of Motorola creates the possibility of combining a sleek unified Apple-like user experience and is what turned up the heat on Samsung to pursue Tizen. Said another way, you have the platform maker acquiring the hardware and the hardware maker acquiring a new platform. Both companies pursuing what Apple already has. In the meantime, GOOG still has to fight for continued control of its own platform, as evidenced by Amazon's utilization of the platform.
Any number of competitors could form alliances with Microsoft (and others) to swap out browsers and remove GOOG search / advertising revenue from Android, thus cutting them off from playing in their own app markets. Most glaringly, GOOG lacks access to a successful alternative OS that could be brought up in a virtualized environment. Android is great, but Apple can access it. The same can't be said for Google regarding iOS.
As for Microsoft, we believe they will ultimately be forced to acquire BBRY or NOK to gain ownership of the hardware (and potentially more in the case of BBRY). Using virtualization, MSFT could deliver combo phones with the Windows Mobile and Blackberry operating systems. This would give the current base of 80M Blackberry users a clear migration path to a more viable mobile operating system. That being said, few will argue that either BB10 or Windows offer the appeal of Android or iOS (much less both). This mitigates the benefit of virtualization for MSFT beyond migration. Of course, they could also choose to run Android. However, we believe this would simply add complexity, confusion, and risk to its multi-OS integration strategy.
One thing is certain - there are a plethora of major vendors scrambling to assemble every piece of the supply chain. In the race to build unique competitive advantages, two players appear poised to benefit the most: 1) As the arms dealer, VMWare will benefit from mobile hypervisor sales from every company that uses it for corporate security or multiple operating systems, and 2) Apple - who had all the pieces from the start, has successfully integrated them, and has never opened them up to anyone else.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.