Case Study Google, Apple, and Facebook Struggle for Your
Internet Experience
Three
Internet titans—Google, Apple, and Facebook—are in an epic struggle to dominate
your Internet experience, and caught in the crossfire are search, music, video,
and other media, along with the devices you use for all of these things, cloud
computing, and a host of other issues that are likely central to your life. The
prize is a projected $400 billion retail e-commerce marketplace where the major
access device will be a smartphone or tablet computer.
Mobile
devices with advanced functionality and ubiquitous Internet access are rapidly
overtaking traditional desktop machines as the most popular form of computing.
Today, people spend more than half their time online using mobile devices.
These smartphones and tablets take advantage of a growing cloud of computing
capacity available to anyone with a smartphone and Internet connectivity. It’s
no surprise, then, that today’s tech titans are so aggressively battling for
control of this brave new mobile world.
Apple,
which started as a personal computer company, quickly expanded into software
and consumer electronics. Since upending the music industry with its MP3
player, the iPod, and the iTunes digital music service over a decade ago, Apple
took mobile computing by storm with the iPhone, iPod Touch, and iPad. Apple
wants to be the computing platform of choice for the Internet. Apple is the
leader in mobile software applications, thanks to the popularity of the App
Store, with over 1 million apps for mobile and tablet devices. Applications
greatly enrich the experience of using a mobile device, and whoever creates the
most appealing set of devices and applications will derive a significant
competitive advantage over rival companies. Apps are the new equivalent of the
traditional browser. Apple still leads in this area.
Google,
begun by Stanford computer science graduate students Larry Page and Sergey Brin
as campus search engine BackRub in 1996, quickly attracted attention for its
unrivaled ability to return relevant search results. It continues to be the
world’s leading search engine. Advertising dollars follow page views, and
Google’s search dominance quickly led to advertising ascendency. Between
AdWords, its keyword-based search advertising product; AdSense, the most
popular online advertising network; and DoubleClick, an intermediary between
online publishers and ad networks that buys, sells, and conducts performance
reporting on display advertising space, Google dominates online advertising.
In
2005, Google had purchased the Android open source mobile operating system and
founded the Open Handset Alliance in order to compete in mobile computing.
Google provides Android at no cost to smartphone manufacturers and many
different manufacturers have adopted Android as a standard. In contrast, Apple
only allows its own devices to use its proprietary operating system and the
hundreds of thousands of apps it sells can only run on Apple products. Since
the first Android phone hit the market in October 2008, free, publicly
available source code and permissive licensing have propelled Android to the
top place in mobile operating systems. By early 2014, Android was deployed on
nearly 58 percent of smartphones in the United States and over 80 percent
worldwide. Android has also become the most common operating system on tablets
worldwide.
Aggressively following the eyeballs,
Google purchased Motorola Mobility Holdings for $12.5 billion in August 2011.
This move provided Google with 17,000 patents, with another 7,000 in the
pipeline to help defend Android from the smartphone patent wars. Google is also
innovating in mobile hardware platforms with its Nexus 7 tablet, Google Glass
(a wearable computer with an optical head-mounted display described in theChapter 5 Interactive Session
on Technology), and plans for a modular smartphone that consumers can configure
with different features, such as a camera or heart rate monitor.
Whoever
has the dominant smartphone operating system will have control over the apps
where smartphone users spend most of their time and built-in channels for
serving ads to mobile devices, for example, on Google-owned YouTube and the
Google Maps app. Although Google search technology can’t easily navigate the
mobile apps where users are spending most of their time, Google is starting to
index the content inside mobile apps and provide links pointing to that content
featured in Google’s search results on smartphones.
The cost-per-click paid for mobile ads
has trailed desktop ads. Google instituted a design change to merge PC ads and
mobile ads and present a cleaner mobile search page. Users were increasingly
consenting to click mobile ads and shop from their smartphones and tablets.
Both changes began to strengthen overall ad prices.
Furthermore,
with its advertising networks still contributing 95% of its revenues, Google
had to make sure that Facebook did not eclipse it as an advertising vehicle. It
launched Google+ (Google Plus) in mid-2011, its fourth foray into social
networking. With 300 million active users by March 2014, Google+ has surpassed
Twitter. Rather than a single Web site, Google hopes to meld the social
experience across all of its sites. Google+ has morphed from a social network
into a gateway to Google’s package of services like Gmail, Google Docs, Google+
network, maps, hotel reservations, and more. With Google challenging Apple on
every front, Apple’s profit growth has slowed in the past couple of years.
Although Apple has a number of advantages in the battle for mobile supremacy,
it faces strong competition in both the U.S. and developing markets like China
from Samsung Android phones that have larger screens, and much lower prices. Sales
of iPhones were slowing until it introduced the iPhone 6 iOS phone and Apple
Watch in September 2014. Two million phones were sold in the first two weeks,
twice the rate of previous iPhones. The iPhone 6 comes in a large screen
version to compete directly with Samsung. Apple has on its side a history of
market-moving innovations, and a loyal user base that has steadily grown and is
very likely to buy future product and offerings.
Apple
has a legacy of innovation on its side. In 2011, it unveiled the potentially
market-disrupting Siri (Speech Interpretation and Recognition Interface), a
combination search/navigation tool and personal assistant. Siri uses Yelp for
local business searches, tapping into its user recommendations and ratings. For
factual and mathematical questions, it enlists Wolfram Alpha. Siri promises
personalized recommendations that improve as it gains user familiarity—all from
a verbal command. Customer response has been mixed. Google countered by quickly
releasing its own AI tool, Google Now.
Facebook,
founded by Mark Zuckerberg and several Harvard friends in 2004, provided a way
for local students to meet and share information online. Today it’s the world’s
largest social networking service, with nearly 1.3 billion monthly active
users. People use Facebook to stay connected with their friends and family and
to express what matters most to them. Facebook Platform enables developers to
build applications and Web sites that integrate with
Facebook
to reach its global network of users and to build personalized and social
products.
Facebook
has persistently worked on ways to convert its popularity and trove of user
data into advertising dollars, with the expectation that these dollars will
increasingly come from mobile smartphones and tablets. Over 750 million people
around the world used Facebook on an average day, and three-quarters of them
log on using mobile devices. By the first quarter of 2014, mobile advertising
accounted for 59 percent of Facebook’s revenue, with many of those ads highly
targeted by age, gender, and other demographics. Facebook is now a serious
competitor to Google in the mobile ad market and is even trying to compete with
emerging mobile platforms, having purchased Oculus VR Inc., a maker of
virtual-reality goggles, for $2 billion.
In
March 2013, Facebook overhauled its home page to increase the size of both
photos and links and allow users to create topical streams. Job number one was
to de-clutter smartphone screens. Marketers love larger pictures, both for
their prominence and their greater persuasive impact. Job number two was to
give advertisers more opportunities, and more interest information, with which
to target market. A “personalized newspaper” with, for example, an op-ed feed
featuring followed commentary pages, a sports section tailored to preferred
events and teams, and a hometown news feed, will swell Facebook’s database with
useful tidbits. Whether users oblige remains to be seen; a popular app,
Flipboard, already serves users interested in creating topical and
publication-based streams.
Next,
Facebook introduced a mobile application suite to replace the typical
smartphone home screen. Facebook Home is an interface running on top of the
Android operating system that essentially turns an Android mobile device into a
Facebook phone. Home replaces the smartphone’s typical cover screen with
Facebook content, such as photos, messages and status updates. Home still
provides access to apps on the phone, but the experience is centered around
Facebook.
About the same time, Facebook also
launched a new search tool to challenge Google’s dominance of search. Graph
Search mines Facebook’s vast repository of user data and delivers results based
on social signals, such as Facebook “likes,” and friend recommendations. It’s a
more “social” way of searching than Google. If the desire for friend-based
recommendations outweighs users’ reluctance to divulge more personal
information, Graph Search may be a major revenue driver. While users may be
enticed to check-in, and then assign stars or review local restaurants and
styling salons, they are unlikely to reveal sensitive data such as their
doctors’ identities or where their children go to school. Moreover, entering
“liked” movies, books, and music, etc. takes time. Will users disclose
sufficient data for searches to accurately list and rank results? With time and
responsiveness to user practices, Facebook may uncover niche areas at which it
excels. Even if it cannot directly rival Google’s advertising muscle, it should
be able to chip away at its dominance.
Facebook
claims that using Graph Search to target Facebook users for advertising is
forbidden, but no policy for supervision and sanctions has been revealed.
Facebook is already under Federal Trade Commission (FTC) scrutiny, with independent
privacy audits mandated for the next twenty years. Trust is the linchpin upon
which Facebook’s strategy depends. Eroding user trust means less data to
generate relevant search results and less impetus to use Facebook to connect to
third-party sites and services. Facebook must tread carefully. But if Facebook
can succeed in making itself synonymous with mobile access, the company could
very well compete for global advertising dominance, with much of the world’s
population just coming on line—on inexpensive Android smartphones.
Sources: EricBrian X. Chen,
“Apple’s War on Samsung Has Google in Crossfire,” New York Times, March 30,
2014 and “For Hints at Apple’s Plans, Read Its Shopping List,” New York Times, February 23, 2014; Reed Albergotti, “Facebook
Net Triples, Sales Up 72%,” Wall Street Journal,
April 23, 2014; Sarah Frier, “Facebook Bets $2 Billion That Oculus Headset Will
Anchor Social Life,” Bloomberg Business Week, March 26, 2014; Farhad Manjoo,
“The Future of Facebook May Not Say ‘Facebook’,” New York Times, April
16, 2014; Jim Edwards, “Here Is The Little-Known Way Google Juices User Traffic
On Google+,”Business Insider, March 31, 2014; “Android Grows to Almost 60% US
Smartphone Marketshare in Q1 as iOS Drops,” 9to5google.com, accessed May 6,
2014; Evelyn M. Rusli, “The Challenge of Facebook’s Graph Search,” Wall Street Journal, January 16, 2013; Matthew Lynley and
Evelyn M. Rusli, “What Is Facebook ‘Home’?”, Wall Street Journal,
April 4, 2013; Somini Sengupta, “Fortunes of Facebook May Hinge on Searches,”
New York Times, January 14, 2013, “Facebook Shows Off New Home Page Design,
Including Bigger Pictures,” New York Times, March 7, 2013, and “Facebook
Software Puts It Front and Center on Android Phones,” New York Times, April 4,
2013; John Letzing and Amir Efrati,“Google’s New Role as Gadget Maker,” Wall Street Journal, June 28, 2012.
SUPPORT: Do significant research outside of the book and
demonstrate that you have in a very obvious way. This refers to research beyond
article itself. This involves something about the
company/organization/individual or other interesting related area. Show
something you have discovered from your own research. Be sure this is obvious
and adds value beyond what is contained in the case itself. (10 points) 1 – 2 PAGES
