Original URL: http://www.theregister.co.uk/2012/01/25/apple_vs_google/

Apple's soaraway growth is Google's pain - and here's why

The Martian test - Mountain View FAIL

By Andrew Orlowski

Posted in Financial News, 25th January 2012 14:48 GMT

Analysis Compare these two headlines: "Google shares tank after disappointing financial report" (here) and "Apple tops estimates with earnings leap of 118 per cent" (here).

Today, Google brings a vision of the future to wonks, pundits and politicians - and this vision has so far been very persuasive. Google calls its own annual PR schmoozefest "Zeitgeist" - modestly implying that it knows what's happening in the world far better than anyone else. During the years when Google's income grew 70 per cent each year, between 2003 and 2007, it was hard to argue otherwise. But perceptions change rapidly - and they're changing now. Politicians are waking up to the fact that the legacy they leave behind might not be the happiest possible. Perhaps they've been sold a pup.

The paramount question in digital economics is how much value markets will realise. If your children or grandchildren have a talent for creativity or inventiveness, how will the world reward them? Today, creative markets support an incredible diversity of talent, from solo independent film-makers to Hollywood studios producing Inception, for example.

And digital networks once promised to make things even more exciting: by levelling the playing field for smaller players. If you read my interview with Beggars legend Martin Mills, you can see how clever independents have done just that, fulfilling their part of the bargain. Last year's bestseller Adele chose XL Recordings, part of the Beggars Group, to bring her recordings to the world. She also chose a huge publisher, Universal, to do her music publishing. Such choices should be available to future generations, too. Where creatives have been betrayed is by the internet's new middlemen.

These deeply conservative companies are now wedded to an impoverished vision of the digital networks, where market creation is fought at every turn. It isn't hard to see why they do this. Google remains a big fish in a small pond.

Jack of all trades or a master of one?

Google and the others can only do one thing well - web ads - and seem to have no traction for consumer marketing or bold market-making. Google tightened its grip of personal data overnight - for that's all it knows. By contrast, Apple has created markets, where creators themselves are rewarded. It's a glimpse into a very different vision of the future.

If such vast revenues are tapped, then Google (or Yahoo!) become much smaller players. The idea that Google knows the zeitgeist becomes quite comical.

For Google, it's getting harder and harder to squeeze growth out of the contextual classified advertisement market - which still provides the bulk of the company's income - even when it tightly controls the black box that delivers the revenue, and enjoys monopoly market share. Google hasn't been able to diversify - and not for lack of trying

Today, Google is beginning to look like the buggy whip manufacturer - the company that shunned growth for market share; that stayed in the wrong business because that's the one it felt most comfortable in.

We can now see why Google fought SOPA so hard - and fights any attempt (however misguided) to create markets, or make cultural markets work better. It rallies the naive, utopian Chicken Little crowd to tell us "the internet is broken". It lobbies politicians for protectionism in defiance of international treaties. It fights hard to keep the playing field littered with potholes, deterring investment.

Now compare Google's fortunes to Apple's. Apple is today the world's most valuable company, and it hasn't spent one cent on lobbying against intellectual property. Apple makes real money, on real products, which aren't easily replicable. Google, by contrast, is easily substitutable for a Bing or a Baidu. The idea is beginning to circulate that there's no real long-term growth in Google's business.

By contrast, Apple's growth isn't down to expensive gadgets - it's the marriage of creative markets to metal. This struck me while handling several rival tablets last year. Many were more comfortable, or more highly featured, than the iPad. But in each case, you'd think - what's the point? The Apple device is merely the end point of getting to stuff you want. Google places a very low value on respecting this 'stuff'. Google's lack of growth stems from this lack of respect.

For anyone who doubts this, or who questions the inevitability of Google's dismal market-free economic vision, take what I call the Martian test. It's a little game that I often find to be a good reality check.

What would Marvin the Martian think?

Down come the Little Green Men, and survey the state of humankind's technology and economy. "You have split the atom," they note approvingly, "but not quite mastered commercially viable fusion. You've created markets for selling music and filmed drama for plastic discs."

The flying saucer now makes a scheduled stop at Mountain View. After meetings they emerge looking puzzled.

"Well now, apparently, you will never again create a market of the same size, or larger, from selling music and filmed drama delivered electronically."

With much derisory metallic cackling, the Little Green Men climb back in their flying saucer and try and find intelligent life elsewhere in the galaxy. If you had to put the smartest humans before a curious, visiting alien - who would you choose?

Cultural products will still be made in the future, but any income will be thanks to the benevolence of the state - with strings attached - or corporate sponsors. Google's vision is of a future that no one really wants to live in any more. ®