Look at all the headlines touting the genius of Apple. Now, look at all the headlines touting the genius of Google. It's pretty clear Apple is the superior company, right, and probably should be worth a lot more.
Apple fanatics say "social search" applications will make Google obsolete, despite the fact "just Google it" has become shorthand for "look it up on the internet." They also argue that Apple is going to keep lowering the price on its spendy and trend MacBooks, driving more people into the arms of Apple.
But reality tells a different story.
There is still no real competitor to Google in online search and Apple's entry-level laptop has been priced between $1,000 and $1,100 for years, and it's going to stay there. By comparison, less than half that will get you a pretty loaded Dell laptop.
Apple's products, from its first computer, which debuted in 1978, to whatever is unveiled at the Next Macworld, tend to sport similar descriptions: they are elegant, they embody simplicity, and they are "cool." Apple products were conceived of as being interactive in the sense that people and machine would work together almost seamlessly.
But Google, on the other hand, provides an array of options for every possible online application. Google has clear target markets, competencies and competitive advantages, namely its search engine technology and massive, scalable IT infrastructure. It has utilized its core capabilities to further create products and services that use Google's existing platform to offer more services to target markets.
Let's look at some reasons why Google is a better investment in terms of its core competencies.
Best and Highly Motivated Talent
Google continues to get the best young talent in the industry. A company policy enables engineers to allocate 20 percent of their workload to projects of their choosing. These discretionary projects have delivered 50 new products and features
Shorter Product Cycle
Google manages to avoid non-essential processes to accelerate product development by making usefulness, usability and ubiquity key design principles. Rapid prototyping and usability testing involving actual users is coupled with the launch of beta versions that rely on users' feedback to enable a continuous improvement process.
Innovative culture and strategic patience
Google not only encourages innovation internally but also externally. If Google finds that a particular innovative technology can integrate with its existing services, then Google doesn't hesitate to collaborate with external partners. Google is careful in selecting its collaboration partners as it wants to protect its core competency, which is its search engine. For example, when Google collaborated with AOL, Google made it clear that AOL will not have any access to Google's search engine algorithms. Google also acquired new innovative technologies like YouTube, RSS, and Google Earth when it felt that these products were a good fit with existing services. All these products were deemed too expensive for Google and called flat out stupid decisions, but all of them have been extremely profitable for Google.
Personalized Job Design
This strategy is one of the several approaches Google uses to foster greater autonomy and mastery within its employee ranks. Employees tend to pursue their interests and likings, but Google, unlike many other employers, doesn't fight this reality. Not only does this mean greater autonomy where employees can choose what they would like to work on, but also employees may work to enhance their skills by indulging in activities in or outside their core competency. Google currently seems to conform to a craftsman-apprentice model by selecting people with in-depth expertise in computer-systems. This is also an attempt to encourage employees to broaden their functional skills, if they want to, and conform to the "boundary-less" notion.
Future Outlook of Google and Apple
Apple's phone business looks great right now, but the industry is notoriously cutthroat. Apple has the degree of control it's used to elsewhere, but handset margins are never going to be as big as margins on iPods or Macbooks. Apple and Google are both strong technology giants with very large "moats." But Google is stronger, and its moat is bigger. It owns search, certainly in Europe and the Americas, and it's making strong inroads into display advertising as well Apple isn't content to just make money from selling devices that let you tweet and change your Facebook status on the go either. It also is angling for a cut of the potentially lucrative market for advertising tied to mobile applications. Google and Apple are going from a friendly rivalry to a bit more of an intense rivalry.
While each company is stepping more into each other's key business, Google is a better value right now. Its stock trades at about 23 times 2010 earnings estimates compared with a P/E of 27 times fiscal 2010 earnings estimates for Apple. However, investing in Google and Apple should not be thought of as an either-or scenario. Both Google and Apple will probably continue to steal market share from competitors. One of the main reasons that the two stocks both doubled last year was because sentiment shifted so dramatically. Both companies have a lot of cash, and it's hard not to like them. But they are reasonably valued, and not cheap. Sensible investing is the key and 'rush-in-rush-out' is definitely not the order of the day.
Conclusion
Google stock is volatile, no doubt. But if I was going to sleep today to wake up in ten years' time, I'd be much happier with Google stock under my mattress than Apple. Google is a dream for any risk averse investor; Apple is more for the 'cool' generation.
