Google, Apple And Market Signaling

It has been a big month for product announcements by major technology companies and I see some valuation implications.  First, Alphabet AKA Google has now introduced a first rate phone.  I have been using mine for about a week and consider it to be the hardware equivalent of the iPhone 7.  This finally gives Google the platform it needs to showcase its software and update it in a timely fashion.  Android 7 with the Alphabet  AKA Google Assistant is a great combination, but it would fail if the phone were inferior.  For instance, I bought a top of the line Lumia phone when it came out to give Windows Phone 10 a try.  The phone was so bad in terms of both esthetics and build quality that it was on eBay the same day.  The software never had a chance with me because the hardware platform was so bad.  The Alphabet Inc (NASDAQ:GOOG) Nexus while superior to the Lumia was not on a par with Apple products.  With the Pixel, Google has not that made that mistake.

More generally, economic theory highlights the importance of software firms producing first rate hardware.  Michael Spence won the Nobel Prize for his theory of market signaling.  Signaling works because firms with superior technology can signal their superiority by producing products that are too expensive for inferior firms to match.  After Lumia, Microsoft seems to have learned this lesson.  The Surface Studio it introduced last week (and I ordered on the spot) is a ground breaking product.  Even if it is too expensive for most consumers, it signals to the market the Microsoft has the technological talent to compe