Apple Inc. (AAPL) Winner, Google Inc (GOOG) Loser As Tech Evolves: GS

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Apple Inc. (AAPL) Winner, Google Inc (GOOG) Loser As Tech Evolves: GS

Apple is going to be one of the big winners as the tech industry evolves, according to analysts at Goldman Sachs (GS). GS analysts released a 79 page report on the future of the tech industry, and they note that Apple Inc. (NASDAQ:AAPL) will be in good shape as smartphones and tablets converge, however, Google is facing trouble.

Many debate whether “open” or “closed” platforms will dominate today’s compute landscape of smartphones and tablets. According to the analysts, this debate misses a deeper point on market structure, and they view the concept of two-sided markets, in which platform users consume an ecosystem of complements, as a more helpful framework for the discussion.

In a two-sided market, a company creates a platform (iOS, Android, etc) that enables other companies, or complements (Facebook for example), to sell their products and services to platform users. Indeed, their survey of 1K+ mobile users highlights the ways ecosystems drive platform stickiness.

More notes from the report below:

Tablet and smartphone share likely converge over time

Platform stickiness is set to drive convergence of OS share in tablets and smartphones as tablets increasingly become an anchor device given users spend more for content on these devices. If left without a meaningful competitor in tablets, Apple Inc. (NASDAQ:AAPL)’s dominant share is likely to pull its smartphone share steadily upward over time.

Thus, a credible tablet becomes a strategic imperative for Google Inc (NASDAQ:GOOG), or they run the risk of a steady decline of Android smartphone share starting in CY13. For Microsoft Corporation (NASDAQ:MSFT), 2013 will be critical given it is coming from behind in both device areas and platform loyalty is raising switching costs.

PC Sales 2000-Present

While PCs were the primary internet connected device in 2000 (139mn shipped that year), today they represent just 29% of all internet connected devices (1.2bn devices to ship in 2012), while smartphones and tablets comprise 66% of the total. Further, although Microsoft was the leading OS provider for compute devices in 2000 at 97% share, today the consumer compute market (1.07bn devices) is led by Google Inc (NASDAQ:GOOG)’s Android at 42% share, followed by Apple Inc. (NASDAQ:AAPL) at 24%, Microsoft Corporation (NASDAQ:MSFT) at 20% and other vendors at 14%.

Apple Versus Google Android Users

Apple customers have shown more willingness to pay for complements than Android users. Further, despite growing competition, the power of Apple’s iOS platform also remains significant in operating profits on devices. Over the last ten quarters Apple has grown its share of mobile operating profits (from both tablets and smartphone device sales) from around 55% to nearly 70% based on Goldman Sachs estimates.

While they would note that, with the exception of Motorola, Google does not capture any of the Android OEMs revenue as it provides the Android OS free of charge, the company monetizes the shift to mobile through online search.

HTML5 is a way off; but TV likely the next big battleground

Market disruption related to HTML5, the forthcoming web code standard with greatly improved media streaming, is at least 3-5 years out, and as such platform loyalty will continue to build in the meantime.

Looking ahead, Goldman believes that the next big market disruption could be in the form of smart TVs. These devices, integrated with existing mobile ecosystems, could be the battleground for the next big compute revolution.

As such, smart TVs’ ability to become another platform component will likely mean significant investment from Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Google Inc (NASDAQ:GOOG), Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and others.

The Winners and losers 

Goldman Sachs belives that the following companies that are well positioned: Apple Inc. (NASDAQ:AAPL), Facebook (FB, Buy, $35PT), and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930); those straddling the line:, Inc. (NASDAQ:AAPL); and companies that are challenged:  Google Inc (NASDAQ:GOOG), Intel Corporation (NASDAQ:INTC), and Microsoft Corporation (NASDAQ:MSFT) in the context of platform adoption.


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