When the stock markets open this morning, it’s quite likely that the company formerly known as Google (GOOG) will seize the crown as the world’s most valuable company from Apple (AAPL).
It is the latest twist in Silicon Valley’s favorite feud between two giants who once were friends until they became bitter enemies and rivals. And while there are many subplots and personalities involved, the main thread running through their competition is the rapidly evolving nature of mobile.
Mobile still seemed somewhere over the horizon when Google went public back in 2004. For the next four years, Google was more valuable than Apple, which was just regaining some momentum thanks to sales of Macs and iPods.
Then came the iPhone. And suddenly, their fortunes seemed reversed.
By April 2008, Apple’s stock was racing ahead and it topped Google in value. Google released the first commercial version of Android later that year, but for a long time, it left investors and analysts scratching their heads. What good is a free mobile OS to a company’s bottom line?
It also sowed the seeds of the rift between the two friends. Google CEO Eric Schmidt would step down from the Apple board. Apple CEO Steve Jobs seethed that Android was a cheap ripoff, and launch a proxy legal fight against the its leading partner, Samsung.
In the meantime, it seemed the real business was hardware (made more compelling by Apple’s slick iOS, of course.) Indeed, even as Android phones eventually gained the upper hand in terms of market share, iPhones were still commanding most of the profits in the mobile game. Google briefly regained the market cap lead but Apple topped it again after February 2010, just a few weeks after the iPad was unveiled.
Once again, Google and other challengers scrambling a new market pushed by Apple, this time tablets.
As Apple soared, Google fought off critics. The accelerating shift to mobile created concerns about Google’s revenue from mobile search versus desktop search. The company began to tinker with building hardware. It bought Motorola’s handset business to take Apple-like control over hardware and software development (and then sold it Lenovo a couple of years later).
Along the way, the companies changed leaders. Tim Cook replaced Steve Jobs, who died just a few weeks later. At Google, Eric Schmidt handed the throne back to Larry Page.
The two companies continued to pursue their visions of the future in their own different, and idiosyncratic ways.
Apple preferred to keep its every move shrouded in mystery even as rumors of work on a watch or car bubbled up. Google preferred to experiment in public, with things like Google Glass, driverless cars, and a host of other so-called moonshots.
For all of Google’s fantastical future gizmos, investors remained dubious that they would pay off any time soon. And Apple seemed out of reach until the past year.
A year ago, Apple posted blockbuster earnings on the strength of massive sales of its larger iPhone 6 and iPhone 6 Plus. But at the same time, sales of iPads continued to stall and then drop. In the most recent quarter, sales of iPhones were relatively flat as Mac sales also fell.
Despite a busy year of product launches (Apple Watch, new Apple TV, Apple Music), there doesn’t seem much indication that these new products will drive significant revenue any time soon. Since last July, Apple’s stock is down 26 percent.
The result is a big question mark hanging over Apple’s near-term future: What if the days of growing hardware sales are over for good?
In that case, the company has to rely on software and services to grow. And while App Stores sales continue to surge, its reputation for services (Apple Maps, iCloud services, for example) are not nearly as stellar.
Meanwhile, Google has continued to tinker. Most obviously with its name. It announced the parent company would now be called “Alphabet” and each of its products would be broken out separately.
None of these as of yet, as we learned in Alphabet’s first earnings yesterday, are producing much revenue. Though the are sucking up a lot of investment dollars.
The Google division is 99 percent of revenues, and the news from that corner delighted Wall Street. The company says big gains in mobile search were driving increased revenue. Executives point to a change in ad formats for mobile implemented last year that seemed to drive new momentum.
And YouTube viewership on mobile reaches more 18-49 year olds than any U.S. cable channel, the company claims.
Thus, after months of momentum behind its stock, Alphabet looks like it will nudge past Apple.
Alphabet’s stuck was already up more than 12 percent since last July. In after-hours trading, Alphabet’s stock was up 5.32 percent or $40.00 to $792 per share.
If that holds, CNBC estimates that Alphabet would have $570 billion market cap, topping Apple’s value of $535 billion at the close trading.
More important than the market values, which can be ephemeral based on the whims of investors, is the real bottom line: In the last week of earnings, investors and Wall Street seem to be making a clear statement that they believe software and services will determine the king of mobile.
Of course, as we’ve seen over the past decade, the evolution of mobile can be cyclical. Apple may have temporarily downshifted to neutral, but it would be silly to think they can’t or won’t re-accelerate.
But for now, the fight for the future of mobile has moved back to Google-Alphabet’s home field where it certainly holds an advantage over Apple.
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