Google Inc (GOOG) vs Apple Inc. (AAPL): Who Wins in the Ecosystem Battle?

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Google Inc (NASDAQ:GOOG)When investors think Apple Inc. (NASDAQ:AAPL), they often think of the company’s ecosystem. Hedge fund manager David Einhorn has long argued for Apple Inc. (NASDAQ:AAPL) based on this notion — if you have one Apple product, you’re more likely to buy another.

On the other hand, most don’t view Google Inc (NASDAQ:GOOG)’s ecosystem as being nearly as robust. Sure, there’s Android, and the Google Inc (NASDAQ:GOOG) Play store, but Android is fragmented and chaotic — there is little incentive to stick around.

Yet, that’s really missing the point — although it’s more abstract than Apple Inc. (NASDAQ:AAPL)’s, Google has slowly built itself a very robust ecosystem — one that many investors likely don’t appreciate.

Apple’s ecosystem

Apple’s ecosystem is fairly easy to understand because it’s relatively tangible. In the past, I’ve written in detail about the factors that comprise Apple’s ecosystem. But briefly speaking, they may be summarized as follows:

  1. All Apple iDevices use the same operating system — people want to stick with the familiar
  2. The devices work well together — they sync and communicate easily
  3. Accessories can be shared among devices
  4. People who purchased a lot of apps and content in iTunes do not want to have to pay for those things again

Thus, Apple Inc. (NASDAQ:AAPL) has a sort of stickiness to its products — if you own an iPhone, and you want a tablet, it makes sense to get an iPad. If you’re upgrading your phone, and you’ve used the iPhone for many years, it makes sense to get the latest iPhone.

Apple bulls have argued this phenomenon puts a kind of floor into the stock — even if the iPhone is outclassed by its competitors, existing iPhone adopters will remain loyal simply because they don’t want to be burdened with switching costs.

Google’s ecosystem

Whereas Apple Inc. (NASDAQ:AAPL)’s ecosystem is built around hardware, Google Inc (NASDAQ:GOOG)’s is composed of web services — comparatively, it’s more a “soft” ecosystem to Apple’s hardware-based one.

The core of Google’s ecosystem is built around the Chrome web browser, gmail, and Google search. But even the company’s lesser used products like Google+ and Google Music feed into the larger ecosystem.

If a user is on the Chrome web browser, they’re likely to use Google search — queries typed in the address bar are run as Google searches by default. Of course, that works the other way too — if you do a lot of Google Inc (NASDAQ:GOOG) searching, Chrome is a great browser to use.

And if you’re going to use Chrome, it would only make sense to have it tied to a gmail account — stored passwords, browsing history, and bookmarks are synced to gmail. This makes browsing the Internet across different devices a better experience — a user can bookmark a page on their mobile phone, then easily pull it up later on their desktop.

From there, all gmail accounts are tied directly to Google Docs — the company’s cloud storage service and free alternative to Microsoft Corporation (NASDAQ:MSFT)’s Office. And once you have a gmail account, creating a Google+ account is a simple click away.

Then, there’s Google Music, which lets gmail users upload their own songs to be streamed from the cloud. There’s also Google Hangouts, a messaging app tied to gmail and Google+, and an alternative to Skype or WhatsApp.

In short, Google Inc (NASDAQ:GOOG)’s ecosystem surrounds what people do on the web — how they access it, how they find things, and how they talk and interact with others.

The future is big data

Unlike Apple’s ecosystem, Google Inc (NASDAQ:GOOG)’s is completely free. This is because Google has a different objective — rather than profit off device sales like Apple Inc. (NASDAQ:AAPL), Google is building a database.

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