Google’s (GOOG) Android platform clearly dominates the mobile landscape in terms of market share, and though Samsung (005930) continues to close in, Apple (AAPL) leads the pack in profitability by a wide margin. According to one industry watcher, however, they should all be watching out for Microsoft (MSFT).
Sizemore Capital’s Charles Sizemore writes in a contribution to NASDAQ that “Microsoft will ultimately muscle-out Apple as the leader in smartphones and tablets.” He says the war will be long and grueling, but Microsoft will ultimately pull ahead because Apple has no ”durable long-term advantages” to keep customers loyal. He also contends that “Apple’s insistence on controlling every aspect of both its software and hardware puts it at a disadvantage to a more flexible Microsoft.”
Where Android is concerned, Sizemore says he doesn’t take Google seriously as a long-term competitor because the company’s solutions are “shoddy” attempts at matching superior offerings from Apple and Microsoft. He points to Google Play Music as an example, though the extent of his complaint seems to be that the app can’t cache music on an SD card as opposed to a device’s internal storage without the user “hacking” his or her phone. The analyst offers no further examples to substantiate his claims.
“You simply don’t have these sorts of problems with Apple or Microsoft,” Sizemore contends. “Why? Because they are real companies with real business models. With a few exceptions, they actually charge for their products and offer some degree of support.”He continues, “Given that Google gives most of its products away for free, you have to question how seriously they take them. And given my experience with Play Music, the answer is ‘not very.’”
The analyst concludes that while he is not forecasting an “immediate collapse in Google’s share price,” he finds no evidence to show that Google’s advertising model is sustainable and therefore will not invest in Google. Sizemore discloses that his firm holds a long position in Microsoft.
Sentiment: Strong Buy
Crush, muscle out? Only if you think they (Google and Apple) will fight the same way as in the previous war, metaphorically speaking, I suppose they could fail. However, weapons and tactics keep changing and advance technologically. The field of battle will change made by one who innovates and leads, and is unencumbered by the enemy and their folly. This is an exciting sector to watch, the phone wars that is.
Guy sounds like he is analyzing the market with his head in the sand.
MSFT was in phones and tablets long before either Apple or Google. They aren't trying to "ultimately" take over the market. They had it first and did well in phones and then lost it and never did well in tablets.
"Durable long-term advantages"? A meaningless piece of rhetoric. Both Apple and Google jumped into those markets years after they were established and now own them. They kicked MSFT out of phones and got established in tablets when MSFT never could. That may change but how did it happen in the first place if MSFT is such a force?
His single example of how Play Music can't cache music without hacking the phone is also meaningless. If your phone doesn't have enough internal storage that isn't an OS issue. It's a hardware issue. If you can "hack" it and solve it then you save the cost of getting a better phone. How is that flexibility a disadvantage?
And if Google isn't a real company with a real business model then more "real" companies need to abandon their current business models and start making some money with unreal business plans.
Of course owning shares of MSFT doesn't influence his perspective, right?
These guys see things differently. And their opinions are based on performance, not speculation about what might happen someday and what was never true to begin with. They could still be wrong but they are at least starting out with valid points.
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Sizemore has it largely right. The Google model depends on giving away software in return for making money from advertising. Apple's model depends on constant innovation - not easy or guaranteed. Microsoft's model depends on people being willing to pay for software/hardware, where Google's software is free. Will MS deliver superior value in software/hardware to the extent that people will be willing to pay for it? I think so. Microsoft has a history of not getting things right, but then analyzing the market and going back again and again until they do get it right.
Windows 8, over time, through ownership of desktop, xBox games, good tablets, and good phone software, will offer an "eco-system" that most consumers will find superior to Google's package.
Microsoft is a disciplined, data-driven company that knows software and consumers. Over time, Microsoft will prevail, and Nokia will be there as the mobile partner, selling phones (and soon enough, other products) to customers at all price points, globally.
Great post. I have to agree about MS and Nok's competitive advantages - they haven't delivered the goods yet but on paper I can't see how they won't do so as long as they stay the course. That's on paper of course. I take the point that the writer bases his comments on Google on pretty sparse evidence but the points about Apple I think are very solid.