Google shaking Apple to the core

Google's executive chairman, Eric Schmidt, is teaching Apple CEO Tim Cook a lesson that Cook will never forget.

And the share market understands that Schmidt and Google CEO Larry Page are winning. Last night Apple shares slumped by about 2 per cent while Google shares advanced almost one per cent. Apple is down well over 10 per cent from the levels it reached last month prior to the iPhone launch. During the same period Google shares have risen by 9 per cent. The bad market performance of Apple, which is America's largest company, has depressed the US share market.

On the surface Apple shares have fallen because the iPhone has not been as exciting as the pre-launch hype suggested. But the deeper reason is that Schmidt is turning the screw on Cook.

You will remember that not that long ago Google and Apple were mates -- Schmidt served on the Apple board. Now, according to Reuters, Schmidt expects that within a year more than a billion mobile devices around the world to be running Google's Android software. Schmidt says it's the "defining fight" of the industry.

Schmidt brags that Android mobile gadgets -- smartphones and tablets -- have four times the penetration than Apple devices.

This week he told tech blog AllThingsDigital "We've not seen ... competitive fights on this scale.”Cook responded by trying to teach Google and Schmidt a lesson by moving to cut Apple's reliance on Google products by dumping YouTube from the new iPhone's pre-loaded selection of apps and replacing Google's mapping software on the iPhone with its own mapping service.

But Apple's attack on Google has not gone to plan. Cook was forced to issue a public apology because the Apple mapping product -- based on Dutch navigation equipment maker and digital map maker TomTom NV's data -- contained geographic errors and information gaps.

"What Apple has learned is that maps are really hard," Schmidt told Reuters. "We invested hundreds of millions of dollars in satellite work, airplane work, drive by work, to get the maps accurate.”

Take that young Timothy.

And one more lesson for you. In an obvious reference the Apple court case against Samsung Schmidt says: "These patent wars are death. Everyone can find prior art for everything. The new trick is to get judges to block devices country by country. It's bad for innovation, it's bad for choices."

What the market fears is that just as Microsoft lost its cutting edge when Bill Gates stepped back the same thing is happening to Apple without Steve Jobs. The Google strength is not so much in its technology but its dominance of search. It seems to be able attach search products to its forays so boosting profits.

Google Plus is perhaps half the size of Facebook but Google's search addition means that it is monetising the new market. Facebook is still learning how to do that.

Let the battle roll on.

The market has decided who is the winner but remember Apple's market capitalisation is still twice that of Google.