Schmidt Decampment Signals Mounting Apple-Google Rivalry

Only about five miles separate Apple's (Nasdaq: AAPL) Cupertino, Calif., campus from the Googleplex in Mountain View in Northern California's Silicon Valley. Yet the distance between the two tech giants grew a little wider in other ways Monday with the news that Google (Nasdaq: GOOG) CEO Eric Schmidt would be stepping down from Apple's board of directors.

Schmidt served three years on the board, but during that time it became evident that his company and Apple were beginning to live out Don Corleone's business strategy from The Godfather: keep your friends close but your enemies closer. Since joining the board in August 2006, Google not only grew its core search engine business but also branched out to develop the Android operating system for smartphones -- taking on Apple's iPhone -- and last month announced the Chrome operating system which will, presumably compete against Apple's Mac OS X and Microsoft's (Nasdaq: MSFT) Windows.

"Eric has been an excellent board for Apple, investing his valuable time, talent, passion and wisdom to help make Apple successful," Apple CEO Steve Jobs said. "Unfortunately, as Google enters more of Apple's core businesses, with Android and now Chrome OS, Eric's effectiveness as an Apple board member will be significantly diminished since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore we have mutually decided that now is the right time for Eric to resign his position on Apple's board."

With the iPhone, Apple threw a great deal of support Google's way, said 451 Group Research Director Chris Hazelton. Google Maps and Google Earth are popular uses of the smartphone's GPS capabilities, and the new iPhone 3GS allows users to send videos directly to Google's YouTube. However, last week's news that Apple was kicking Google Voice out of its App Store -- and the resulting interest from the FCC -- showed that Northern California fault lines aren't limited to geology.

"The Bay Area brotherly love is over," Hazelton told the E-Commerce Times. "Google was approaching mobile in a number of different ways. They were doing apps, they were doing their OS and they were doing the mobile Web, and [Schmidt's resignation] signals they're finally getting traction. That shotgun effect is having success."

While it made sense for Google to partner with Apple when it had the most prominent smartphone platform, that field is now more crowded, and Google needs to focus on relationships with other Android device makers like HTC, Motorola (NYSE: MOT) and Samsung, Hazelton said.

"These are two companies that see mobile as a huge part of the future growth of their companies," he added. "In that space, they are competitors, and that can't be happening in the board room."

Chrome OS Hurdles

Most companies like to keep competitors at arm's length and choose very carefully those projects where they can become "frenemies." However, Apple has an especially tough time working and playing well with other tech giants, said Rob Enderle, president and principal analyst of the Enderle Group.

"They kind of work with Microsoft because they don't have a lot of choices, and it's only with Office," Enderle told the E-Commerce Times. "And it doesn't stop them from badmouthing the company anyway. The only reason [Schmidt] stayed as long as he did is because Jobs is sick. It's kind of unfortunate, but Google should have realized when they started operating in Apple's space, first with the iPhone and then the competing PC platform, that Apple was going to have no choice but to ask Eric to leave."

While Enderle thinks Google has a strong competitor to the iPhone OS with Android, he thinks Schmidt's company will have a tougher go of it with Chrome, scheduled to debut sometime next year. Schmidt may have a resume that includes time spent in senior positions at Sun Microsystems (Nasdaq: JAVA) and Novell (Nasdaq: NOVL), but that's no guarantee of success in getting people to think about a new PC platform in a Windows/Mac world.

"The market doesn't like different. When it's so ingrained on Windows, the only way you're going to move a significant portion of the market is if you look somewhat similar. Chrome is way too different. [Google is] trying to do too much. When you train three generations on the (Windows) platform, you're not going to rip them up by the roots that easy."