Is the battle heating up in Silicon Valley?

In Silicon Valley, the battle appears to be heating up between two of the biggest companies - Apple and Google. Just 10 miles separates these two huge corporations, who have mostly been on good terms for the last decade, but is this about to change.

On 5 January, at a presentation at the Googleplex in Mountain View, California, Google unveiled Nexus One, a stylish touchscreen smartphone that runs on the company's Android operating system, is sold through a Google-operated retail website, and greets the market with an advertising tagline - "Web meets phone" as simple and optimistic as the one Apple used in 2007 to introduce its iPhone - "The Internet in your pocket."

On the same day, Apple's Steve Jobs, the king of splashy product launches and in-house development, announced a strategic acquisition. For US$275 million, Apple purchased Quattro Wireless, an upstart advertising company that excels at targeting ads to mobile-phone users based on their behavior.

Both companies actions mirrored that of actions normally undertaken by the other, in what BusinessWeek states is "either an extreme case of flattery - or war."

Previous relations

Jobs and Google's CEO Eric Schmidt, have spent years in separate battles against Microsoft while Schmidt was at Sun Microsystems and Novell. Over time, they went from 'spiritual allies to strategic ones,' BusinessWeek states. When Apple had an opening on its board in 2006, Jobs snapped Schmidt up.

"Eric is obviously doing a terrific job as CEO of Google," Jobs said at the time. Schmidt, meanwhile, called Apple "one of the companies in the world that I most admire."

Despite relations being rosy for years, tensions started to show in 2007 when Google announced its plans to develop Android for mobile - only months after Apple had unveiled its iPhone - the competition in the smartphone industry was to start.

Then last summer, Apple refused to approve two Google apps for sale to iPhone users, raising questions about how much of a Google presence Apple would allow on its devices. In August, Schmidt gave up his board seat.

"Unfortunately, as Google enters more of Apple's core businesses," Jobs said at the time, "Eric's effectiveness as an Apple board member will be significantly diminished, since he will have to rescue himself from even larger portions of our meetings."

Mobile computing

Morgan Stanley's Mary Meeker predicts that within five years more users will access the Internet via mobile devices than desktop PCs. Desktop Internet use led to the rise of Google, eBay, and Yahoo, but the mobile winners are still emerging.

The money in mobile advertising is small-around US$2 billion last year, according to researcher Gartner, compared with US$60 billion for the overall web. But figuring out how to make mobile advertising more profitable is important. A company that can nail mobile ads and share the wealth with the growing legion of app developers-freelance software writers who create all those sometimes-useful (Business Card Reader), sometimes time-killing (Flick Fishing) mobile programs-could pull in the best of the lot.

Apps

Currently, Apple leads the way when it comes to apps. Their developers have created more than 125,000 mobile applications for Apple devices - which is seven times more than exist for Android.

The amount of apps available has helped the iPhone pick up 14 percent of the smartphone market, whereas Android-powered devices hold only an estimated 3.5 percent.

In the last few months, an increasing number of app developers have complained that they couldn't make money on their work. Free apps have become the norm, and very few sell for more than 99 cents. Some developers have profited by embedding ads in their apps, but the payments tend to be insignificant since the ads are usually smaller, less effective versions of their web banner forms. According to a source familiar with his thinking, Jobs has recognized that "mobile ads suck" and that improving that situation will make Apple even harder to beat.

Being one for a challenge, Jobs has it in his mind to improve the situation on apps. At Apple, they have been discussing ways to overhaul mobile advertising in the same way that it could be considered that they revolutionised music players and phones.

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