Apple + Google (Premium)

Bloomberg’s Mark Gurman reported this morning that Apple is in “active negotiations” with Google to bring Gemini to the iPhone, a blockbuster development that will “shake up the AI industry.” If you’re an Apple fan, you may be cycling through the seven stages of grief right now. But even if you’re not, you are almost certainly confused by this development. Aren’t Apple and Google bitter rivals? Don’t these companies hate each other?

I can explain this.

To do so, I need to tell you a story you’ve already heard, one that you think you know well. Actually, I will tell you two stories, stories that parallel each other in ways that are both obvious and unexpected. These are stories from our personal computing past, one distant and one less so. But they explain the disconnect between what we learned today and our collective understanding of these companies and their relationships.

Our collective confusion and disbelief at the day’s news is tied to our incessant human desire to mythologize the key moments in personal technology history, and this leaves little room for nuance. We all know, for example, that Steve Jobs deftly introduced the world to the first iPhone in 2007, a moment that changed the world, ushering out the PC era and replacing it with the modern smartphone era. And that the iPhone was “three revolutionary products … a widescreen iPod with touch controls, a revolutionary mobile phone, and a breakthrough Internet communications device.”

But few remember—or want to remember—that Apple needed a lot of help to bring the iPhone to market. Indeed, Jobs specifically played the song “A Little Help From My Friends” during the presentation not just to goad The Beatles into bringing their catalog to iTunes, but, I think, in reference to the many partners that Apple was relying on to make that launch a success.

This was true of the original Macintosh as well. And the parallels between the launches of these two industry-defining products, the Mac and the iPhone, are perhaps more profound than you know or remember. In both cases, there was an important partner, a betrayal, a lawsuit, public bitterness in both directions, and then an uncomfortable but inevitable reunion. And in both cases, it was Apple that compromised its ideals and thus its public image in acknowledging that it was better off allying with an enemy it had publicly disavowed and sworn to destroy.

I know this sounds overly dramatic. But it’s true in both cases.

With the Mac, Apple courted third-party application developers so that it could launch the device with a reasonable collection of software that showed off the power and simplicity of its unique graphics user interface (GUI). But it had few takers. Key among them was Microsoft, whose co-founder Bill Gates immediately saw that the GUI was the future, so much so that Microsoft “had more people working on the Mac than Apple did,” according to Gates.

Some of this history is well-understand. For example, Microsoft created the first version of its Excel spreadsheet app, now a cornerstone of the Office suite, specifically for the Mac, releasing the first Windows version two years later. But less well-remembered is that Microsoft, thanks to its early pre-release experience with the Mac, also influenced the design of its GUI, in some cases even helping Apple define the look and feel of controls and other UI elements.

Of course, Microsoft was also secretly developing a GUI of its own called Windows that would run on top of the MS-DOS command line system. And this betrayal led to a falling out between Jobs and Gates, one that was likely not helped by Gates’ blithe response to Jobs’ histrionics over Microsoft “stealing” the GUI. “I think it’s more like we both had this rich neighbor named Xerox and I broke into his house to steal the TV set and found out that you had already stolen it,” he said at the time.

Jobs was ousted from Apple in 1985, and in another bit of forgotten history, Gates tried to convince Apple’s then-CEO John Sculley to “make the Mac a standard” by licensing its hardware and software to PC makers, just as Microsoft was then doing with MS-DOS. Sculley was not interested, but he did get Microsoft to license the “derivative work” it had created in the Windows 1.0 GUI and promise not to copy the Mac any further. But Apple then sued Microsoft three years later when Windows 2.x exceeded the limitations of the original and more closely mimicked the Mac.

This lawsuit hung over both companies into the 1990s, as Windows surged and Apple and the Mac stumbled in the marketplace. Microsoft eventually won this case, with the court ruling that the Windows GUI was different enough from that on the Mac to dismiss Apple’s copyright claims. Jobs, who went on to found NeXT Computer and spend the next decade in failure, was most notable in that decade for crapping on Microsoft and its lack of “taste,” comparing the company to the fast food chain McDonalds.

Until, of course, he returned to Apple in 1997 and then needed Microsoft to rescue the company from bankruptcy. In return for a much-needed $150 million investment and a promise that Microsoft would continue developing Office for the Mac, Apple agreed to drop all remaining legal issues between the companies and adopting Microsoft’s Internet Explorer as the default web browser on the Mac.

That Steve Jobs, an outspoken Microsoft critic whose experiences being manhandled by Bill Gates defined the strategies he employed later at Apple, would embrace Gates and Microsoft to this degree was as confounding then as is today’s news of a probable Apple and Google linkup on AI. Fans of the company took solace in the fact that Microsoft’s investment was in non-voting shares, and that Mac users could replace IE with the browser of their choice, two points Jobs himself made during the otherwise awkward announcement of this partnership.

But that was just a rationalization: Jobs and Apple had bent the knee to Microsoft, and everyone knew it. And what should have been an object lesson in what any parent would do to ensure the survival of their child was quickly forgotten. In the ensuing decade, Apple and Microsoft were on decidedly different paths that amounted to a reversal of roles, with Apple rising to prominence with the iPod and then dominance with the iPhone.

Which brings us to the second story: The introduction of the first iPhone and the forgotten partners who made that device viable, just as Microsoft and others had done for the original Mac in 1984.

As I noted up front, Apple needed some help getting that product to market. And among the partners it relied on was Google, which, like Microsoft in the early 1980s, saw the promise of this new personal computing device and wanted in. Google and Apple were such close partners, in fact, that Google CEO Eric Schmidt served on Apple’s board of directors. At the time of this appointment, Jobs noted that Google, like Apple, was “very focused on innovation.” That Schmidt was also an outspoken critic of Microsoft from his days as CEO of Novell and then CTO of Java maker Sun Microsystems was likely a plus for both Jobs and Apple.

In any event, Google played a major role in the iPhone introduction. Google Search was integrated directly into Apple’s new web browser, Safari, and the iPhone included “the best version of Google Maps on the planet,” in Jobs’ words: He showed off the app’s satellite images, directions and traffic capabilities on stage, and then invited Schmidt up to brag about how the two companies were so aligned they might just merge into something he jokingly called “AppleGoo.”

The love fest didn’t last long: As with Gates and Windows, Schmidt and Google would quickly betray Jobs and Apple, releasing a version of its own mobile platform, Android, first in a version that was careful to not infringe too obviously on the iPhone, a design which Jobs had bragged Apple had “patented the hell out of it.” But subsequent versions of Androids followed the Windows playbook, and history repeated itself. Schmidt stepped down from Apple’s board in 2009, citing the obvious conflict of interest.

Jobs was apoplectic over Google’s all-too-familiar behavior, declaring Android a “wholesale rip-off” of the iPhone. “I’m going to destroy Android because it’s a stolen product,” he said. “I’m willing to go thermonuclear war on this.”

Of course, that didn’t quite happen. For starters, Jobs sadly passed away in 2011. And instead of suing Google, as it had before with Microsoft, Apple sued Samsung, the makers of the best-selling Android handsets, and a device maker that had barefacedly copied the iPhone hardware. That case actually went to trial, horribly embarrassing Samsung, but the U.S. Supreme Court eventually found the damages penalties awarded to Apple to high, and the two companies settled out of court.

What did happen is that Apple released its own Maps app for the iPhone in 2012, replacing Google Maps. And Apple began similar work to replace Google Search, through a partnership with another service, a user choice screen, an acquisition, or by creating its own search service in-house. And it was that latter effort, which Apple quietly ended with no announcement or fanfare, that set the stage for today’s news.

Apple could have created its own search engine. But it was given an offer it couldn’t refuse, and didn’t: Google reworked their partnership into a revenue-sharing deal in which Apple is guaranteed at least $10 billion in revenues each year. Google is paying Apple to keep Search on the iPhone. And Apple keeps taking that money, every single year. Silently.

Indeed, this secret deal only came to light because a witness in the US v. Google antitrust case blurted out the details in response to a question on the stand: Google, he said, pays Apple 36 percent of all the revenue it earns from user tracking and search advertising on the iPhone, a disclosure that caused Google’s chief litigator to “visibly cringe.” This number was supposed to be confidential. And based on more recent reports, it’s likely that Google is now paying Apple over $20 billion each year. It is further likely that this payment is the biggest component of Apple’s surging services business.

Can you recall the last time two companies, allegedly bitter rivals, consummated a partnership that lucrative and then never thought to publicize it?

You can’t, of course, it’s unheard of. But the story of how Apple’s and Google’s relationship went from “thermonuclear war” to quiet partners in undermining the privacy of over one billion iPhone users worldwide is one for the ages, something that will no doubt be the subject of many business books in the near future. For now, all we know is that Google pays Apple enough to keep it quiet, in return for giving it access to some of the most well-heeled customers imaginable. It’s like a James Bond movie, but with two villains, each with their own private island and Cheshire cat.

And that’s why today’s news about Apple, Google, and AI shouldn’t have been shocking or disappointing. They’ve been partnering for decades, and despite some public griping, this may be the single most lucrative partnership in the industry. From the outside, we view their respective mobile platforms, iPhone and Android, the same way we used to view Windows and Mac in the PC platform wars of the past. But as was the case then—Microsoft still makes Office for the Mac, among other things—the reality is more nuanced, more gray than black and white. It’s not us v. them. It’s us and them.

That said, Apple fans might also be upset that today’s revelation betrays that Apple’s secretive plan to surprise us all with AI this year may have been more fantasy than reality. After all, if Apple had made significant progress on generative AI capabilities that rival what companies like OpenAI and Microsoft now offer, there’d be no need to partner with Google again. Right?

Maybe. But it’s just as likely that Google is waving its checkbook at Apple and making big promises about its next billion-dollar partnership. After all, that strategy has worked wonders—for both companies—already. (Related to this, I wonder whether aligning with Apple politically was what led to the recent over-correction issues with Gemini image generation. That’s the type of thing Apple would do, not Google.)

As for us, the little people, I’ll just offer the advice I learned the hard way when it became obvious that Microsoft under Satay Nadella was not the ethically high-minded firm it presented itself as. These companies are all terrible. And the smartest thing we can do, as users and customers, is to educate ourselves to that fact and not forget that marketing and the financial bottom line rarely intersect when you’re as big as these companies are.