As we all know and as O'Reilly reminds us, Apple has successfully pursued a strategy of vertical integration. With iPhone/iPad/iTouch/iPod/iTunes, Apple owns the hardware, the software platform, and the content. But Apple has also cultivated a strong brand - good, clean design, user-friendly, young, hip, intelligent, forward-thinking. The strength and cohesiveness of the Apple brand in people's minds is what has enabled Apple to succeed with a vertical integration strategy. Indeed, the core of any vertical integration strategy in information technology is a strong brand. To the extent that brand assets as powerful as Apple have proven difficult to replicate, full vertical integration will remain elusive to most, if not all, other technology companies besides Apple. This leads to an odd conclusion: vertical integration can never be an industry-dominant strategy in the world of information technology. There just aren't enough truly strong brands among large-scale companies to make it a broad phenomenon.
You could even argue that an essential element of Apple's brand is the company's gadfly, oppositional status - Apple can never be the dominant owner of most of our technological lives because Apple will always need a significant competitor to stand in opposition to. If it weren't for Microsoft being so easy to beat up on, Apple's brand might not evoke the white-hot intensity of feeling it does today.
The conclusion: Apple's success, and the vertical integration strategy so tied to its brand, are unreplicable on an industry-wide scale. Apple has been successful to date, and may continue to enjoy success for a while. But it will not define the industry in the future.
So what about Google? Google has demonstrated true mastery of the art of hedging. This mastery has enabled the company to evolve from super-fast search engine to technology industry idea-fount funded by ad brokering. And this same artful hedging lies behind Google's pursuit of *both* horizontal and vertical integration strategies. Android and Chrome represent the vertical strategy. Android is a software platform for mobile apps, and the Chrome browser is a software platform for web applications. Both platforms show that Google understands that owning front-end layers in the platform can help companies gain strategic advantage through exclusive interaction with more back-end layers. I don't think that Google knows whether this will end up necessarily being a successful strategy long-term. They just know that can afford to make both of these money-losing investments in order to position themselves intelligently should the industry develop in the direct of vertical integration.
But will it?
Never forget who owns the data. As O'Reilly points out, Google has amassed more potentially valuable data than maybe any other company on earth. And in an environment where horizontal integration is dominant, the owner of so much data sits in the catbird seat. In a horizontal world, success isn't about owning all the layers, it's about offering enough value to others within the *same* layer so that you become indispensible. If Google, with its enormous data assets, won't be indispensible to other parties who crunch data and deliver meaningful services using that data, I don't know what company will be.
This is also another way of saying that Google's ownership of so much data and data-collecting capability (which, by the way, Android and Chrome provide in spades) makes the company a critical component of The Cloud (the giant middle layer in a horizontal integration model).
In a world where businesses function more and more as nodes in a network, making yourself a critical component of that network keeps you relevant. Google understands this and is committing resources today to position itself for that emerging world. Apple is merely coasting on the admittedly impressive success of its vertical integration strategy. But this strategy is a sideshow to the growing trend of horizontal interdependence within an ecosystem of services. This is the larger future for which Google is preparing.
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