Apple, Google and Schmidt - Chill Out!

There has already been a plethora of commentary on Apple's new Board appointment, so I won't belabor the details. That said, there have been a number of interesting comments on TechCrunch and Tailrank that warrant careful review and thought. After reading much of what's out there on the topic, I feel that a few key points have been missed that merit consideration:

1. This is a distraction for Google

Yeah, yeah, I know, Google is going to take over the world. Right? Not so fast. Now Google is a great company and has done, and will likely continue to do, many great things. But the increasingly saturated and competitive they find their core market, the mounting challenge of maintaining break-neck growth over a larger revenue base and the more confused they become over what to do with their expanding cash pile, the greater the risks of being led astray. We recently read those stories about Google filing for an exemption from the Investment Company Act of 1940, right (which basically means they want to be able to invest their cash hoard in something other than Treasuries without being regulated like an Investment Company)? This was precisely the same issue that was faced by Microsoft, Yahoo!, Internet Capital Group, CMGI and others like them during the late 1990s, and with the exception of Yahoo! most of these stories ended in tears.

So what do they want to do with this money? Hmmm, maybe do some non-core but tangentially-related investment stuff like Microsoft - AT&T, Comcast, Nextel, etc.? We all know what this led to - massive destruction of shareholder value. Hopefully Google is not getting distracted and contemplating the pursuit of some far-afield investments, because I absolutely guarantee that this will end in tears - something clearly not desired by Google's shareholders. I don't know if Apple falls into this camp but there is much speculation surrounding exactly this. Is Apple to Google as Pixar was to Disney? I don't know but for every success there has to be dozens of failures. All I can say is Eric, Larry and Sergey - DON'T DO IT.

2. Being a Board member SUCKS if you want to do business

So, let's say that Google does have some strategic designs on Apple. Eric's catbird seat on the Board is not necessarily helpful in this regard. Why? He'll have great insights and perspectives on Apple, right? But now, what will he be deemed as a Board member of Apple? Hmm, what is that called? Right - an AFFILIATE. Affiliation, in general, is something you don't want if you'd like the free and unfettered ability to do deals with someone as it raises the bugaboo of all issues - conflicts of interest. So, if Google's real intent of his Boardship was to lay the foundation for close strategic venturing I'd think that this was a very inelegant way of going about it.

From Apple's perspective, I'd be more afraid of Eric gaining general insights into their strategies and using them in Google's business than anything else. If the topic of a material partnership with Google did emerge on the Apple Board, then Eric would certainly have to recuse himself and specifically not be party to the discussions. I don't know, it just seems a little too contrived (not to mention legally challenging) for the seeds of a Google/Apple link-up to be sown through Board participation.

Didn't we just see Robert Rubin resign from Ford's Board over the potential issues of conflicts of interest? It practically telegraphed Citigroup's involvement in a matter of strategic import to Ford. The SEC will be all over Citigroup about Rubin's involvement and knowledge once a deal comes out, regardless of whether or not he resigned from the Board. Once you are a Board member, there is no neat way to extricate yourself once strategic discussions are underway. I have got to imagine that Eric Schmidt is much too smart to put himself in a compromising position, which makes me think that his Board-ship can't be directly linked to an intended strategic link-up with Apple. Maybe I'm just being naive...

We'll see. It just seemed to me that most of the commentary was around the "Woo hoo, what a big deal!" when there are both strategic and legal issues that argue for an interpretation more akin to "Whoopty doo, big deal?" Maybe I'm just being a stick-in-the-mud. Maybe.

Comments

[robw]

yaser, you are missing the point. striking strategic contractual relationships with myspace, intel, dell, and ebay is entirely different from putting any of the CEOs of those companys on their board of directors. the point of the article is that doing so, as they have done with schmidt, could actually be prohibitive to such strategic beneficial business relationships down the road. corporate governance is complex and sticky, contracts are less so.

[Yaser Anwar]

I think this partnership was the right way to go for Google as well as Apple.

There is a lot of talk about Universal launching a "free" download music service. This will be a negative for Apple, so they partnered with Google, who's well known for giving consumers free access to their services and placing ads in a smart way.

Google in the last year has inked deals with the "who's who" of computing to media business. From Dell to eBay to News Corp's MySpace & now something in the works with Apple. I think this partnership will be mutually beneficial.

Google could pay an XYZ amount to Apple & somehow place ads or commercials in Apple TV shows & music, hence giving Google the leading edge in advertising at the same time Apple getting its fair $ share from Google while not having to sacrifice customer loyalty if there is a free music service.

Mr. Ehrenberg you're right when you say, "for every success there has to be dozens of failures." However i think in Google's case its different. To date, Google has been able to leverage its core business, the search business, by doing savvy deals & i don't think Google will get carried away into some other array, as it realizes the search business is the "IN" business.

[Robert Passarella]

I think you're on to something here. Being a longtime Apple watcher and shareholder, (in the interest of disclosure) the blogs view of the deal angle is just plain wrong. The 'why' of course, is the biggest question. Steve Jobs is notoriously secretive, lawsuits and firings over the release of strategy or product direction is his bag. Perhaps they are both, in a Godfather sense keeping their friends close and enemies closer. Apple maybe thinking about using search in novel ways between their web widgets and spotlight, their desktop search tool. Google maybe thinking about media distribution and ease of use. Perhaps they wish to engage in a little mutual spying. Besides one other director, Eric is the only 'big time' geek and he likes to talk -- just read his blog. He'll be spouting off all day -- "At Google we do this..." Steve is a student of Sun-Tzu, a move like this really intrigues me. Perhaps is trying to 'rope a dope' google. I'm going to really watch this one. What isn't said is usually the more interesting question.

[Drew Robertson]

I think Eric is bored and tired of being one of three bosses. He's an engineer who likes hard stuff not advertising.