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posted: 8/23/2014 7:39 AM

Apple-Google rivalry moves to companies

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  • Apple Inc., Google Inc. and Amazon.com Inc. rose up by riding consumer demand for their products. Now the companies are trying to keep their growth streaks going by tapping another type of customer: businesses.

      Apple Inc., Google Inc. and Amazon.com Inc. rose up by riding consumer demand for their products. Now the companies are trying to keep their growth streaks going by tapping another type of customer: businesses.
    Bloomberg News

 
By Brian Womack and Adam Satariano
Bloomberg News

Apple Inc., Google Inc. and Amazon.com Inc. rose up by riding consumer demand for their products. Now the companies are trying to keep their growth streaks going by tapping another type of customer: businesses.

While the technology giants have long had offerings for businesses, they are now broadening their product lineups and more aggressively marketing them to companies. Google is pushing to get its computerized eyewear, Glass, into corporations while Apple is adding management tools to its upcoming iPhone operating system. In total, businesses are set to contribute more than 15 percent of Apple's sales by 2016, up from less than 10 percent now, while Amazon's enterprise revenue is projected to reach about 10 percent in 2019, double from 2013, according to Evercore Partners and International Strategy & Investment LLC.

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The moves to get deeper into the traditional customer strongholds of Microsoft Corp., Hewlett-Packard Co. and Dell Inc. have been building all year. Last month, Apple unveiled a pact with International Business Machines Corp. to help sell its gear to corporations. Google, which today celebrates its 10-year anniversary of trading as a public company, in June added unlimited storage for businesses and debuted new mobile tools for enterprises. Google and Amazon also slashed the prices of their cloud-computing services for businesses earlier this year.

New footholds

The companies are seeking to sell more into businesses as corporate spending on technology hardware, software and services is projected to reach $1.6 trillion worldwide this year, up 7.7 percent from a year ago, according to IHS Inc. That's slightly bigger than the $1.5 trillion global e-commerce market and the $140 billion online advertising market, according to EMarketer Inc.

It's also a way to make up for slowing growth in each company's larger business. Apple's sales are estimated to be up 5 percent this fiscal year, compared with growth of 45 percent two years earlier, while Amazon's revenue is anticipated to rise 22 percent this year, a deceleration from 27 percent in 2012, according to data compiled by Bloomberg.

"Some of these companies have to broaden their revenue base," said Danielle Levitas, an analyst at IDC. "If there's too many fish in your pond -- or your pond is reaching saturation -- you need another place to play."

Denting sales

Apple, Google and Amazon need to tap into meaningful pools of spending to make a dent in their already-enormous sales. In total, the three companies had combined revenue of $305 billion in their 2013 fiscal years, according to data compiled by Bloomberg. That's larger than Singapore's economy, according to data from the World Bank.

"When you're a company as big as an Apple, an Amazon or a Google, there are only so many markets that you can go to that will actually move the needle," said Ben Schachter, an analyst at Macquarie Securities USA Inc., who covers the companies.

The percentage of revenue from business customers is climbing for Apple, Google and Amazon -- with room for more growth. While Apple gets less than 10 percent of its annual $170.9 billion in revenue directly from corporations, that's up from less than 5 percent in 2009, according to Brian Marshall, an analyst at ISI.

Amazon received about 4.5 percent of its $74.5 billion in sales from business-focused cloud offerings last year, up from 1 percent in 2010, according to Evercore Partners. Google gets "well less" than 5 percent of its $59.8 billion in annual revenue from businesses, up from less than 1 percent in 2009, according to Schachter.

Representatives for Apple, Google and Amazon declined to comment.

Speaking up

Executives at Apple, Google and Amazon have turned up the volume on what they can offer companies. Enterprise is part of a "trifecta of emerging new businesses," Google's former chief business officer, Nikesh Arora, said earlier this year on a call with analysts. Through its IBM partnership, businesses are set to "be one such catalyst for future iPad growth," Apple Chief Executive Officer Tim Cook said on July 22.

Other consumer-technology companies are also taking more steps to sell to businesses. Facebook Inc., owner of the largest social-networking service, last year acquired a startup called Parse that offers technology to help companies more quickly build an application and keep users engaged.

A Facebook representative declined to comment.

More proactive

Some technology companies made inroads into businesses with little effort in the past. Workers bought Apple's iPhones in droves and forced information-technology departments to take note. Consumers also helped boost the popularity of Google's software in corporations. Yet it's not enough to rely on individuals bringing technology into their workplaces anymore because spreading products throughout companies often requires official buy-in and extra bells and whistles like security.

"It's not for the faint of heart," said Jagdish Rebello, an analyst at IHS, who added that corporate customers are typically more focused on security and support than consumers might be. "It's a different beast."

The consumer-technology providers are fighting to gain more of the business of companies like Yext Inc. The New York-based company, which helps manage information on websites for enterprises, recently moved much of its computing over to Amazon Web Services, the cloud offering from the online retailer. Amazon was proactive in winning Yext's technology budget, including sending multiple emails to executives to woo them, said Yext CEO Howard Lerman.

"Amazon is super aggressive," Lerman said.

Google's route

Each of the companies has taken different routes to plumb enterprises. Google has been expanding its products for businesses for the past few years by rolling out a line of low- cost laptops, called Chromebooks, which use its own operating system. It has also expanded videoconferencing services and struck deals with companies such as Sprint Corp. and Hewlett- Packard to help sell its business software.

The Mountain View, California-based company also last year fully rolled out its Compute Engine product, building on a previous cloud offering that lets customers remotely access data centers. In March, Google slashed prices by more than 30 percent for the computing-capacity product and lowered the costs of storage by about 68 percent for most users.

That triggered a fee war with Amazon's Web Services division, which also offers cloud computing. A day after the Google announcement, the Seattle-based online retailer said it was cutting prices by an average of 28 percent to 61 percent, which has since curbed some of the revenue growth of the Web Services business.

Amazon adds

Amazon continues to invest in the cloud offering, adding about 250 "significant services and features" so far this year, Chief Financial Officer Thomas Szkutak said on a call with analysts last month.

At Apple, Cook's move to pursue more corporate clients reverses the stance of co-founder Steve Jobs, who focused on consumers. In particular, Cook is looking to make the company's iPad more of a business tool as sales of the tablet have recently fallen for two consecutive quarters, the first such decline since the product's 2011 debut. About 20 percent of people in companies use an iPad, compared with more than 60 percent who use notebooks, giving the company an opportunity to expand, Cook said last month.

Apple sales

As part of Apple's deal with IBM, IBM's sales force will recommend its clients buy iPhones and iPads, as well as 100 business-focused mobile apps the two companies are building together. While iPads are being used widely within companies, the software is mainly modified versions of what was originally created for a traditional computer, Cook said.

The Cupertino, California-based company doesn't have a big sales force targeting enterprises, or a services group that will help business get their devices up and running after they make a big purchase. IBM will help with that, said Tim Bajarin, an analyst at Creative Strategies, who once consulted for IBM.

"Once you get into these enterprise accounts, there are issues that happen on site and because Apple doesn't have those services available, most people in the enterprise world didn't look at them as being serious," he said.

FedEx Corp. already has bought more than 4,000 iPads as it moved to replace paper-based documents last year with the sleek digital devices, according to Josh Kendrick, managing director of flight technical. He said FedEx is due to refresh its technology soon, giving Apple and others a new opportunity to make their case.

"There's a level of familiarity that's out there within the consumer space with a lot of people," Kendrick said. "It's not like we're handing them something that a lot of people haven't seen before."

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