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Picture 1 Game Theory Responses: Apple, Google and MicrosoftCompany Internet adsPackage S/WMusic players Smart phone Application of Game Theory in the Technology and Media Space: Now having studied the fundamentals of Game Theory, lets explore how the book Googled by Ken Auletta looks at the start and evolution of Google, and how Apple, Google and Microsoft have over the years developed a competitive ecosystem using technology, telephone and traditional media partners such as AOL, AT&T, Comcast, HP, Time Warner, T-Mobile, Verizon, Yahoo, and others for both defensive and offensive combat against each other. While Microsoft has been a common enemy for both Apple, Google, and for most of the Silicon Valley, the relationship between Apple and Google has worsened only in the past couple of years as they each have gotten deeper into the smartphones category. Until then, these two companies shared half of the board and key mentors such as Vice President Al Gore, Coach Bill Campbell and others. 2

A brief historical context for the rivalry between the three companies: 1. Internet Search as well Mobile Advertising Dollars: Microsoft for the longest time dismissed the need for search-based ad dollars and just focused on selling software and operating systems. Only when Google went public and disclosed how much money it was making through search ads, did Microsoft start making overtures to Yahoo for a possible collaboration and combining its MSN portal with Yahoos. Apple has historically focused on its hardware and Mac OS, but then as it started developing its iTunes, iPhones and other platforms, it realized through working with Google that all these media provided Apple with a great mechanism to generate ad dollars. So it bought Quattro Wireless in 2009 and launched iAd in 2010. Googles business model started with developing search related algorithms about 10 years ago, and ever since then, they have sought to combine YouTube, DoubleClick, mobile phone products, cloud computing, selling TV, radio and newspaper ads- all in an effort to sell targeted advertising more effectively through collection of ever increasing, effective amount of data. 2. Packaged Software and Operating Systems: Microsoft and Apple originally collaborated on the development of programs such as Chart and File written for the Mac in addition to the spreadsheet program Excel, amongst other things. However, their relationship worsened when the DOS-based Windows operating system when introduced started looking a lot like Mac OS. Google and Apple collaborated on the search related technologies and distribution through Mac platform, but once Google started developing the Android, they started having conflicts with Apple with Eric Schmidt resigning from Apple Board. Google was feeling that Mac OS was limiting its choices, and that it had to develop its own browser-based operating system (Chrome). Google was always suspicious of Microsofts dominance, its limiting of choice for customers, and its destroying of Netscape browser. So, even as it was getting launched at Stanford, Google founders made certain that Microsoft didnt catch a wind of what they were working on. 3. Music Players, Smart Phones and Other Smart Devices: As technology has evolved and more sophisticated applications have gotten developed, all major players have realized the potential of technological convergence and multi-channel distribution of experience, convenience and advertising revenue. Microsoft controls the operating system on most of the desktops and laptops around the world, so it has tried to use that dominance to try to create a dominant mobile browser too (even though not that successfully so far) to keep its cash flow machine humming.
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Ever since Steve Jobs came back after ousting John Sculley, Apple has used its robust Mac OS and its cool Macs and other devices to create huge following around the world by creating a solid closed system where the hardware and software are from the same vendor and talk effectively to each other. In 2007, Google began to aggressively move into the mobile phone business because of the fast growth in users, but it wasnt until the success of iPhone did it realize that the iPhone delivered fifty times more search queries than the typical smartphone. But the problem was that its programs functioned poorly on mobile phones because of the restrictions that telephone companies put on various applications accessible to end-users. To counter these limitations, Google decided to develop its own open-source Android operating system. Picture 2 4

Primary moves the three companies have made using Game Theory: Principle 1: Use Strategic Foresight (backward induction): Apple, Google and Microsoft use some form of Game Theory techniques to figure out what the other maybe working on in the future, and respond by launching appropriate counter-products. As per Pictures 1 and 2, they each have products in the appropriate profit-centers of the others, and are unwilling to concede any territory as if in a chess match. Principle 2: Know Yourself as Well as Others: Google knows that its core is search and all the acquisitions it has done strengthen this core by adding to its data gold mine, Apples main business is robust hardware and OS, and since its customers are die-hard Apple fans, it doesnt need to reduce prices and compromise on margins. Microsofts main focus is its ubiquitous operating system and Office software. Everything else it does are offensive and defensive strategies to protect its turf. Principle 3: Differentiate between One-Time and Repeated Interactions: Since all of these 3 companies, their partners and vendors know and expect what the others are likely to do, according to Game Theory, they should be cooperating and focusing on their own core competencies. Instead they fight in each product category and attack the others profit center. Principle 4: Unify Minds to Promote Cooperation: Google has used this tool effectively to recruit bright engineers with a promise of promoting cloud computing and other open-source technologies to break down barriers these engineers believe proprietary systems create. Old Media companies have tried to collaborate and cooperate even with Microsoft to defend their advertising and other distribution models from the Google onslaught. Conclusion: Game Theory is a very robust tool in understanding how a competitive strategy game is played and different payoffs to be expected by each player. It however relies on a very important assumption that firms share a common expectation about rational behavior. In the real world, companies are paranoid and people involved have behavioral traits that may violate and change the Nash Equilibrium. In the case of Apple, Google and Microsoft, theres a long history of mistrust (especially between Apple and Microsoft), personal interactions (Steve Jobs and Bill Gates), and new business strategies (Cloud Computing for Google) that force adaptation and revised equilibrium level than that suggested by Game Theory.