Lost in the whole Google (NASDAQ:GOOG) versus Apple (NASDAQ:AAPL) debate lies an inconvenient fact: When looking at the two companies overall businesses, they aren't true competitors. Apple, for all intents and purposes, derives value from selling devices with large markups for consumer electronics and utilizes its software and apps -- aka ecosystem -- to bolster those high-margin device sales.
Google has largely eschewed actual device manufacturing and instead chooses to monetize its apps and ecosystem by working with a host of phone manufacturers. In addition to app and other ecosystem revenue, the company looks to monetize its Android operating system by collecting valuable information on users and using that for ad-based dollars. While both make substantive revenue from their phone operating systems, both companies generally look to their phone ecosystems to bolster their core business.
That isn't to say that Google hasn't attempted to make money in devices; it just hasn't gone well. This year the company sold its Motorola Mobility unit to Lenovo after failing to make a meaningful dent in the smartphone market. The company still has the Nexus brand of tablets and smartphones, however. That said, Google's best device isn't a Nexus model; it's the Nest line of thermostats, here's why.
Right now, the thermostat is the battleground of the next big thing in tech
The next big thing in technology is the Internet of Things. Essentially it is bringing previously unconnected devices onto the Internet: think cell phones now versus phones a mere decade ago. This allows tremendous data collection that can be used to eventually save consumers time, money, or both. The thermostat appears to be the first big consumer battleground of the Internet of Things.
And that makes sense, heating and cooling bills have always been an expensive and rather wasteful expense if mismanaged. Estimates show half of an energy bill is climate control and 20% of your bill could be saved if a programmed thermostat were used. Google's Nest, Honeywell, and Ecobee have already bought smart thermostats to market. Look for more to pile into this market as consumers realize the breakeven for these devices is well worth the initial cost (more on that later).
Apple and Google are true competitors here
Continuing and extending their operating system battle, Google and Apple are quickly aligning to fight for your automated home. Apple, not one to rest on its laurels, appears to be thinking larger than mere thermostats --the company's HomeKit platform appears to be a full solution for home automation. Essentially, if it can be automated in your home developers can partner with Apple to control it through your Apple device.
Google is also looking to provide full functionality as well with its platform, Thread. And in a reversal from its fortunes in the phone and tablet markets, Google actually has a device advantage here with Nest. A recently announced partnership with Electric Ireland shows how Google plans to proceed with this product, customers signing a two-year partnership with the utility provider have an option to receive a free Nest thermostat. If that sounds familiar, it's because that's how the U.S. smartphone market works.
Google's path forward looks sound
And while the terms of the deal weren't disclosed, this appears to be a huge win for Nest. By partnering with utility providers it has the ability to use its device to catapult its home automated system why Apple is stuck in the gates. This first-mover advantage has the potential to define the market and establish a competitive moat around its Thread platform.
That said, Apple isn't known for rushing products to market in an attempt to be the first to market. Rather, the company takes its time to release the best version of the product possible. Personally, I think there's room for two home automated platforms much like the two companies' Android and iOS operating systems. One thing's for sure: This has the potential to be a huge opportunity for both participants.
Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.