So now we’re apparently in a Google versus Apple fight to the death. Google open-sources VP8 (now WebM), and Steve Jobs immediately throws cold water on it. Apple got their share of scorn at Google’s I/O conference. Google thinks they have mobile/cloud/desktop integration nailed–and if what they demo’d last week actually works in FroYo (Android 2.2), they probably do.

But the notion that this is a “fight to the death” is a bit bizarre, even though it’s been portrayed that way, and by none other than Steve Jobs, who earlier this year said that Google is out to kill the iPhone. If it is a battle, the terms are uneven.

My own disclosures: I’m definitely a Google fan. And I’m also an iPad-equipped Apple fan, though I am also very unhappy with the closedness of the Apple platform, and the way they treat their developers. But they make beautiful hardware, and they really understand “it just works.”

Vic Gundotra nailed it in his second keynote at Google I/O. When he was starting at Google, he asked Andy Rubin why Android was important; why did the world need one more mobile platform? Andy’s answer was that Google had a very dismal future if they didn’t address

mobile; we’d end up with one platform, controlled by one vendor, and one carrier. It was a wise and prophetic answer. If I’ve pieced the chronology together correctly, this would be about the time the iPhone was coming online. And the iPhone is a great device–great, but ultimately closed.

Apple makes hardware, and the more hardware they sell, the more money they make. So Apple clearly wins if they sell iPhones to everyone–the more iPhones (and iPads), the more they win. There would be nothing better for them than driving the other smartphone manufacturers out of the market. (They don’t seem to be interested in low-end, low profit margin phones, but that’s another story.) So what it takes for Apple to win is clear: dominance of the smartphone market.

Google’s stakes are different. They don’t make money from selling phones, and they even abandoned their retail NexusOne store with very little pain. They don’t make money from licensing software either, as far as I know. Google makes money from selling ads. And the more ads they sell, the happier they are. Apple is fighting for market share in cellphones; Google is fighting for market share in ad placement.

This asymmetry is very important. Google does not have to dominate the smartphone business; they just have to make sure that there’s an environment in which the business of selling ads thrives. While Apple wants to dominate smartphones, Google undeniably dominates online ad sales–and they clearly see ad placement on mobile as a huge opportunity. Conversely, failure to dominate mobile ad sales would be disastrous. At best, it would limit their potential; at worst, if we’re heading for the end of the “desktop/laptop era”, it could seriously threaten their core business.

Making money selling mobile ads requires that Google keep the smartphone market open, plural, competitive. As long as there are multiple smartphones in the market, content developers will be driven towards open standards like HTML5. Developers will build richer and richer HTML content for the phones–and Google will thrive in its core business, placing ads on HTML pages. Google doesn’t need to “win”; they just need to “not lose”, to keep the game open, and to drive open technologies to the next level where they can compete successfully. In the long run, a closed system can only thrive if it’s the only player in the game. If we’ve learned one thing from the growth of the Internet, it’s that open standards that can be implemented by many vendors trumps closed systems, and enables the kind of competition that drives out monopolies.

Just as an athlete will inevitably perform better when he’s relaxed and not worried about losing, Google’s big advantage in the smartphone wars may well be precisely that they don’t need to win. Googlers are justifiably proud that US Android sales have snuck ahead of iPhone sales. Of course, that’s 50-odd phones available for all US carriers, versus two iPhone models available only from AT&T. And when the iPhone 4 comes out, Apple will certainly see a big burst of sales. But that’s not what’s really important to Google; all they need to do is keep the game open, for themselves, Palm/HP, RIM, and the other smartphone vendors–and to establish the kinds of standards that enable a competitive market to thrive.

There is a real threat to Apple, though; just because Google doesn’t need to win smartphone dominance doesn’t mean they wouldn’t like to. And in the wake of their FroYo demos at I/O, that seems increasingly likely. Dan Lyons (Fake Steve Jobs) makes a lot of good points in his Newsweek blog:

Google’s technology is way ahead of anything Apple is offering, or likely to offer. Streaming music from your desktop is only one example. Google, not Apple, is offering what customers want.

Apple’s response to Google’s claim that they are shipping more phones was “so what, we have more market share.” Lyons says he’s heard that before, it’s the song of a company that’s losing and in denial. I’ve heard it too. Lyons is right.

It’s easy to think that Apple fell apart in the late 80s and early 90s because a clueless Pepsi exec booted Jobs and took over. But the real story, if you’re old enough to remember, is that Jobs mismanaged the company after a series of stellar technical triumphs. History appears to be repeating itself.

I am genuinely sad about this; Apple is a great innovative company. There’s no reason they can’t do everything Google is doing. Analyzing each players’ strengths, Apple really understands user experience and design. They have a lock on that. Google really understands cloud computing and connectivity. However, it will probably be easier for Apple to get up to speed on the connectivity issues than for Google to get Apple’s design sensibility. Nothing Google is adding to Android is fundamentally that difficult, and Apple has no shortage of engineering talent.

But–and this is important–Apple will not be able to take Google on in the areas of connectivity and cloud computing as long as they insist on a closed platform. Not because Google’s FroYo features can’t be implemented on a closed platform, but because it just wouldn’t occur to you to do so. Furthermore, you can only go so far telling customers that you know what’s best for them. I hate Flash almost as much as Steve Jobs, but you know what? If I were building a platform, supporting Flash would be a requirement. Flash is everywhere. Getting tied up in a pointless fight with Adobe is silly. Vic’s daughter is right: she wants the toy that can run her favorite online games. That’s going to be an Android phone, not an iPad or an iPhone. Apple is insisting on playing the game in a way that they can only lose.

Having said that, why is Apple so interested in HTML5? Why are they supporting it with almost as much energy as Google? I think Steve Jobs really understands that HTML5 is the “right thing” for the future of the web. Apple is not going to drop native applications. But Jobs has always had an uncanny sense of when things are done right.

Although Google doesn’t need to “win” the battle with Apple, Apple’s hysteria, along with its insistence on fighting the wrong battles, means that Google has a decent chance of winning. HTML5 may be Apple’s last chance to change their ways, and make decisions that aren’t dictated by their desire to control the platform. If they don’t, they will lose, and that would be tragic, both for Apple and for users.