Beware of Wrong Turn
Somnath is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Beware - following the Apple maps can lead you to wrong destination.
Apple (NASDAQ: AAPL) always seems to know the secret desires of its customers. As Apple prepared its stores for the first sales of the iPhone 5, the company faced vociferous complaints from consumers over the mapping application it released this week, which replaces the Google (NASDAQ: GOOG) maps that have been part of the iPhone since the device's initial 2007 release.
To be sure, the iPhone 5, although not as innovative as some previous models, appears well on the road to being a commercial hit. Yet the early negative returns for its map suggests Apple may have to scramble to improve it, or find another solution altogether.
Apple maps are built on TomTom's mapping data. The new maps come installed on the iPhone 5 and will be seen by other users who upgrade their iPhones and iPads to the company's latest iOS 6 mobile operating system. Holland-based TomTom licenses its map data to Apple, but said each manufacturer applies TomTom's map data and other content to create their own unique application.
Apple has sought to control every aspect of its product design and manufacturing, including hardware and software. Although Apple is soaring now, over time such glitches could erode its competitive advantage over rivals. The criticism poured in world-wide as users of the new maps found misplaced labels for businesses and landmarks, cities with missing roads and erroneous features.
But more than an embarrassment, the misstep highlights Apple's challenge as it takes on Google and others with Web services. Apple spokeswoman Trudy Muller said the company knows its map service is a major initiative and designed it so that it would get better as more people use it. She also acknowledged that some features, such as transit information, was absent and would be integrated with the help of application developers.
While Google dominates smartphone navigation, Nokia owns one of the most widely used digital mapping platforms after it acquired Navteq—a company that provides the underlying digital mapping information used by GPS navigation devices and Internet services.
The Apple maps embarrassment played into the hands of struggling rival Nokia Corp. (NYSE: NOK) which has spent billions of dollars building up its mapping assets over the past few years.
In a post on its official blog, published shortly after consumers around the world started complaining about Apple’s new mapping service, Nokia provided a benchmark test, comparing the location apps of the coming Windows-running Lumia 920 smartphone, to the Google-powered maps of the Samsung Galaxy S III and Apple’s new mapping service. Nokia said it “truly understands that maps and location-based apps must be accurate, provide the best quality and be accessible basically anywhere.” “Unlike our competitors, which are financing their location assets with advertising or licensing mapping content from third parties, we completely own, build and distribute mapping content, platform and apps,” Nokia added.
Nokia’s Navteq’s mapping platform is being used by several portable GPS devices made by companies such as Garmin Ltd., as well as Web-based map applications, including those of Yahoo! Inc and Microsoft Corp’s Bing Maps. Nokia has recently launched a number of upgrades to its own mapping applications that come preinstalled on its Lumia devices, and in November last year, Nokia also launched a public transport application for its smartphones, that provides public transport information for many cities around the world. Even the new Kindle Fire tablets feature mapping functionality from Nokia rather than from Google.
Nokia's bullish move through the summer appears to have tapered off. Presently trading at $2.85, the stock looks mildly bearish. At this point, with the Lumina coming out this fall, would pick a trading channel for the stock by buying a straight-up 2.5 put option with an expiration of January 2013.
Apple's new maps app does have some new and improved features. It offers free turn-by-turn voice-guided navigation, something that wasn't available in the old app. It also integrates reviews from Yelp Inc. into its map listings.
While the two Silicon Valley companies were once on good terms, they began encroaching on one another's turf in recent years and are now fighting to take the lead in the fast-growing mobile software and device market. Google today makes Android mobile software, which competes with Apple's mobile operating system. Apple's iPhone has been preloaded with Google Maps since it first went on sale, and it was the default mapping app on the iPad. More than 90% of U.S. iPhone owners use Google Maps, but as tensions rose between the two companies over competitive products and features, Apple decided to go its own way.
Apple fans queued around city blocks worldwide to get their hands on the new iPhone 5, pointing to a strong holiday season for the consumer device maker despite grumblings about the mapping app in the new smartphone. The long lines of excited buyers prompted optimism on Wall Street. Deutsche Bank raised its target on Apple stock to $850 from $775, saying "demand indicators are tracking very strongly."
The iPhone is Apple's highest-margin product and accounts for half of the company's annual revenue. Apple shares were up 0.5 percent to $702 in afternoon trading in New York. JPMorgan estimates the phone could provide a $3.2 billion boost to the U.S. economy in the fourth quarter - a boost almost equal to the whole economy of Fiji.
The latest news is that Google is working on a brand new Google Maps application for iOS, but its awaiting approval from Apple. Despite its maps service being dropped from the iOS 6, Google is reportedly revamping its Maps application and is planning to submit the same for Apple's approval. No official statement has been made and there will inevitably be questions over whether Apple will approve it in the App Store.
Google's stock price is up significantly for the year, even though it was stuck in a trading range between $575 and $650 for a good portion of the year. Google’s margins declined in its most recent quarter compared to a year ago, but with its 35% revenue growth that didn’t matter very much as earnings increased by 11%. This took place despite a 28% increase in spending on research and development, which in theory should help the company generate growth in the future. Google now trades at a trailing P/E of 21.
Apple's halo remains powerful. No doubt, the iPhone 5, which went on sale on Friday, will be another hit. But there is nothing about it that is especially innovative. Part of the reason is obvious: Steve Jobs isn't there anymore. It is rare that a company is so completely an extension of one man's brain as Apple was an extension of Jobs. While he was alive, that was strength; now it's a weakness. Apple's current executive team is no doubt trying to maintain the same demanding, innovative culture, but it's just not the same without the man himself looking over everybody's shoulder. If the map glitch tells us anything, it is that.
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SomnathGuha has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. 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.If you have questions about this post or the Fool’s blog network, click here for information.