1 Key Reason I'm Scared for Apple After CES 2014

iOS in the Car. Source: Apple

The 2014 Consumer Electronics Show has now come and gone. While Apple (NASDAQ: AAPL  ) has no official presence, the Mac maker will inevitably be affected by some of the trends emerging from the largest tech trade show. In particular, there's one key reason why I'm scared for Apple after CES.

Driving change
To kick off the festivities last week, Google (NASDAQ: GOOGL  ) announced the formation of the Open Automotive Alliance, which consists of Google, chipmaker NVIDIA, and a handful of automakers. Audi, General Motors, Honda, and Hyundai are onboard thus far and committed to bringing Android to cars this year. At first this will come in the form of integration, but eventually the car itself will run Android.

How will Android work inside of the automobile?
We're working with our partners to enable better integration between cars and Android devices in order to create a safer, car optimized experience. We're also developing new Android platform features that will enable the car itself to become a connected Android device. Stay tuned for more details coming soon.

Source: Open Automotive Alliance

The Open Automotive Alliance was not an official CES announcement, but it did coincide with the show and all of the members attended in some capacity. We stopped by the GM booth, but GM reps declined to elaborate beyond the press release. What we did see, however, was the beginning of a new phase of technological innovation in cars.

For instance, a couple Fools and I attended a keynote with AT&T's Executive Vice President of Network Operations John Donovan. When asked what excites him the most about where technology is headed, Donovan pointed to the connected car.

Cars are everywhere, and we're now only seeing the tip of the iceberg in terms of where the innovation will go, according to Donovan. A wide range of players is all jumping in and everyone is innovating at breathtaking pace. Donovan predicts that in three years, the car will "blow us away" and the entire experience will be changed. Indeed, we saw cars with 4G LTE connectivity running on AT&T's network while on the floor, while there were plenty of self-driving cars on display.

Much like in smartphones, Apple risks seeing Android hegemony take hold of the upcoming onslaught of connected cars.

How it's different this time
In contrast, when Google first announced the Open Handset Alliance in 2007 to launch Android, it was essentially a nonstarter. Apple had just launched the original iPhone to much fanfare, and no one knew what Android was. It wouldn't be until 2010 that Android would finally get its act together as a platform and subsequently proceed to take the mobile world by storm.

Now that Android has become a household name, the launch of the Open Automotive Alliance should absolutely turn some heads. Unlike in smartphones in 2007, the odds are stacked very clearly in Google's favor.

To be clear, Apple has already begun to partner with automakers to hitch a ride, starting as early as 2012 with the announcement of Siri Eyes Free in iOS 6. Apple took it to the next level in iOS 7 with iOS in the Car, which will integrate iOS devices with in-dash systems.

Apple has definitely made serious inroads with integration. Upward of 95% of cars sold today integrate iOS devices for music playback and controls. But the current state of platform competition is about to expand to the car and everything is about to change.

How it's the same this time
Now, the familiar strategic differences between Apple and Google come back to the forefront. 

Apple's strategy is to integrate iOS devices with cars. Google's strategy is to power the car itself with Android. Short of making an entire car (which Steve Jobs once dreamed of), iOS will never completely run an in-dash system. To get the benefits and features of iOS in the Car, your ride will need to be tethered to your iOS gadget.

We've seen several examples of connected devices that rely on being tethered for full functionality -- and they fall flat. Think of BlackBerry's original PlayBook. Think of Samsung's Galaxy Gear.

What if you forget your iPhone at home? What if a friend or family member wants to borrow your car? In these cases (among others), integrating with another device is less than ideal. Furthermore, what happens if your car runs Android but your phone runs iOS? On the automotive front, how does Apple compete in a world full of Android cars? Will Android enjoy a first-mover advantage in third-party automotive apps?

This is Android's biggest advantage in capturing the connected car. Google will go where Apple won't in order to power the connected cars of the future. Assuming Apple won't compromise its core philosophy of vertical integration, it will face an uphill battle for automotive relevance.

The battle for the connected car is only just beginning, and a lot remains to be seen. Consumers, automakers, and developers will have a say. I don't necessarily believe that Apple will lose the upcoming skirmish -- I just can't figure out how it can win.

Maybe Apple needs to change gears every once in a while.

That's not all from CES 2014
Thanks to an uncanny ability to identify key trends in technology, David Gardner has established a market-thumping track record. Investors have seen a slew of storylines coming out of CES 2014, but the real challenge is recognizing where the opportunities truly lie. Click here to get David's latest thinking on where you should be invested to profit on the future of technology.

Read/Post Comments (36) | Recommend This Article (34)

Comments from our Foolish Readers

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  • Report this Comment On January 13, 2014, at 6:16 PM, SimchaStein wrote:

    You could have written the article before going to CES. FYI, iOS has a larger installed base than Android, per Asymco.

  • Report this Comment On January 13, 2014, at 6:34 PM, garysund wrote:

    I can understand ones concerns about apple keeping of with the jones so to speak. I think quite a lot of us really under estimate what Apple's has the ability to do with pulling out all the stops. We watch and see what the Google's of the world is doing and say well Apple should be doing that. Well maybe Apple could do that but just has other options that nobody on the outside knows about. My personal feeling about Apple is that I have been a shard holder for over 10 years and am pretty darn happy with what they have done so far and I plan to continue to be a share holder for another 10 years and am looking forward to my investment more than double what it is today or maybe even triple. Time will tell.

  • Report this Comment On January 13, 2014, at 7:11 PM, Shiroto wrote:

    I keep thinking that the auto makers are not going to want to choose sides in the os battles, but instead would prefer to maintain more leverage over each of those companies by working with them both. In a similar way, I can't imagine any car company is going to want to risk alienating a big chunk of the car buying market by working with only Google's or Apple's platform. Again, I think car manufacturers will prefer to appeal to the entirety of the market, i.e., both iOS and and Android users, as well as any other significant market share holder. One example of this is Honda, which is not only part of the Google's alliance, but much earlier signed up with Apple's initiative.

  • Report this Comment On January 13, 2014, at 7:28 PM, Cintos wrote:

    And what is Android's future? Google has made it clear it is investing heavily in Chrome as their go-to-market OS, and Samsung is promoting TIZEN as its mobile OS of the future.

    Given Android's fragmentation and upgradability challenges contrasts with Apple's track record of software backward compatibility through generations of hardware.(over 80% of iOS devices converted to iOS 7 in less than 4 months....) I'll take an iOS powered car, vs. a JAVA powered one, thank you.

  • Report this Comment On January 13, 2014, at 7:58 PM, skippywonder wrote:

    Think this through for a minute.

    In the US, Apple's market share comes disproportionately from affluent consumers.

    Well, who is it that buys the most NEW cars? Affluent consumers of course. I'd bet the percentage of new car buyers in the US last year who owned iPhones was much higher than those who owned Android phones.

    So sellers of new cars may actually be more interested in accommodating iOS than you might think if you only consider smart phone market share.

  • Report this Comment On January 13, 2014, at 10:59 PM, ScottAtlanta wrote:

    lol @ sad desperate Apple rationalizations.

  • Report this Comment On January 14, 2014, at 7:24 AM, tcorn wrote:

    Why do most apple users act as if their device is the only answer. For years I have listened to this. Your device isn't any good or that device is poorly designed. I'm better than you attitude. Since 2007 I really haven't seen any innovation from Apple. Cell phones are cell phones.... Cell phones aren't going to run a car or change the world. I have Linux devices all around my home embedded and doing functions that IOS would never allow me to do. From turning lights and off, setting temperature. Security etc. I can use any smartphone to trigger.

  • Report this Comment On January 14, 2014, at 7:40 AM, jdmeck wrote:

    Would never buy a car with Android as the only option.

  • Report this Comment On January 14, 2014, at 11:56 AM, Hugz wrote:

    As tcorn notes above, there are other platforms that allow consumers to "do more" with their devices, Linux being perhaps the most open one that allows for the most customization.

    Nonetheless, we're a society that values ease and simplicity as a trade-off (i.e., not every individual wants to invest the time necessary to learn how to do those things with Linux, but considering most of the developers are gunning for iOS, people can rest assured that there'll be "an app for that" someday).

    What people around the world do not mind paying a, perhaps, absurd premium for a phone that does much of the same as the next high-end smartphone. Sadly, iPhone denizens, myself included, can easily respond with, "But it just looks cooler" and there's no rational argument to be made any longer.

    Apple has gotten loads of people to buy into the idea that you can buy certain emotions with their products. Just look at their latest (and greatest?) commercials. They all play upon pure emotion and do not really address technical aspects of the product. Once Apple has you there, irrational behavior easily sets in and Apple can rake in the profit.

    Cars are an interesting point of contention, but as others have said, and even Niu admits, don't count Apple out just yet. Apple innovates, that we know. How they innovate remains to be seen.

  • Report this Comment On January 14, 2014, at 2:48 PM, anash91 wrote:

    Why couldn't someone buy a car, then choose Apple or Android and pay a royalty for the OS? Just like paying DMV fees on top of the purchase, an extra $4-800 goes to apple or google.

  • Report this Comment On January 14, 2014, at 3:59 PM, eightballfreight wrote:

    The idea that automotive companies would ok with you their Apple bearing customers not being able to experience the full new tech driving experience is kinda silly. ie, GM isn't going to risk losing long time truck customers to Ford if Ford allows them to get the full experience.

    Apple could very easy design a dash product.

  • Report this Comment On January 14, 2014, at 6:04 PM, velo15 wrote:

    You, unintentionally, dubbed the auto industry as lacking savvy....automakers know the avg income of iOS users is well above the 'droid demo. No way they'll sacrifice sales for anyone's OS - 'droid, iOS or any other...if anything GOOG's steps may unintentionally accelerate iOS integration into autos.

  • Report this Comment On January 14, 2014, at 6:18 PM, tookooltofool wrote:

    I'm finding it difficult to reconcile what is quite well known about the sector, with the analyst's view partly because he has omitted two large components from his picture of the sector: In 2013, QNX (which the author doesn't mention at all even though it's been active in the sector for more than a decade) and Microsoft jointly held as much as 80% of the embedded infotainment market, according to reports like this:

    Incidentally, this article from 2013 makes many of the same points as the one in question:

  • Report this Comment On January 14, 2014, at 6:49 PM, MikeinDenver wrote:

    I personally prefer my freedom and I would never buy a vehicle with iOS as the only option. Android hands down just gives you more freedom and control. Early adopters choose android for these reasons. Your grandma buys an iphone. Iphones lack innovation. They are so often playing catchup.

  • Report this Comment On January 14, 2014, at 7:02 PM, cmalek wrote:


    "Sadly, iPhone denizens, myself included, can easily respond with, "But it just looks cooler" and there's no rational argument to be made any longer."

    Sure there is. "Big, Fat, Hairy Deal! You can have KEWL, I'll take functionality."

  • Report this Comment On January 14, 2014, at 7:46 PM, scitracker wrote:

    I don't want to see the day a hacker steals my car.

  • Report this Comment On January 14, 2014, at 7:57 PM, Mwojnarowicz wrote:

    After Target's debacle, what if your car gets jacked? Also, given the thief's ability to scrape data, how secure do we feel about this tech?

    Me, I'm old school... No phone on, hands, now 9 & 3 due to airbag exposures...Supposedly, in the new position, you mat survive, or avoid bodily injury if the airbag deploys...

  • Report this Comment On January 14, 2014, at 9:51 PM, LazyOldMan wrote:

    Scitracker - that is the good outcome if they steal your car. What happens when they just wreck it with you in it. A whole new industry is formed run by Semantic and McAfee... Auto intrusion detection and handling.... of course you have to have it to save your life. You could not pay the $300/mo, for "protection." But then what would happen? Why does this all give me a headache?

    I don't trust Google to address the problems with Android security for cars any more than they have for the phones. There are many pieces of malware for android. A quick Google search turns up: U.S. government finds 0.7% of all mobile malware affects iOS, while Android accounts for 79%.

    Yea , that makes me want an android car...not!

  • Report this Comment On January 14, 2014, at 10:08 PM, LazyOldMan wrote:

    The automobile industry makes a fortune selling software that is very expensive to update if it can be updated at all. My Infinity has "navigation" and every year they want sell me the "map update" for this $4,000 system. It costs $149 plus $158 to install at the dealer. So for what a brand new Garmin GPS with lifetime map updates costs me each year... I get to pay the dealer to put a compact flash drive in my car and enter a code to copy the software. With the margins and profit on labor no auto company or dealer is going to want to open their racket to competition.

    I just bought a $25 OBD II/CAN WiFi device and a $10 piece of software that works with an iPad and is 100 times better than what the auto manufacture supplies through the dash. Car manufactures and dealers will fight to cripple any "open" system in cars. Gotta protect the profit stream. The entrenched self-interest is tough to overcome. Google can't always get what it wants.

  • Report this Comment On January 14, 2014, at 10:39 PM, notme2012 wrote:

    15 years ago, Mercedes used fiber optic cables with one CPU to do everything in their S class cars. Mercedes bought back thousands of cars,getting owners to sign non-disclosure agreements. Now, Mercedes uses wireless sensors, etc. in their cars and trucks, that cel phones' transmissions screw up. Not as bad as the fiber optic, but there are still issues. A car being run by Android or i-OS, NOT happening as fast as the Google or car companies want us to believe. A "connected car" already exists in most car companies. But, the car driven by the computer, is going to take awhile longer.

  • Report this Comment On January 15, 2014, at 7:14 AM, Dino63 wrote:

    At the moment Google are most likely to own our information environment, if our cars go automated how do you know that Google won't QoS our car's based on being Android or IOS when we are given a time slot on the future road "Network"......! Big brother will be Google.....!

  • Report this Comment On January 15, 2014, at 10:46 AM, reeftool wrote:

    I have a new car with a lot of "smart" options. To be honest, I don't use them all that often. They came with the model package we were forced to buy to get a couple of options we wanted. As the excitement builds, keep in mind that distracted driving is becoming a big political issue and laws will likely be passed banning all phone uses in cars. It's already being talked about. Are auto manufacturers going to support these vehicles for their full life? Twenty years or more in climates where cars don't rust? The public already saw OnStar become useless before their loans were paid off because they couldn't upgrade.

  • Report this Comment On January 15, 2014, at 11:36 AM, kevin311 wrote:

    @MikeInDenver said, "I personally prefer my freedom and I would never buy a vehicle with iOS as the only option. Android hands down just gives you more freedom and control. " long as you don't want iOS. If you do, you no longer have that freedom.

  • Report this Comment On January 15, 2014, at 12:56 PM, radarcharlie wrote:

    I suspect that cars running Android will still be able to connect with iOS devices. Not so sure that any car running iOS would be able to connect with anything non-iOS.

  • Report this Comment On January 15, 2014, at 2:24 PM, lukascranac wrote:

    If you want to see a connected car look at Tesla. While the car makers of today are trying to imagine the new paradigm for a connected car Tesla is already doing it. Your Apple vs Android universe falls apart when you see how Tesla built essentially a computer on 4 wheels. Meaning if you're a car maker you don't need the help of the computer guys. You should be the computer guy yourself.

  • Report this Comment On January 15, 2014, at 2:26 PM, rustianowski wrote:

    While it may seem like Google is in the dominant position you only listed a couple of auto brands. Did anyone notice how Toyota and Ford haven't jumped on yet? While GM, Audi, and Honda aren't small players by any means they hardly make up the majority of vehicles sold. With Ford's continued move and Toyota thriving, maybe apple let android have those companies in order to avoid possible future monopolies/suits. I mean Microsoft needed Apple back then to avoid the same thing. Google needs Apple, and Apple needs Google.

    The other thing not mentioned is I highly doubt that AMD won't have some role in vehicles down the road. Anything Nvidia can do, AMD can do just as well at a fraction of the price.

    Apple is a great company with great leadership and ideas, write them off if you like because of this. They will be happy to prove you wrong.

  • Report this Comment On January 15, 2014, at 2:47 PM, aachen312 wrote:

    This article turns out to be a joke with the fact that NASDAQ: AAPL got up about 4% after this article was posted. : )

  • Report this Comment On January 15, 2014, at 6:13 PM, MetallicaRocks wrote:

    I wish iOS was in my vehicle...SYNC sucks...

  • Report this Comment On January 16, 2014, at 9:08 AM, TheRealRacc wrote:

    AAPL investors sure are delusional.

  • Report this Comment On January 16, 2014, at 11:05 AM, LegalizeMe wrote:

    To all the iPhone users out there I suggest you search for "Dropout Jeep" on any search engine.

  • Report this Comment On January 16, 2014, at 11:36 AM, SkepikI wrote:

    If we are not far away from the overly connected car, then we are not far from some bright hacker calling your car and making the left rear blow out. Or locking up the OS and drive computer for ransom...... I'm thinking of investing in antique cars.

  • Report this Comment On January 16, 2014, at 11:37 AM, aachen312 wrote:

    APPL investors aren't delusional at all. APPL stock soared because apple did make a pretty good deal with China Mobile.

  • Report this Comment On January 17, 2014, at 9:34 AM, John1981 wrote:

    Apple fanboys/ investors need to check their facts, even the new iOS 7 is starting to look suspiciously Kitkat'esc.

    Cars are for driving not checking facebook or sending emails, people can already play music and navigate very easily I don't see it being a massive market to revolutionise the in-car system.

  • Report this Comment On January 17, 2014, at 5:08 PM, whyaduck1128 wrote:

    I'm with Skepikl. The more the computer is embedded within the car, the more likely that someone can take control of it from the driver, whether it's the NSA, FBI, CIA, SHIELD, HYDRA, CONTROL, KAOS, UNCLE, SPECTRE, or the ever-popular "THEM". That capability may already exist, for all I know (other than in the movies, where it seems that anyone can remotely control anyone's every device).

    "You many want to turn left here to get to Grandma's house, but we know better. You will not be allowed to turn left. You will go straight."

    I prefer to rely on my Mark I human eyeballs and brain to do the job of driving where I'm going.

  • Report this Comment On January 18, 2014, at 1:13 AM, AsaYES wrote:

    Dear Android Fanboys, I can't picture myself driving a car that is run by Android because Android is an open system that is a magnet to virus, malware and flaws.

    Another thing is, if the carmakers actually will build the whole car system on Android, it means that the hackers and thieves will find a way to take control. Compare with a car that connects with your iOS device - you can take that device out of the car when you leave it. I guess some clever hacker will still find a way, but it will be more difficult with iOS.

  • Report this Comment On January 19, 2014, at 4:32 PM, secularinvestor wrote:

    @ tcorn

    You are totally deluded when you say:

    "Since 2007 I really haven't seen any innovation from Apple. Cell phones are cell phones”

    The iPhone is the best selling premium smartphone because it is way ahead of the competition and offers user the easiest to learn and most reliable user experience, which results in it achieving the highest user satisfaction, Brand loyalty and retention rates.

    Surveys show that for every iPhone user who moves to Android, there are THREE Android/Samsung users who upgrade to iPhones.

    The iPhone 5S is by far the most innovative and advanced smartphone around, which is why it is taking the market by storm. It is a generation or two ahead of any other smartphone with its combination of the superfast 64 bit A7 chip, Touch ID, M7 sensor chip, and the advanced digital camera software which requires the superior processing power and graphics of the 64 bit SoC.

    All other premium smartphone makers and chip manufacturers have announced that they will follow Apple’s lead with their own 64 bit chip devices. But the problem is they DO NOT HAVE a proper 64 bit OS which is backwards compatible with 32 bit Apps.

    Apple already have the hands on experience of writing 64 bit Mac OS, which is backwards compatible with 32 architecture. Apple have spent YEARS re-writing iOS 7, from the ground up with millions of lines of new code. It will take competitors years to catch up, IF EVER.

    Meanwhile, every day, dozens of new and updated iOS Apps are coming out designed to take advantage of the amazing power and speed of the 64 bit A7 SoC.

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Evan Niu

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.

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