Screen Shot

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.

Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple, General Motors, Google, and Nvidia. The Motley Fool owns shares of 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.

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