How CarPlay Widens Apple's Moat

Yesterday, with the announcement of CarPlay, Apple (NASDAQ: AAPL  ) leapfrogged Samsung  (NASDAQOTH: SSNLF  ) and Google's (NASDAQ: GOOGL  ) Android by giving iPhone users another reason to upgrade. This may be Apple's newest killer feature to spur the next upgrade cycle. As Apple builds out its ecosystem, it widens the competitive moat around its computing and media franchise, which increases switching costs by locking in customers.

Shipping this year
Apple announced that Ferrari, Mercedes-Benz, and Volvo will offer cars including the system this year. Going forward, expect BMW, Ford, General Motors, Honda, Hyundai, Jaguar, Land Rover, Kia, Mitsubishi, Nissan, Peugeot, Subaru, Suzuki, and Toyota to follow shortly. The breadth of vendors for such a large-scale announcement is impressive and shows the extent of the foundation.

Where are Pandora and Google Maps?
At the time of the announcement, Pandora (NYSE: P  ) was unavailable as an application on CarPlay, as was Google Maps, but this may change going forward. This will likely be a topic that is addressed at the ongoing Morgan Stanley conference, where Pandora CEO, Brian McAndrews, will be speaking on March 6th. Even though, considering the most recent announcement, Pandora will apparently be absent from CarPlay, it would be surprising if Apple shipped this system without integrating the most popular applications.

It's about the ecosystem, not just features
The feature gap between Samsung's handsets and the iPhone is narrowing each year. Both devices have fingerprint sensors, high-resolution cameras, huge suites of applications, and big screens. The benefit to Apple in primarily working with a single vendor is the ecosystem. It isn't necessarily about good products.

Each of these functions is an opportunity for Samsung, or another low-cost vendor, to chisel a foothold into Apple's customer base. By offering a seamless transition from handset to auto, Apple can eliminate a weakness, while creating a new revenue stream.

What about the living room?
Hopefully, the set-top box will be the next step. While it seems unlikely that Apple would integrate with Google's Chromecast, the longer it goes unchallenged (in its price point), the more customers Apple will need to win back. Apple is currently discounting Apple TV by $25 (with an iTunes gift certificate), bringing the price to $75. But, if people have to wait too long for a refreshed set-top box from Apple, they might just pony up the extra $35 for Chromecast in the interim.

Meaningful, but not enough to move the stock
Apple's stock is cheap at current levels, supported on the downside by a low P/E of 13 and a dividend yielding 2.3%. While this announcement represents an incremental growth opportunity to really jump start the stock, investors are waiting for a significant new product such as a refreshed Apple TV. This isn't a value trap because Apple has highly profitable and growing businesses. But, for the stock price to move without an earnings catalyst, as it did when Apple was considered a growth company, a more significant product announcement is needed.

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  • Report this Comment On March 05, 2014, at 3:46 PM, Pimust wrote:

    CarPlay is just a "remote desktop" app running in car infotainment system allowing the user to access to selected apps on their iPhones and hardly a game changer in any meaningful way. It won't replace onboard navigation or music player or prevent other apps or services to function in car's infotainment system. Only if you happen to have an Apple handset it gives you the the ability to operate part of the apps in your without looking at the screen of your device and all the others will ignore CarPlay all together.

  • Report this Comment On March 05, 2014, at 5:06 PM, WineHouse wrote:

    reply to Pimust -- have you ever tried iTunes Radio? I love it. I'm into classical music, and there are several classical "stations" to tune into. The only drawback is that you usually only get a single movement of a piece before it moves on to the next piece (and if you happen to be watching the screen while it's playing, there's a streaming line that gives you not only the name and composer of the piece, movement number, and recording artist, but also the cost of downloading the whole thing from iTunes -- in other words, these are trailers intended to entice you to buy some music at the store). Hey, Apple needs to make money in order to pay my dividends, right? Anyhow, my point is that you don't need other streaming music if you've got iTunesRadio.

    And as for maps -- so long as you're driving mostly in developed (urban or suburban) areas, you don't need Google Maps because Apple Maps have the information data base you need, plus it's actually easier to use (the data base is "learning" from its users, and most of its users are in more densely-populated areas, so you'd expect less of a data base in less densely-populated areas). Plus, even the Google Maps database and other GPS databases have been known to produce real whoppers -- I read in the local newspaper recently about a guy who drove smack onto a railroad track and got stuck there because his GPS told him to turn right! (and yes, there was a train oncoming -- the guy got out of the car in time but the car stayed stuck and was hit).

    We'll see if it's a game changer or not. Being able to control the "basic" phone functions via buttons on the steering wheel, and incorporating artificial voice and voice recognition technologies, might actually improve safety (or not -- it may increase talk and message activity and result in more rather than less distraction for the driver). There's only one way to tell -- wait and see.

  • Report this Comment On March 07, 2014, at 4:39 AM, JaredPorter wrote:

    I like the fact that Apple designed CarPlay to SPEAK your incoming text messages and not even offer the written texts, so that drivers cannot even be tempted to get distracted into reading a screen while driving. Also, it uses Siri dictation to compose and send an outgoing text. Should result in safer driving. (Many people say that texting should be totally banned in the car, but it simply "ain't gonna happen", so might as well make it 100% auditory.

  • Report this Comment On March 07, 2014, at 5:23 AM, Mathman6577 wrote:

    Apple still needs a another game changing product (like iWatch, iTV, or a mobile payments platform).

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