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Will Maps Make Money for Apple and Google Investors?

By Tim Brugger - Dec 17, 2012 at 7:30PM

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Will Maps impact revenue?

With the plethora of news surrounding Apple (AAPL 2.45%) and its stock price the past several months, its mutual decision with longtime rival Google (GOOGL 5.11%) to bring back Google Maps has been one of the leading stories. But, what does it really mean? Did Apple cave? Is Google in the back room snickering, "Told you so!"? And most important, does it matter for Apple or Google's bottom line?

When it's all said and done, the answers to those first few questions don't really matter much. Who won, or lost, from Apple and Google's perspective, has more to do with bragging rights. Once we get past the ego side of the equation, it's time to concentrate on the real question: Should investors care, one way or the other?

How big a deal is it?
Trying to determine what Google pays Apple to make its maps available on iPhones is like trying to find another batch of Dead Sea scrolls -- not likely. But if Google's writing Apple a check, it's not going to be much. As iFans know firsthand, a fully functioning maps application isn't a nice-to-have, it's a must-have -- one that benefits both industry leaders, and their respective investors.

Though there's no denying iPhone 5 sales took off from the get-go, most of the grumblings heard since centered around Apple's in-house Maps alternative and gathered steam from there. But it was the Maps fiasco that really hurt. As smartphone alternatives increase from Samsung's Galaxy, Microsoft's (MSFT 3.42%) new Windows 8, Google's own Nexus, and even from the likes of top-shelf smartphone newbie Nokia (NOK 3.00%) -- who, not coincidentally, is heavy into maps -- Apple learned its lesson.

In case anyone needed reminding just how critical smartphone map applications are, Google Maps became the No. 1 download at the online Apple store almost instantly after its introduction on Dec. 14.

Great, but what about me?
At market caps of $480 billion and $230 billion, respectively, the direct revenue from Maps Apple receives from Google isn't even worth mentioning. But Maps will generate (possibly) significant revenue, for both Apple and Google.

Consumers using iPhones are the first winners in the new and improved Google Maps. Now, iPhone users have access to the all-important voice navigation option – something Apple Maps was sorely lacking. And Google Maps is almost unparalleled when it comes to data. Streets, landmarks, businesses; you name it, Google's probably got it.

But Apple also wins, though its results will be less direct. Supplying iConsumers with what has become one of the most critical smartphone apps available should boost iPhone sales, even as the competition increases. And Apple investors are in need of some good news.

With a nearly 30% drop in share price the past three months, Apple's in need of some holiday cheer. Analysts, once tripping over themselves over anything iRelated, began slamming Apple in record numbers, and lowering price targets by the score. But with Google Maps back in the fold, backed by what's turned out to be surprisingly strong iPhone 5 sales results in China (2 million sold over the weekend), the positive news is exactly what Apple investors needed.

What does Google get out of the deal? Two things immediately come to mind, and both are huge for Google: No. 1, though the iOS maps doesn't have advertising, yet, it will, directly driving advertising revenue. No. 2, and just as important, Google is the master of data collection and its usage. It's no accident that Android, its open-source OS, isn't a direct revenue provider -- doesn't need to be. Google figured out long ago that data is where the revenue is.

Now, picture this scenario: Millions of iPhone users are punching in restaurants, mechanics, and coffee shops into Google maps, and it's capturing all that information, making it available to prospective business customers.

The last word
How long will the Apple and Google Maps marriage last? Probably no longer than it takes Apple to fix its own Maps application. Until then, Apple and it shareholders get a much-needed boost by opening its doors to Google.

Smartphone consumers expect a good maps application -- we're spoiled like that. Apple's iPhone, with a boost from Google and now solid sales in China, should get a bump. Oh, and those analysts tripping over each other to jump off the Apple bandwagon? Many of the price targets are still around $700 a share, nearly 40% above current levels. And at a mere 8.9 times future earnings, Apple's trading at value investor levels, in spite of Wal-Mart's decision to sell iPhones at a (formerly unheard of) discount.

Apple fans, don't underestimate the competition, however. Nokia's few million Lumia sales, and other Windows 8 OS phone results, may seem small now, but this game's just getting started.

As for Google, it's the biggest winner in the maps bargain with Apple. Even as its own Nexus phone sales taking off, what Google really wants -- what it always wants -- is data. And all those iPhone users will supply the information Google so desperately craves, paying off for years to come.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
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Alphabet Inc. Stock Quote
Alphabet Inc.
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Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
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Microsoft Corporation Stock Quote
Microsoft Corporation
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Nokia Corporation Stock Quote
Nokia Corporation
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