Apple (NASDAQ:AAPL) recently acquired GPS firm Coherent Navigation, a developer of high-accuracy navigation systems, for an undisclosed amount. Coherent's system is more accurate than consumer-grade global positioning systems, which are generally accurate up to three to five meters. It can also acquire a user's position within a few seconds, compared to up to 40 seconds for a traditional GPS.
Coherent was founded in 2008, and previously worked with Boeing, satellite network operator Iridium, and the U.S. Department of Defense. It also worked on various robotics and autonomous navigation projects.
This isn't Apple's first investment in the location-tracking space. Since 2009, Apple purchased a series of small mapping firms, including Placebase, Locationary, and Hopstop. In 2012, it launched Apple Maps, which combined some of that in-house tech with licensed technologies from TomTom. There's also been lots of buzz about Apple possibly buying Nokia's (NYSE:NOK) HERE Maps division.
The evolution of Apple Maps
Apple mainly relies on hardware sales to drive its top line growth, yet location-tracking abilities generally help mobile software and advertising based companies like Google.
Last quarter, less than 9% of Apple's revenue came from software services like iTunes. Apple's fledgling mobile ad platform, iAd, only accounted for 0.3% of its top line last year, according to eMarketer's estimates. Therefore, improving the accuracy of Apple Maps won't directly boost the company's top line growth.
25% of U.S. smartphone users (iOS and Android) currently use Apple Maps, compared to 47% who use Google Maps, according to Comscore estimates. By comparing those figures with Apple's U.S. market share of 43%, we can estimate that roughly 58% of U.S. iPhone users use Apple Maps.
Why 58% isn't good enough
58% sounds like a solid percentage, but it's not enough to prevent Google's ecosystem from creeping into iOS with ecosystem apps like Maps, YouTube, Gmail, Google Now, and Google Drive.
Since Apple doesn't want iOS devices to generate search and ad revenues for Google, it started replacing Google services with its own. That's why it dropped Google Maps for Apple Maps, and replaced Google with Microsoft (NASDAQ:MSFT) Bing in default Siri and Spotlight searches. Bing will also likely replace Google as Safari's default search engine later this year.
Therefore, if Apple boosts Apple Maps' adoption rate in iOS to 100%, it will hurt Google's ability to gather location-based search data from iOS users. This means that apps like Google Now, which depend heavily on location and routine tracking, will be much less effective on iOS devices.
Google Now also represents a threat to Apple Watch. If Google makes Android Wear devices compatible with iOS, Google Now will deliver location-based cards to users' wrists, effectively tethering them to the Android ecosystem.
Curbing Google's growth on iOS devices is definitely Apple's priority, but we shouldn't overlook the long-term benefits of improved location-based tracking services.
If Apple plans to eventually invest in autonomous cars, as current rumors suggest, a highly accurate GPS service could be helpful. Google, for example, is currently remapping roads in a time-consuming, high-detail process to make them compatible with its autonomous cars.
Apple also reportedly has a small R&D team for developing augmented reality devices like Google Glass and Microsoft's HoloLens. These devices, which overlay digital imagery over real world objects, could benefit from high-accuracy location tracking. Tasks which require locating objects or individuals with a high degree of accuracy could also be made much easier with Coherent's technology.
The key takeaways
Investors shouldn't read too much into Apple's smaller individual acquisitions. But when they're made in a series -- like its location tracking acquisitions -- we should understand the bigger picture.
Apple's short-term goal is to boost the adoption rate of Apple Maps on iOS devices to prevent apps like Google Now from scaling the walls of its tightly controlled ecosystem. It's not about gathering user data or boosting ad revenue -- it's simply about widening its defensive moat. But over the next few years, a beefed up Apple Maps might play a part in the development of autonomous cars, augmented reality devices, or other products.