When Apple (AAPL -4.91%) released Apple Maps in 2012 it was riddled with inaccuracies, featured limited capabilities, and quickly became the butt of many jokes. But Apple has improved the application in the last two and a half years, and it has a pretty good mapping app on its smartphones. However, Apple's maps app efforts are about more than smartphones.
Many point to an increased rivalry with Google (GOOG -2.63%) (GOOGL -2.63%) as the reason Apple decided to produce Apple Maps. But for a company that makes its money primarily from hardware sales, spending hundreds of millions on one piece of software to best a rival is crazy. Even when that company has $194 billion in cash on its balance sheet.
Apple has continued to invest in mapping capabilities and most recently purchased Coherent Navigation and renewed its license with TomTom. The TomTom deal gives Apple mapping assets that provide the backbone of Apple Maps. Apple can build on top of them with its own mapping data. The Coherent Navigation acquisition will bolster Apple's navigation and mapping capabilities with its location accuracy coming within centimeters of a user's actual position. Regular GPS, in comparison, is accurate within about 3 meters to 4 meters.
Why is Apple still spending money on improving Apple Maps?
It won't sell more iPhones, but it could sell more Apple Watches
About 24.8% of all smartphone owners in the U.S. use Apple Maps, according to comScore. With a 42.6% share of the U.S. smartphone market, that suggests 58% of iPhone owners use Apple Maps despite its terrible reputation.
Why does Apple care so much as long as users can get a great experience through whichever mapping app they choose? It is selling more iPhones than ever, $100 billion worth just last year and almost $100 billion more in the first half of its current fiscal year. The improvements in Maps has nothing to do with it.
Maps aren't an integral feature of the iPhone, but the need for an accurate mapping app that is tightly integrated with iOS could be more useful in Apple's newest product. Navigation and run-tracking features are main selling points of the Apple Watch. If users aren't confident in the accuracy of Apple's mapping software, they're less likely to use those features.
The acquisition of Coherent Navigation adds hyper-accurate GPS location data to Apple's arsenal, so Apple can pinpoint its users' location within centimeters instead of meters. That's not a big deal for someone getting directions, or even driving a car, but when it comes to buzzing a user's wrist when the person is walking or running, it's important not to buzz too soon or too late.
Mapping could also be used for future products
Even further down the line, Apple is rumored to be working on a self-driving car. A device like that requires extremely accurate mapping and location data, and Apple is building an arsenal of technology. The company has vans out on the street collecting mapping data, which could eventually lead to Apple creating its own map asset instead of licensing maps from TomTom.
Investors should look for Apple to integrate mapping and location-based data more closely with the Apple Watch and new devices in the future. That might be in the form of the Apple Watch receiving a dedicated GPS chip or more functions based on users' locations. It could involve an entirely new device that relies even more on the users' location. Or it might be how its devices interact with one another based on location (think smart home).