Apple and Google: On Your Wrist and In Your Car
Apple and Google: On Your Wrist and In Your Car
Despite slight recent design shifts toward each other, AAPL and GOOG still have very different world views – a contrast that is clear in their strategies to extend their platforms to new venues, like “wearables” or cars. While it moved to open iPhone hardware to 3rd party developers a bit, AAPL has not published APIs for its widely expected iWatch, , portending a highly proprietary device, perhaps tightly tied to the new HealthKit functionality. Meanwhile, GOOG’s AndroidWear gives OEMs leeway for design differentiation, and includes clean APIs for developers to deliver value-added extensions of their apps, aiming to increase user engagement by delivering notifications in a more immediate context. We are not overly bullish for demand, particularly if health/fitness is the salient use case, and expect total demand to be a modest fraction of the installed base for either platform. In this, we suspect “wearables” may better suit GOOG’s objectives (i.e. more frequent app engagement, broader user data profiles) than AAPL’s (i.e. smartphone share gain, profits from iWatch sales). In automotive, the companies have had to settle for the rough parity of APIs that enable users to interact with either smartphone platform via dashboard touchscreens and vehicle hands free controls. In the home, both companies are jostling for space in the crowded and competitive TV market, while swapping roles for home controls, with AAPL courting 3rd party device makers to adopt its iOS-integrated HomeKit solution and recent GOOG acquisition Nest disrupting traditional solutions with its slick connected devices.
WWDC 14 put developers first. AAPL loosened iOS to allow 3rd party apps to work together and to access more of the device hardware, delivered a new graphics engine, programming language and SDK to developers, and published a raft of APIs to facilitate interplay between iOS devices and home devices, health devices, TVs and cars. These enhancements aim to entice developers to deliver apps for iOS first, preserving an advantage for AAPL. The HomeKit and CarPlay solutions reach out to home controls specialists and automakers respectively, inviting integration of their platforms with iOS and suggesting that AAPL has drawn a line on reaching further into these markets with devices of its own.
GOOG’s I/O 14 was about consistency. The new Android L looks to reverse the fragmentation of the OS, giving developers a common platform across devices and giving users a consistent experience. GOOG introduced a comprehensive software design schema, a turnkey reference design for sub-$100 smartphones, amped up enterprise features, 64-bit processor support, power saving adjustments to raise battery life by more than a third, and platform extensions and APIs for wearables, TVs and cars. GOOG did not release an Android solution for home controls, but its recent acquisition of connected home device pioneer Nest portends future moves in the area.
The iWatch watch. AAPL did not announce the iWatch, nor did it release APIs for developers, suggesting a highly proprietary take on wearables when the device appears in the fall. The HealthKit hype portends a health/fitness focus at launch, although we see greater long term value in iWatch as an extension of TouchID. While the iWatch will very likely carry high margins, with great appeal to AAPL’s well-heeled and loyal customers, we are a bit skeptical of the most bullish forecasts given the high expected price point and the narrowness of the health/fitness market. Of course, AAPL could surprise with functionality that goes far beyond the rumors – they’ve done it before, although not recently. Furthermore, having just poached Tag Heuer’s head of sales and marketing, AAPL may be going with a fashion-heavy approach as well – great for margins, if true, but less so for broad penetration.
Google Now on your wrist. In contrast, AndroidWear devices from multiple OEMs are already hitting the market, promising multiple price points and configurations, while published APIs encourage developers to tailor their apps to exploit the new devices. The primary use case seems to be enhanced notifications and convenient access to information, well suited to GOOG’s overall strategy to drive engagement with its well monetized cloud services. In particular, AndroidWear is a vehicle for Google Now, the unique and powerful extension of search that anticipates user needs and pushes contextually relevant information. GOOG notes that the average user checks his/her smartphone almost 8 times per waking hour – with AndroidWear, perhaps that frequency can be increased.
Car jacking. After years of lobbying auto makers to embed their systems directly into car infotainment systems, AAPL and GOOG have settled for the next best thing – direct connections that allow smartphones to plug in and take over the display and input mechanisms of the car, a significant boon to users who had previously been stuck with proprietary systems for the 4+ year life of their cars. AAPL has CarPlay. GOOG has AndroidAuto. The two are very similar and are unlikely to stimulate smartphone sales volumes or share shifts, as we expect the large majority of car makers to support both. However, for GOOG, BOTH platforms could increase engagement for its cloud apps.
Too soon to pick winners in the home. Over 8 years and 3 design generations, AAPL has sold 20M+ AppleTV units, giving it advantage in the living room over GOOG, which sold “millions” of its simple $35 Chromecast device in its first year after failure of its more ambitious GoogleTV. GOOG is back again with Android TV, a specialized version of Android L that promises to combine apps and games with high quality streaming and a slick user interface. However, with global gaming console penetration well over 200M and aggressive competition from cable boxes (Xfinity, Tivo, etc.) and other efforts (Roku, Samsung Tizen, etc.), both AAPL and GOOG have their work cut out for them. Meanwhile, AAPL and GOOG have seemingly swapped strategies for the rest of the house, with AAPL offering a platform (HomeKit) for third party OEMs to adopt, and GOOG offering proprietary, design-rich connected reinventions of thermostats and smoke detectors through its recently acquired Nest business.
The trends favor GOOG. AAPL will likely sell quite a few iWatches to go with the big screen iPhone 6 also expected for the fall, as part of a strategy to capture more device revenues from each loyal AAPL customer. However, we remain concerned that it will be difficult to drive sustained sales growth and margins without either broadening the target market or driving services revenues more effectively. As for GOOG, we believe that Android’s dominant position in mobile is under monetized, but that shifts in the advertising market, a rapidly growing user base, a more aggressive stance with OEMs on GOOG services, and accelerating engagement through platform extensions could be substantial drivers of future revenue growth.
For our full research notes, please visit our published research site.