I felt conspicuously awkward reading about the rapid ascent in rankings and ratings of Google maps for iOS6 in the App store. No, how could that be? A maps kerfuffle that has been rubbing salt in Apple's open wound and providing free advertising for Google (NASDAQ:GOOG). Google, an old friend turned foe that is unrelenting in its pursuit to dilute the uniqueness of Apple's ecosystem. This got me thinking about the ferocity that Apple (NASDAQ:AAPL) has brought out lately in litigation against the Android ecosystem and its increasingly hostile relationship with Google. If Google is becoming the single biggest foe how should Apple tactically manage them?
Apple started every one of its product and service lines from the ground-up, perfected them and unleashed them to an unsuspecting public. It now has a portfolio of many segment leading products that are expected to exceed already heightened expectations.
In this light, here are my audacious suggestions for some relationships Apple should either get into or strongly consider to get into in order to:
- Keep pace with very capable competitors
- Slow down Google
NOKIA - Maps
Conspicuously enough, the universally acclaimed HERE maps from Nokia (NYSE:NOK) landed with a thud on the App store. The iOS version was stripped down and devoid of some key features available on the Lumia phones. Nokia is aligned with Microsoft which has licensing and patent agreements with Apple. Microsoft (NASDAQ:MSFT) has shown that it has hardware ambitions with the Surface tablet and there are rumors of a Microsoft Windows phone. Nokia understands that it is dispensable to Microsoft if it does not become a source of revenue. Nokia needs additional sources of revenue itself and also needs increased adoption and usage of its maps. It already offers versions of its maps to Facebook, Amazon and provides Bing Maps. Its alignment with Microsoft makes it less of a concern to Apple due to a distinctly different user interface and experience. It has been too quiet, suspiciously so, about its plans for a comprehensive iOS maps effort which otherwise is an opportunity that they cannot ignore. HERE maps provide Apple with the best opportunity for a relationship that it can leverage and customize to quickly advance its maps deficiencies. If Google keeps up the adoption rates of its maps on Apple platforms it might build an unassailable head start. My recommendation is that Apple should abandon its effort for a proprietary map, which it got into because Google forced its hand, and partner with Nokia to deliver a product that will instantly match Google maps. The resources that Apple is dedicating to develop its maps could be used in other areas that are differential and unique.
INTEL - Chips
The expertise, capacity and innovation of Intel are irreproachable when it comes to chips. They were slow to recognize the opportunity in mobile computing but have made great strides to catch up. Samsung, on the other hand, has been the necessary evil that Apple has had to contend with. They provide components to Apple but compete directly with them in many areas. Their relationship of handshakes, stabbing, litigation and compromise should be on its 9th life by now and it is only a matter of time before Samsung or Apple decides to move on. Samsung leadership must be evaluating the net benefit of incremental capital expenditure on developing products that Apple may decide to move away from. Apple can design and provide specifications to a very capable Intel for exclusive products. Furthermore, Intel is a specialty manufacturer of chips and has no strategic interests beyond making the best and most widely used chips in the industry. Such a relationship is mutually beneficial in that it provides a public relations boost for Apple by aligning recent sentiments echoed by Apple's CEO Tim Cook to bring some manufacturing and jobs back home. For the new and incoming CEO of Intel, this provides a significant opportunity to signal intent to the market and to Microsoft and also to show a break from old leadership.
Microsoft - Search
The online services division of Microsoft to which Bing belongs has been a loss leader for Microsoft. Bing is the engine behind Yahoo search and Microsoft has unsuccessfully used numerous marketing campaigns and user incentives to encourage its adoption. Apple's effort with iWork, a suite of desktop applications that was supposed to compete directly with Microsoft Office, in fairness, has been a failure. Pages, is an adequate but not equally capable substitute but not as capable as MS Word. MS Excel is the benchmark for spreadsheets and PowerPoint has become a part of office lingo as it relates to presentations. This chasm creates a mutually beneficial and synergistic opportunity for Apple to become friends with the enemy of its enemy.
Microsoft has been intentionally guarded with its strategy to release functional apps for iPhone and iPad. It has announced a free but limited version that is expected to arrive in 2013. Early trial has garnered positive reviews and seems like a natural bridge for users who would like to switch to Apple products. An agreement between the two that will require Apple to use Bing as its default search engine for all its devices gives Bing immediate exposure and a bump in market share from the dominant Google. In return, Apple should request full and functional versions of Microsoft products for iOS to accelerate adoption of its products by corporate clients. Such an agreement will fade the delineation between the two platforms and increase switchability which will work better for Apple today. The foremost differentiator for Apple is its user interface and design and those will not be compromised by such an agreement. Apple is not struggling for sales without Microsoft's office suite of products. If Apple were to agree to pay licensing fees to Microsoft it will make it lands a double coup with user penetration and slowing down any gains Google might be making in that sector. If I were Microsoft, and if given the choice today, I would pick Apple over Dell. They might as well partner, make money, slow down Google and incapacitate the moribund players (Dell & HP) while they are at it.
The transition from hardware, to software, to solutions and consequently to lifestyles is at full speed. This transition is what makes a potential relationship with Foursquare interesting. There are already rumors about this potential relationship and it makes sense because most of the other players in this space are big and entrenched. It would be better if this relationship had a marketplace to put a tight squeeze on Amazon (NASDAQ:AMZN), Groupon (NASDAQ:GRPN) and to a lesser degree on Yelp (NYSE:YELP). If nothing else, there are components of this relationship that allow Apple to collect user data to better align its products to the lifestyles of its users. For Foursquare, any tie up to a brand like Apple is an adequate offer. Google is building an integrated empire of web assets (Gmail, Google+, YouTube and you name it) around its platform. Microsoft is doing the same and Apple should follow. This will become increasingly important because as ecosystems become fully developed these key players are going to increasingly find ways to limit the ability to seamlessly switch between platforms.
My guess for the likelihood of these suggestions happening vary for each scenario. There is a good chance Apple could partner with Nokia on maps since it showed with its current maps that it was open to using an outside partner. I estimate that sooner rather than later Intel is going to get into the fold. Once it figures out how to serve Apple it will take over R&D and become a very reliable partner. The relationship with Microsoft is very unlikely to happen but could change depending on assessment of the threat Google poses to both companies. Even then, there are lots of nuances and coding issues that will need to be polished out that may make it not a very worthy short term partnership. Lastly, it appears something is in the works with Foursquare. It is now a question of how and when.
I don't need to be read the riot act for these strategic opinions as I think we are past the point where Apple waits for the golden egg before going to breakfast. The size of Apple increasingly reduces the number of capable partners in its supply chain as evident in the constraints it frequently experiences. Sooner rather than later Apple will decide that it is better off finding bigger friendlies (Intel) than smaller incapables (Sharp). Apple should not let the paucity of control kill the audacity of its innovation because at heart it is a design and engineering company. I will like to come back someday in the future and say I told you so.
Disclosure: I am long MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may initiate a position in Apple in the next 72 hours.