Will The New Mercedes A-Class And Other Manufacturers' Vehicles Give Apple's Siri A Lift?

| About: Apple Inc. (AAPL)

At Apple's (NASDAQ:AAPL) Worldwide Developer Conference keynote on June 11, 2012, the company announced it is working with nine automobile makers to integrate Siri into their vehicles within the next year. The named automobile makers were BMW; GM (NYSE:GM); Mercedes-Benz, a unit of Daimler AG (OTCPK:DDAIF); Land Rover and Jaguar, both units of Tata Motors Ltd. (NYSE:TTM); Audi, a unit of Volkswagen AG (OTCPK:VLKAY); Toyota (NYSE:TM); Chrysler; and Honda (NYSE:HMC).

A slide at the keynote, shown in a Wired article, showed a driver of a BMW pressing a voice-activation button on the BMW's steering wheel. As noted by Wired, two major vehicle makers absent from the list - Ford (NYSE:F) and Kia Motors Corp. (OTC:KIMTF) - rely upon Microsoft (NASDAQ:MSFT) technology for their respective Sync and UVO Infotainment systems.

Size Of The Siri Partners In The U.S. New Car Market

Based on Edmunds.com July car sales forecasts, the named automakers are expected to account for the majority of sales in the U.S. automobile market. Collectively, four of the automakers, namely GM, Chrysler, Honda, and Toyota, are expected to account for 61.8% of the U.S. auto market.

Edmunds' July forecast only looks at six of the largest automakers selling vehicles in the U.S., that collectively have an expected market share of 88.6%. Ford and Nissan Motor Co. Ltd. (OTCPK:NSANY) are the other two automakers in Edmunds' report who were not on Apple's initial Siri integration list. Collectively, Ford and Nissan are expected to take 26.8% of the U.S. market this month.

Note, it was not announced which of the announced partner automakers' brands or vehicles will have the Siri option, so investors interested in confirming the actual number of Siri-enabled vehicles will have to keep an eye on future information released by the automakers.

That said, last year, Ford provided a clue as to the importance of voice-activation in vehicle. Specifically, in August, 2011, Bloomberg reported that Ford was seeking higher sales of its Sync voice-activation system by reducing the price to $295. Ford also stated that, at that time it had sold over 3 million vehicles with the Sync system, and that Sync was "an important consideration in 50 percent of purchases."

This is not surprising given many consumers want to bring their phones to work, and would rather lose their wallet than their phone, according to some surveys.

Mercedes A-Class Is First Car With Siri Integration

Wired also noted that the Mercedes A-Class, built for sale in Europe, will be the first vehicle to market that integrates Siri. Motorward reported on July 17, 2012, that production of the new Mercedes A-Class vehicles has commenced, with the first vehicles already rolling off the assembly line.

Mercedes' web site boasts that its Drive Kit Plus device marks the first time that the iPhone is fully integrated into a car's display and operating concept. Mercedes also says you can use Siri via Drive Kit to send messages, select music, and call up stock prices.

Note that Mercedes is advertising iPhone integration and not making reference to integration with Google (NASDAQ:GOOG) Android, or any other mobile operating system, or device.

Luxury Automakers Working With Siri Despite Imperfections

Mercedes and some of the other noted Siri partners produce luxury vehicles, yet are still integrating Siri despite well-known imperfections.

Siri critics in the news, include those that started lawsuits saying Siri does not do what television commercials indicate that it will do. Further, analyst Gene Munster, gave it a "D" for accuracy, and a "B" in comprehension, in a report written after testing Siri under various noise conditions, according to Bloomberg.

As a user of Siri in Canada, who has also tested it in the United States, I can tell you that features requiring maps, such as finding restaurants, are currently not available on Siri in Canada and other countries. Perhaps this will change when Apple begins using its own mapping system with its new iOS 6 operating system this fall, and such a change may increase Siri usage outside America.

People Are Dissatisfied With Voice Activation In Their Cars, Too

Despite its imperfections, it's worth noting that other voice-activation systems aren't exactly getting rave reviews. J.D. Power and Associates 2012 U.S. Initial Quality Study, released on June 20, 2012, found that automakers had year-over-year gains in most areas of initial quality, with the notable exception being technological issues. The press release stated:

Specifically, the number of owner-reported problems with factory-installed hands-free communication devices has increased 137 percent during the past four years. In fact, hands-free devices not recognizing commands has become the most-often-reported problem in the industry.

So it is in automakers' interests to improve the quality of the voice-activation experience. With so many of them working with Apple, it would seem that they have faith that Siri may be, at a minimum, an improvement over their current systems in the minds of some consumers. Interestingly, Ford who was an early mover in voice-activated technology, reportedly saw its ranking in the survey fall due to technology issues. This is something Ford shareholders may want to consider, especially given it was not on Apple's initial Siri-integration automaker list.

Further, as laws in various jurisdictions, such as California, prevent drivers from touching their mobile phones while driving, consumer demand for hands-free and eyes-free integration with their mobile devices should increase.

If Siri, or any other smart phone application integrated with vehicles can improve customer satisfaction of the voice activation within their vehicles, then that could help convince users of such applications to use other devices with the voice application, in addition to their smart phones.

Comparison Of Siri To iPod Vehicle Integration

Despite the fact that we do not know details of pricing or vehicle availability, we can look at what various manufacturers have done in the past to try to guess what they may do with Apple's latest technology.

In 2006, according to CNET, Apple announced a deal with Ford, GM, and Mazda (OTCPK:MZDAF), that would give consumers the option to purchase iPod integration for their vehicles. According to CNET, at that time, the deal meant that iPod integration was available in over 70 percent of new vehicles in the U.S, when including partners Apple had signed up earlier. CNET also reported in 2006 that iPod integration options cost car buyers about $160 at the time for GM vehicles.

As AllThingsD reported reported in 2010 that Apple was operating its iTunes store at a slightly-better than break-even level, it seems the company has a history of using applications like iTunes to get consumers to purchase hardware. I imagine that Apple's incentive to get Siri into cars is the same: to sell more iPhones, and other potential products that may use Siri in the future.

You Already Know Siri's Name, And He Or She Knows Yours

Some readers may be unaware that Siri is not a uniform voice world wide. For example, in the United Kingdom, Siri has a male voice.

Whatever the language and gender, the bigger picture is that Apple is heavily marketing Siri as a brand name personal assistant.

At the time of writing this article, I am unaware of any competitor running a marketing campaign similarly trying to personify a smart phone voice-recognition brand.

Google's latest Jelly Bean Android mobile operating system, due to be rolled out on "certain Android devices" this month, according to The New York Times, performs many of the same functions as Siri. A software development kit for the full version of Jelly Bean was recently released to developers. CNET recently said Jelly Bean Voice Search performed nearly as well as the current version of Siri. For an opinion favoring Jelly Bean's voice recognition abilities over the current Siri application, you can check out this article at PCWorld.

Whichever side of the fence users may be on, an improved Siri will be able to answer more questions in categories such as sports and movies, when Apple releases iOS 6 in the fall. So investors may want to keep an eye on comparisons with Android then.

Investors may also want to consider whether initial issues with Siri will hurt the brand, even if Siri improves in the long run. If Apple dramatically improves Siri, it can always introduce a new voice with a new name, in the same way that it introduces new Mac operating systems named after various animals.

The bigger picture is that Apple is getting some consumers used to pressing a button, whether it be on their phone, or soon, steering wheel and telling their iPhones what to do. It's easy to extrapolate, as many observers already have, that consumers will want to press the same button and use the same familiar voice to tell other devices what to do, such as televisions, appliances and thermostats. Some of this may be possible through new Apple devices, like the long-rumored iTV, while some of these commands may be possible through applications on the iPhone, or the new iPad, which also gets Siri via iOS 6 in the fall.

For Apple, from a financial perspective, the benefits of an improved Siri could come from increased hardware sales, and increased App purchases for any App that may utilize Siri in the future. Again given the iTunes store does not appear to historically have a primarily goal of massive profitability, it appears selling hardware is Apple's higher priority.

Can Siri Help Sell Apple Hardware?

According to analysts recently quoted by Digital Spy, the television market was worth €233bn last year (approximately $284 billion U.S. at the time of writing this article), and expected to grow at an average pace of over 4.7% a year to 2020.

Apple's revenues over the past year were $142 billion, according to Yahoo Finance. (Please note this article is being written before Apple's third quarter earnings release on July 24, 2012). If Siri is popular among consumers at the time of a release of an iTV, if such a product is ever released, given Apple's history of premium pricing compared to its competitors, even a small percentage of the television market could be material to Apple's revenues.

Whether the voice that consumers give requests to in the future belongs to Siri, or a future Apple "personal assistant" brand, or another company's brand is something that investors may want to consider. Further investors may want to weigh whether it is a positive or negative that Apple had a head start in the voice-activated personal assistant phone and car race.

While being an early mover in technology may not have lead to recent consumer satisfaction with Ford, despite any Siri shortcomings, Apple reported at the keynote that over 75% of its users are satisfied with iPhone's iOS operating system. This indicates regardless of users' opinion of Siri, a large percentage of them are satisfied with their iPhones' operating system, which could be a good thing for Apple shareholders if the Siri application is improved and used on other devices.

Disclosure: I am long AAPL, GM.

Additional disclosure: Disclaimer: The commentary expressed in this article is not legal advice, nor investment advice, and is subject to Seeking Alpha's Terms of Use.