Now wait until they put out the A5 chip. You will be able to title your review - "eat my dust, Android."
Well, 2 years later, I am now a contributor to SA, and Apple has just released the iPhone 5 with several things that affect Google directly and indirectly - one of them being its new A6 chip.
This article will focus on what I think are the most important factors. In the end, Google's revenue is from advertising based on user data and on search engine results. So anything that affects the number of hits into this system will proportionally affect revenue stream. Currently, mobile is the fastest growing sector, and the iPhone provides the highest traffic into this sector.
1. iPhone 5 Technical Advances
Whether you love or hate Apple, if you're going to be fair, you have to admit that the new iPhone 5 is a lovely piece of equipment. The affect here on Google is indirect, because pulling customers away from Android does not affect Google's bottom line, except as it may or may not affect their advertising revenues (see below).
Aside from the form of the device, there are two outstanding hardware advances: the screen and the A6 processor. The screen: Display professional Dr. Raymond M. Soneira recently ran a review on his DisplayMate site in which he said:
Based on our extensive Lab measurements the iPhone 5 has a true state-of-the-art display - it's not perfect and there is plenty of room for improvements (and competitors) but it's the best Smartphone display we have tested to date.
In particular, he singles out brightness, color contrast, and accuracy of color rendition as being best in class.
The A6 Chip - the heart of the beast
The heart of the iPhone 5 is the brand new A6 chip. This is what designers call an SoC - system on a chip. and is similar in concept to the Snapdragon and Tegra SoCs that drive many Android devices. Snapdragon is made by Qualcomm (NASDAQ:QCOM) and Tegra by Nvidia (NASDAQ:NVDA).
What SoC means is that you have not only the Central Processing Unit engine on the chip, but a bunch of other functional elements that in computers might be separate chips. These include the Graphic Processing Unit (GPU), memory, and other more technical parts. All these are rolled into one chip which has two advantages critical for mobile devices: small, and saves on power.
Anand Tech, a very professional and independent site, has done a lot of testing on the iPhone 5 and particularly run benchmark tests on the A6 in a report titled The iPhone 5 Performance Review. Here they report that in virtually all tests, the iPhone 5 left all competitors in the dust. The photo shows just one test of the graphics engine, but it is more or less typical of the performance difference.
So what? One might ask. Android phones are still competitive and many have their own features that best Apple. This is, of course, quite true. There are some very fine smartphones out there. But these performance tests, along with the display rating, will certainly quell any reasonable arguments as to performance superiority by Android systems. No one but real Android fans will be pushing the idea that the iPhone is an inferior product.
This will tend to stabilize the current ratio of Android to iPhone market share. While this balance may shift somewhat, I do not see it moving significantly in the short term.
Siri - iOS' sassy voice-activated assistant - may have significant impact on the amount of search and ad traffic that goes to Google. Siri has its own search partners who provide both pure data and revenue-generating content (reservations, etc.). This is cutting Google out of the party on a significant proportion of searches.
Many people are reporting issues with Siri, but it does not have any problems that competing systems do not have, and it seems to be improving.
The Maps app, once again as with Siri, provides access to a lot of revenue generating searches. It has the potential to seriously crimp a proportion of mobile revenue flow to Google. Of course the new Maps app has been real mud in the eye for Apple. Many people are reporting serious problems, most notably, searching for places and either not finding them or finding them in wrong locations. There is a huge uproar about this.
But one needs to beware of reality versus the hype - or anti-hype might be a better term. We should remember the furor raised two years ago over "antennagate." It was just as fevered, but in the end it faded into a complete non-issue. It is unlikely that any great number of potential buyers ultimately passed on an iPhone because of the antenna issue. The Maps issue may very well play out the same. In fact, it may not even be as bad as many make it out to be. On the blogs, many people are reporting that it works just fine for them.
i haven't encountered mislabeled streets or wrong directions, but i'm sure i will... i've gotten that from every map app i've ever used.
Additionally, in the end, this is just a software issue that can be fixed with an update. In fact, it is not even necessarily a software issue. That is, the software appears to work fine, it is the data that seems to be giving the problem. This is both good and bad. It indicates that the base program is not the problem, only data. Yet a software issue can be found and fixed more easily than can terabytes of data.
One thing is pretty certain, Apple will work on this and get it fixed. It may take two months or it may take two years, but they will fix the issues. So going forward, this incursion into Google's domain should not be ignored by the serious investor. People who underrate Apple have not had a history of success.
4. Other factors
Also to consider is the new Window Phone 8 OS that is due out soon. It remains to be seen how well that will perform, but it could also eat into Android market share. Reports are that they will be incorporating Bing into the OS (surprise?) and this will also encroach on Google's revenue base.
The iPhone 5 will continue to be an extremely popular device. It has a compelling vision of software and a solid hardware platform. Of course it lacks seriously in diversity - only 1 current model. It is obviously not for everyone, as Android is doing rather well.
Additionally, Google is not going anywhere. They will definitely be dominating the search and advertising spaces for a long time.
However, all that said, I believe it would be a mistake to ignore what will most likely be serious incursions into their revenue space. At this time it is too early to try to quantify what this could mean. But we really should not ignore it.
Disclosure: I am long AAPL. 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.