Apple's Siri gets behind the wheel; Who should worry?

13 Jun, 2012

Apple is taking Siri on the road.

As the consumer device maker doubles down on its popular voice-enabled personal assistant software, it is looking at another large market to drive rapid adoption: cars.

Apple Inc's new in-house Maps service along with free turn-by-turn navigation feature and real-time traffic updates converts the iPhone into a valuable navigation device - one of the most popular features on Google Inc's Android gadgets.

Combine that with the new "Eyes Free" feature - where drivers talk to Siri with the tap of a button on steering wheels - and analysts say the iPhone has the potential to disrupt the car electronics and navigation market.

Using smartphones for directions and music is not new. In-car navigation systems have been on a steady decline as more and more drivers prefer to use the mapping service in smartphones, particularly Google maps.

Apple's move to lend its technology might to connect the car to its iPhone in an easy to use manner could give a big boost to the adoption of Siri and further entice consumers deeper into its app ecosystem.

It makes the iPhones more valuable to the user, said Mark Boyadjis, infotainment analyst with IHS Automotive.

"To be able to access it hands free and eyes free in the car will be an asset and will enable the Apple device to be continually more relevant in the car," he said. "This is an important movement forward."

The integration is a win-win for both the carmaker and Apple, said Scott Corwin, vice president of Booz & Co's automotive practice.

"The manufacturers are tying themselves to something that has a very positive impression with customers," he said. "For Apple, it helps to solidify market leadership with this technology."

Apple tweaked several features in its mobile operating system on Monday, enhancing its ecosystem and bolstering its arsenal as it tries to keep its hardware ahead of competition from Google's Android device makers such as Samsung Electronics Co Ltd.

The rivalry is shaping the evolution of the mobile industry with the two companies - once friendly - increasingly challenging the other in various sectors, including maps, voice-enabled search, apps and digital content.

The shares of Harman International Industries Inc, known for its audio devices, fell as much as 10 per cent on Tuesday after Apple outlined plans to make Siri available in cars. The shares of rivals such as navigation system maker Garmin Inc and TeleNav Inc's (TNAV.O) also fell in tandem.

Vehicle navigation systems maker TomTom NV bucked the trend with a 15 per cent rise as it struck a deal to license its maps to Apple.

The market for so-called auto infotainment technology - everything from navigation and audio systems to screens to chips - is sizable.

Revenue this year is projected to surge to $33.5 billion, and growth will be even stronger in the next four years, ranging from 4.7 per cent to 6.4 per cent, according to IHS iSuppli.

Down But Not Out

Already, nine automakers - including Audi, BMW AG, General Motors Co, Honda Motor Co Ltd, Mercedes and Toyota Motor Corp - have signed up to build-in Apple's Siri button on the steering wheel or dashboard in the next 12 months.

The button will allow drivers to access their iPhones to call people, play music, hear and dictate text messages, ask for directions, find calendar information and more.

But while Apple's move is a serious threat, both automakers and analysts said it does not spell the end for in-car navigation and entertainment systems.

Automakers will be loathe to give up complete control of in-car internet access to phone manufacturers, given they are worried and liable for driver distraction, analysts said.

Also, the embedded system suppliers, such as Harman, have been working to diversify with consumers increasingly opting for free or cheap navigation software.

"Harman, Telenav - what they are supplying to the car is a combination of voice input, offboard search and screen-based output, which is much more than what this integration with Siri is going to be," Boyadjis said.

"The 10 per cent drop that some of these companies experienced in the market today might be a little bit of an over reaction."

Audi, one of the carmakers that is working with Apple, sees Siri on the steering wheel as an experiment.

"We are working with them to see how it would work, but we don't have anything concrete yet to report," Audi spokesman Brad Stertz said. "I don't think it's going disrupt or stop other efforts to pull together more unified navigation-infotainment systems."

GM will be offering the service initially in its entry level vehicles Chevrolet Sonic subcompact and Chevy Spark minicar after having found that 70 per cent of all new-car buyers want some form of connectivity in their vehicles.

But GM also has a smartphone app called GoGo Link - for $50 - made by South Korean firm EnGIS Technology that connects any smartphone navigation system onto the car's dashboard screen, providing internet connectivity to the car.

"In this application, the iPhone appears to be designed to complement existing infotainment offerings," Baird analyst David Leiker said. "This does, however, underscore our view that integration of smartphones into vehicles is the greatest risk to embedded infotainment systems."

Apple's big enemy in smartphone wars: Delay

Apple Inc has spent nearly three years fighting its rivals in a global smartphone patent war. Now, setbacks in two key US court cases are laying bare why a drawn-out battle could be bad news for the iPhone maker.

Last Thursday, Judge Richard Posner in Chicago federal court canceled Apple's long-awaited trial against Google Inc's Motorola Mobility division, which makes devices powered by the Internet search company's Android mobile operating system. The trial had been set to start this week.

Then in an order late on Monday, U.S. District Judge Lucy Koh in San Jose, California, effectively dashed Apple's hopes of stopping the launch of Samsung Electronics Co Ltd's new Galaxy S III smartphone, which also runs on Android. Koh had said Apple's push to get a court order blocking the June 21 launch would overload her calendar, given Apple's high-stakes trial over other Samsung devices set for July that she is overseeing.

The latest decisions don't doom Apple's courtroom efforts - the company can appeal Posner's ruling, while Koh's directive had nothing to do with the merits of the Samsung case about to go to trial, or the legal arguments for an injunction on the new Samsung smartphone. But delays in moving its cases through the courts is a blow to Apple's efforts to get quick and favorable rulings that it hopes would give it an edge in the marketplace for mobile devices.

Apple has waged the international patent war since 2010, part of its attempt to limit growth of Android, which last year established its dominance as the world's best-selling mobile operating platform. Apple's opponents, meanwhile, say the iPhone maker is trying to use patents to avoid competing solely in the market.

A clear victory in one of the U.S. legal cases could strengthen Apple's hand in negotiating cross-licensing deals outside court, where companies agree to let each other use their patented technologies.

"The stalemate is much more of a victory for the accused infringers than it is for Apple," said Brian Love, a professor at Stanford Law School who studies patent litigation.

Apple spokeswoman Kristin Huguet reiterated a previous statement, saying the blatant copying of its devices was wrong. Google spokesman Jim Prosser said the rise of patent litigation is due to too many vague software patents, and that Google's success makes it an attractive target. A Samsung representative declined to comment.

Apple is not the only smartphone combatant that has faced setbacks in litigation over its technology. Last month, Oracle Corp came up empty in a trial against Google, a case where Oracle's damages estimates ranged up to $6 billion.

U.S. District Judge William Alsup in San Francisco rejected Oracle's copyright claims on parts of the Java programming language. The enterprise software company said it would appeal.

Land Grab

Apple is in a pitched battle with its competitors over who can develop the most innovative smartphone features. In an attempt to help keep Android at bay, the company announced new features for its voice-activated Siri software at its annual developer's conference on Monday.

The company's first lawsuit in its global patent fight was against smaller competitor HTC Corp (2498.TW) in a Delaware federal court in March 2010. Apple also filed an action against HTC before a U.S. trade panel, which has forced delays in sales of some HTC smartphones.

Michael Yoshikami, chief executive of Destination Wealth Management, says HTC stock has suffered due to adverse court rulings. But for a larger player like Apple, the patent battle is important but not for its share price. Rather, it is used for a short-term edge in the land grab for smartphone and tablet sales, said Yoshikami, whose fund holds Apple shares.

In a move that was widely seen as a preemptive strike against an imminent Apple lawsuit, Motorola sued Apple in October 2010 in Chicago, and Apple filed its own claims against Motorola the same month. That case landed before Posner, who issued a series of pre-trial rulings that eliminated nearly all of Motorola's patent claims against Apple from the prospective trial, while maintaining more of Apple's claims against Motorola.

That meant Apple had more to gain in the trial, which was set to start on Monday. But in an order last week, Posner scrapped the trial after finding that neither side could prove damages. Apple had sought an injunction barring the sale of Motorola products, but Posner said that would be "contrary to the public interest."

Nick Rodelli, a lawyer and adviser to institutional investors for CFRA Research in Maryland, rated Posner's decision an "incremental negative" for Apple. However, Rodelli doesn't think it will stand up on appeal, saying in part that Posner improperly denied Apple a hearing on its right to an injunction.

Yet Stanford's Professor Love said that Posner's ruling, and the delay it causes in Apple getting the case to trial even if it wins an appeal, will reduce Apple's leverage during any potential licensing talks.

In the Samsung lawsuit, filed last year in California, the iPhone maker says Samsung "slavishly" copied the iPhone and iPad. Samsung denies the claims and countersued.

The trial centers around Apple's claims against multiple Samsung phones, as well as a Galaxy tablet. But those products are not the most pressing worry for Apple at the moment: Samsung's Galaxy S III phone is set to launch in the U.S. on June 21, and Apple fears blockbuster sales.

But courts don't move as quickly as new technology. At a court hearing last week, Apple attorney Josh Krevitt complained that Samsung is able to release new phones before the legal system has time to address their patent violations.

"Samsung is always one step ahead, launching another product and another product," Krevitt said.

Koh last week said Apple could ask for a temporary restraining order against the Galaxy S III phone, but that would likely delay the trial over a Galaxy tablet and other smartphones. In her order on Monday, the judge said Apple would have to request a new hearing date if it wanted to stop sales of the Galaxy S III phone. That likely would not take place before the phone's scheduled launch. Apple has not said what its next move will be.

Court-ordered mediation between the CEOs of Apple and Samsung did not produce a settlement in the wide-ranging litigation. Barring a last minute agreement, the trial is slated for July 30.

Apple cannot afford to get bogged down in its global legal campaign against Android, said Paul Berghoff, a Chicago-based patent attorney with McDonnell Boehnen Hulbert & Berghoff who is not involved in the litigation.

"If Apple's goal still is the Steve Jobs holy war, then the status quo is not in their benefit," Berghoff said.