What’s Apple’s Mapping Shopping Spree Really About?

Apple’s mapping-related acquisitions keep rolling along. Last week it was revealed that the company snapped up Embark, my favorite app for navigating NYC Subways. Lots of speculation has been swirling around these moves, as it goes for all things Apple. But a lot of it has been misdirected (bad pun intended).

First, as background, this marks the third acquisition (not counting the Waze miss) in five weeks to strengthen Apple’s backbone in mapping and navigation. Locationary standardizes local business listings, while HopStop and Embark specialize in different flavors of navigation and public transit. These features were clearly missing in Apple Maps’ famous fail.

But moreso than the features, these post-Mapgate acquisitions are all about what’s behind the scenes in this age of big data. This goes back to what a lot of people don’t realize about Apple Maps: it’s is actually a pretty slick mapping tool. But what it has in dazzle, it lacks data; things like place listings, navigation and public transit.

For the sake of comparison, these are precisely the things Google has built by collecting mapping and routing data from hundreds of billions of queries since Google Maps launched in 2005. Any good mapping engine will iterate and apply this data to get better over time. In other words mapping is a game ultimately won on data — not flyover imagery.

I wrote as much before Apple Maps launched, when the beta was unveiled at last September’s iPhone5/iOS6 launch:

However one thing Apple could underestimate is that mapping and local search are games ultimately won on function over form. In other words will it find what I’m looking for, regardless of pretty flyover images of Big Ben?

That’s governed by the local data and algorithms that deliver relevant search results. And this is new territory for Apple, which is now cobbling together a silo’d list of local content partners like Yelp and Waze.

Now realizing this, Apple’s is playing catch-up. And since it doesn’t have the time to build mapping data a la Google, it’s applying a tiny slice of its $145 billion cash reserve to buy its way out of the problem. The latest acquisitions achieve some degree of listings integrity and navigation, especially public transit directions famously lacking in Apple Maps.

While there’s been lots of agreement on most of the above, the punditry has unraveled in effectively answering the question of “why?” Apple’s intentions have been characterized by many as a play towards going deeper into ad monetization. Picture a sort of local flavor of iAd, fueled by local search queries and mapping impressions.

I don’t disagree that this will happen, but here’s the thing: it will be secondary to Apple’s true play which at all times is to sell more iThings. Because Apple is a company that makes most of its (very healthy) margins from hardware sales and carrier subsidies, most of its moves work toward making iPhones and iPads more attractive consumer purchases.

It reminds me of Google entering new areas as loss leaders to boost or establish positioning of its core search revenues (Android’s true play). With Apple, just look at the numbers: there’s a far greater economic stake in the core revenue stream of selling iThings than in entering the the competitive and challenged mobile local ad game where it has no footing.

That core business has created one of the most valuable companies on earth with 2012 revenues of $156 billion, gross margins around 37 percent and a $145 billion checking account. Meanwhile, mobile local search — though it’s dear our hearts — has annual revenues of $1.3 billion, growing to $5.6 billion by 2017 according to BIA/Kelsey projections.

The bottom line is that local search is on Apple’s radar but let’s be sure to call it what it is: a revenue diversification play. This stems from maturing iPhone sales and a stock price that reflects it. New penetration is to be had with a lower-priced “iPhone 5C” in high-growth developing markets, but Apple will need other growth areas to justify its massive valuation.

That’s where mobile local search could come into the picture, but for now it’s almost a rounding error for a company like Apple. The numbers point more towards to the need for a better mapping engine to protect sales of massively profitable iThings first and foremost. This is pressured further by an increasingly competitive SamDroid to the East.

One thing is for sure: Apple has lots of ground to cover if it’s to continue to buy the equivalent lead time of local search and navigation data that Google has amassed and put to work over the past 8 years. The company’s local search and mapping acquisition spree isn’t over: good news if you’re in the local mapping and data game.

Mike Boland is senior analyst at BIA/Kelsey, where he heads up the firm’s mobile local coverage. Previously, he was a tech journalist for Forbes, Red Herring, Business 2.0, and other outlets.