Apple Could Be Building Something Much Bigger Than a Car

AppleApple took a tentative step toward the auto business with its CarPlay in-dash system. Reports now suggest that the Silicon Valley giant is preparing to take a far greater leap.
Reports in the Wall Street Journal, the Financial Times, and other sources have suggested that Apple (AAPL) is developing a new product: a car.

Why would Apple develop a car? The easy answer is this: Tesla Motors (TSLA) has proven that a Silicon Valley company can enter the car business, and Apple sees an opportunity.

But the easy answer isn't necessarily the right one. As Tesla is learning, it's hard to make money in the car business. Costs are extremely high, and profit margins are slim.

Apple is accustomed to fat profit margins. What's more, Apple is a company that only enters a market when it thinks it has a game-changing product. Think about the iPhone, the iPod, even the Mac: all products that "disrupted" the existing space.

How could Apple "disrupt" the car business?

How to Disrupt the Auto Industry

Industries can get "disrupted" when there are consumer needs that aren't been addressed by the existing companies doing business in the market. Before Apple's iPod, MP3 music players were hard to use, their appeal limited to techie types.

Likewise, the iPhone wasn't the first smartphone, but it made smartphones more useful -- and far more appealing to a mass-market audience. It's not the only successful smartphone, but nearly all of the successful smartphones introduced after the iPhone's debut followed its lead.

And if it weren't for Apple's Macintosh computers, Microsoft (MSFT) wouldn't have had to invent Windows -- and personal computers might never have become mass-market products.

How could Apple have that kind of effect on the car business?

Tesla has invented what many people believe to be a better kind of car. But it's still a car: It still costs a lot of money to own, it still needs to be parked and recharged and serviced and so forth. And it still needs to be driven: Even if you have a Tesla, you still have to put up with traffic jams.

The truth is, today's cars -- even the ones that aren't Teslas -- offer a pretty good experience. They're safe and comfortable and reliable and fun to drive. It's hard to improve on that experience in a transformative way.

But it might be possible to improve on the experience of car ownership.

What If Apple Is Planning to Sell Rides, Not Cars?

You've probably heard of Uber, the ride-sharing service. It's an alternative to a taxi: You can summon a car with a smartphone app, get a ride for an agreed-upon price, and pay very simply.

It works pretty well -- in some urban areas. But it has its flaws: It depends on "crowdsourced" drivers, which means that coverage is inconsistent. And Uber's policy of "surge pricing" -- raising prices during times of high demand -- can result in a night out that becomes a lot more expensive than you'd planned.

%VIRTUAL-pullquote-Imagine a service like Uber, but with much wider coverage -- and with automated, self-driving electric cars.%Those flaws seem to offer an opportunity -- and the seed of inspiration. What if Apple isn't planning to build and sell a car? What if it's planning to build a car service?

Imagine a service like Uber, but with much wider coverage -- and with automated, self-driving electric cars. Imagine that you could always get a ride to wherever you needed to go, quickly and easily and safely -- without ever having to drive or park or worry about fuel or repairs.

Now imagine that those cars were designed by Apple. Imagine that they were quiet and comfortable and attractive and loaded with high-tech features -- and they always remembered your preferences for everything from temperature to music to the position of your seat, because their controls were seamlessly integrated with your iPhone.

Imagine, in other words, an automated Uber, designed and implemented by Apple.

If you could have a service like that -- one that was always available, always reliable, always safe, and flexible, with different sizes and types of vehicles available -- for the price of your monthly car payment or less, would you sign up?

Would you give up your car if you could have something like that instead?

If enough people say "yes" to that question, Apple could genuinely "disrupt" the global auto business, by disrupting the whole idea of car ownership.

This Could Be a Very Apple Kind of Business

Nobody outside of Apple's tight circle knows what the company is planning. And Apple's car idea -- whatever it is -- might never see the light of day: Apple often explores new-product ideas without choosing to develop them.

But while many experts agree that the idea of Apple building and selling a car doesn't seem to make a lot of sense, an Apple car service could be the kind of "disruptive" idea that Apple does best.

Motley Fool contributor John Rosevear owns shares of Apple. The Motley Fool recommends and owns shares of Apple and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. Check out our free report on the Apple Watch to learn where the real money is to be made for early investors.
Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.