We don’t really know what business decision lead to Apple creating their own solution and abandoning Google Maps. I guess no one outside of Apple and Google knows for sure, but it seemed that Google refused to license turn-by-turn navigation data to Apple, which was a major issue for the iOS version. Google’s prices on licensing Google Maps have been steadily increasing (Apple’s not the only one who has switched to alternatives because of this). While it may have been that they don’t want to be dependent on a direct competitor, it could also have been a purely financial decision that they were forced to make, and also they would have never had turn-by-turn navigation if they continued to rely on Google Maps (though they could’ve possibly had a separate navigation app while still using Google Maps for the regular maps app, or integrated with 3rd party navigation apps).
It is a problem, though, and Google gains an even bigger advantage here (their maps for Android was already superior before this). There’s rumor that Google is going to release Maps for iOS, but who knows when or if that’s going to happen.
To be clear, while the user interface seems to be quite good, the problem here is the data. Google has probably put more effort into their map data than anyone else. Just look at what they’ve done with their street cars. They’ve also had a large user base hammering away at their maps and making corrections. While Apple is relying on a combination of sources of existing map data (including TomTom, OpenStreetMap, etc), they have some serious catching up to do. I think Apple is playing a long game here, but maps are going to suffer for it in the near term. Assuming Apple is going to actively work on improving map data themselves, what I’d like to see is Apple contributing back to OpenStreetMap (a free, community driven solution, with an open license – it’s the Wikipedia of maps). If they do this, they could commoditize maps, and this would make Google the priority vendor while Apple is the open solution. Since anyone can use OpenStreetMap, it would make it Google vs everyone else. Apple doesn’t need to keep map data as a competitive advantage; their competitive advantage is the complete package that they offer.
In the near term, what Apple should do is allow setting a default maps application and allow any 3rd party maps app to integrate directly into iOS, so that iOS users aren’t stuck with an inferior solution as the main app in the case that a superior 3rd party solution emerges (like if Google releases their own iOS Maps app). But this is not the kind of thing they have done in the past. There is some level of integration for 3rd party transit apps and such, and that helps, but that’s not quite the same thing (you can even make it integrate with Google’s mobile web version of maps with this app, though that’s not in the app store yet as far as I know).
I don’t think this is going to hurt Apple very much; people are still going to buy their products in droves because they still have a huge advantage over competitors in many other areas (usability, ecosystem, overall user experience, etc). AAPL stock is going to be down today because of the riots at the factory of component suppliers (since this may hurt their supplies and actually decrease their ability to meet demand for the iPhone 5); I don’t think it has to do with maps.