On October 1, Nokia made its largest acquisition offer to date, $8.1B for NAVTEQ, the dominant map content and related services provider. The proposed deal has already been approved by both companies’ boards and comes on the heels of the summer acquisition of NAVTEQ competitor Tele Atlas by Portable Navigation Device (PND) maker TomTom which I covered in a previous Op-Ed.
The most obvious implication of the vertical integration of map data suppliers with device makers is the impact on the installed vehicle navigation and PND markets. On yesterday’s investor call, Nokia and NAVTEQ went out of their way to emphasize the continued independence of NAVTEQ stating that “Nokia will operate on the same terms as all NAVTEQ customers.” This was one of the main concerns from the TomTom-Tele Atlas deal which Nokia has wisely attempted to address upfront. Despite these assurances from both map companies, customers still face a number of issues from these two deals, analyzed below.
In the short-term, there will probably not be a significant impact on the installed vehicle navigation business due to the long product cycles in the vehicle market. However, with the competition from PNDs, and increasingly handsets, this could present increased challenges for legacy system providers such as Denso, Alpine and Harman Becker.
Longer term, car makers seem to recognize the challenge they face with innovating at the speed of the consumer device market as demonstrated by a few small deals between car makers and PND makers. Eventually, handset- and vehicle-based applications and services will likely interoperate as demonstrated by the prior evolution of other mobile services such as Bluetooth, iPod interfaces and integrated services like Ford’s Sync platform.
Strategies for Portable Navigation Device Makers
Dedicated PND makers such as Garmin, Magellan and Mio/Navman face a number of key issues and questions following this change in the landscape. While in many markets dedicated use devices can coexist with converged devices (e.g. music players and digital cameras), in some cases (e.g. PDAs) they do not survive as a standalone device category. Following the announcement, the reaction from the market was mixed as Garmin ended the day down 10%, while TomTom was up 4%. While this acquisition means increased competition and reduced supply of a key component, it is also a major vote of confidence in a nascent market. Below are a few key strategic questions for PND makers and how they might be answered:
How to compete on scale with one of the largest device makers in the world, Nokia?
• Move out of hardware, becoming navigation software platform for licensing by handset makers and carriers.
• Merge with handset maker such as SonyEricsson or even Apple.
How to become complete platforms without owning the content platform (the map)?
• Invest in content generation to create a pipeline of continuously changing content.
• Create iTunes-like distribution system to create lock-in with consumers.
• Or, enter handset business as both Mio and Apple have done.
What alliances and features could help counterbalance these mergers?
• Form alliances with internet players who are already investing in geospatial content aggregation, organization and distribution, bringing large mobile user bases to portals’ local search businesses.
These are only a few of the strategic alternatives PND makers should consider as they look to avoid the fate of the PDA and instead evolve along the lines of iPod/iPhone. The PND industry is healthy with strong growth in sales and cash flow for the top device makers, providing the means to transform the business and capture additional revenue beyond pure device sales which are likely to continue commoditizing. Adding connectivity is a good first step, but not enough without relevant, fresh, geospatially organized content (think of the Internet circa 1995).