LBS: In Search of New Directions
If Google offers navigation for free, how will paid services survive?
When Google announced it would offer Google Maps Navigation Beta for Android devices for free, it looked like the kiss of death for anyone trying to peddle navigation services as a subscription or paid application.
Companies like TeleNav rely on subscriptions sold through carriers like Sprint Nextel and AT&T. The company said as much in its filing for an IPO in late October, the same week Google made its “free” announcement. Personal navigation device (PND) companies like TomTom and Garmin also charge for navigation, and their stocks tanked that week.
Still, location-based services (LBS) companies, some of which have been in business for 10 years, as well as some analysts, say the sky is not falling. While Google continues to improve its maps, these companies will develop counter moves, which ultimately will lead to more innovation. However, some of these same sources say they expect more mergers and partnerships in the months ahead as smaller players try to compete with Google.
Michael Halbherr, vice president of location-based services at Nokia, goes so far as to say that years from now, two global LBS platforms will exist to do navigation, mapping, search and location sharing across platforms. The reason is clear: It will fall to those with volume and scale. He doesn’t go so far as to name the two, but that’s historically what happens – an industry may flourish with multiple competitors for a period of time, but when all is said and done, two or three companies dominate.
Other than sending some investors in a tizzy, what’s the net effect of Google’s free offer? “First and foremost, it has a huge impact and no impact at the same time,” says Roger Lanctot, senior analyst at Strategy Analytics. In the low or no impact department, Google’s free navigation targets Android, which might represent 10 percent of the smartphone market in 2010.
“As long as there are non-Android devices in the marketplace, which there clearly are tons of today and will be tomorrow, there is an opportunity for competitors,” says Charles Golvin, analyst at Forrester Research. TeleNav’s service works with more than 500 device models.
While Golvin gives high marks to Google for its navigation application, Lanctot says the routing is not ideal. That said, it’s beta, and it’s Google, so it’s probably not a big deal that everything isn’t perfect right out of the box. “They have a forgiving clientele, especially when they’re giving something away.”
Like a lot of people in the LBS industry, Thilo Koslowski, vice president and automotive practice leader at Gartner, predicted several years ago the day would come where a company would offer turn-by-turn spoken navigation for free. “It’s a natural step,” and consumers will come to expect turn-by-turn navigation with their service. “That doesn’t mean that from now on, this whole market will vanish and there’s no opportunity.”
Google’s move may force LBS executives to move faster on their thinking and get more innovative, he says. The whole space will need to figure out new ways to package navigation with other applications. At the same time, “I don’t believe we’ll see pure navigation providers that charge an ongoing subscription. Those days are counted.”
“Those companies in that space will have to focus on a broader, more complex value proposition,” Koslowski says. That might include location-based advertising similar to what Google is expected to incorporate. There again, not all consumers may want ads, so companies might be successful in offering a service that doesn’t include ads.
Lanctot says Networks In Motion, which supplies the technology behind Verizon Wireless’ VZ Navigator service, and TeleNav have demonstrated that millions of dollars in revenue can be gleaned from subscription services, to say nothing of the transactional, advertising and sponsorship types of models associated with navigation on a phone. Lanctot estimates 24 million to 25 million U.S. customers already are voting for navigation services with their wallets. The business model is profitable and there’s significant upside, he says.
“It’s highly unlikely that Verizon or Sprint or AT&T would yield that application space to Google,” he says, noting that the revenue opportunity is one reason TeleCommunications Systems (TCS) was able to make its extraordinary $170 million acquisition of Networks In Motion.
If pressure is felt by AT&T, Sprint or Verizon on the paid apps side, it’s up to them to adjust bundling, pricing or business models to compensate, Lanctot says. Plus, it’s possible that some customers, like those who sign up for Sprint’s $99 Simply Everything plan, will figure it comes standard with any package.
Just how does Nokia plan to compete against Google? Two years ago, Nokia bought Navteq, one of the two premier mapping companies – the other being Tele Atlas, which TomTom acquired. While Google knows search, Nokia is better at mapping and navigation, Halbherr says. Basically, Nokia offers “way more attributes than any of the stuff that Google offers right now,” he says. “When it comes to navigation, our technology is years ahead.”
In a nutshell, it boils down to accurate mapping and delivery. Google still has a ways to go to improve its maps and appears to be relying heavily on users to do that. Nokia’s maps cover much of the world and include pedestrian-level navigation, which is key in places where walking is more popular than driving.
Another thing in Nokia’s favor, according to Halbherr, is the way it delivers the map. Nokia does not require a constant, batterydraining mobile data connection to provide turn-by-turn guidance. Maps and the ability to search addresses and calculate routes are put directly on the device. That means users do not lose navigation capability when they travel to remote locations where cellular coverage may be unavailable.
In December, Nokia announced the U.S. availability of the Nokia 5800 Navigation Edition, sold through Nokia flagship stores (which are closing), its Web site and various retailers. It’s a GSM phone and will work on AT&T and T-Mobile USA, although it is not being sold directly through the carriers. The Nokia 5800 Navigation Edition comes preloaded with maps for the entire United States and Canada, and users can update and add maps from more than 180 additional countries for free using Nokia Map Loader, a downloadable PC application. The 5800 sells for about $299, so navigation is built into the price of the device.
As for other devices, Ovi Maps now comes pre-installed on all of Nokia’s GPS devices. Pedestrian navigation is available at no cost. “Drive” navigation is available as a paid service, but Nokia includes 10 days (consecutive or non-consecutive) at no additional cost. Beyond the 10 days, a user can activate the paid service for a selected time period: a singleday or 30-day or one-year subscriptions. The one-month subscription is $8.89 and one year is $63.99.
Halbherr admits that Nokia needs to work on its marketing to get the word out in the United States. “We clearly have a lot more traction in the rest of the world,” he says. The 5800 is a good device, and Nokia will continue to work on its designs for the U.S. market, an important one for the company despite its wide worldwide distribution, he says.
NOT SO SURPRISING
The funny thing about the “surprise” reaction to Google’s maps announcement is pretty much everyone expected it for some time, notes industry veteran Marc Prioleau of Sunrise Pass Advisors. But he sees the market evolving. New business models will be found. Prices may come down and carriers may start to bundle navigation into more packages, yet “the Google thing put an exclamation point on it.”
Back in November, Prioleau was giving a presentation where he highlighted several events that happened the week of Oct. 26, 2009. TomTom, an “enormously successful” company in the PND space, released mediocre financial results. Google announced it was giving navigation away for free. TeleNav filed to go public. Amid this, about 3,500 location-based apps are available out of some 100,000 apps in the Apple App Store – far more than the 100 or so that existed before the Apps Store.
“The punch line was this is a market in a lot of transition and a lot of flux,” he says. “It’s interesting times.”
|OCTOBER “SURPRISE” & MORE|
Oct. 28: GPS device maker TomTom reports third-quarter revenue was down 15 percent compared with the prior year and its net profit fell 48 percent
Oct. 28: Google announces Google Maps Navigation for Android 2.0 (beta) on the same day the Motorola Droid makes its debut. Shares in Garmin fell 16 percent and TomTom shares fell more than 20 percent.
Oct. 30: TeleNav files S-1 registration statement with the Securities and Exchange Commission (SEC). Under the Competition section on page 83, the company notes that competitors could begin offering LBS for free. “For example, Google recently announced that it would offer free voice guided, turn by turn navigation as part of its release of Google Maps Navigation for mobile devices based on the Android 2.0 operating system platform,” the filing states. TeleNav competitors include LBS providers such as Google, Navigon, Networks In Motion, Telmap and TomTom; PND providers such as Garmin and TomTom; integrated navigation mobile phone makers such as Garmin and Nokia; others such as AOL/Mapquest, Microsoft and Yahoo!; and wireless carriers developing their own LBS, such as Vodafone through its Wayfinder acquisition.
Nov. 23: Google expands Google Maps Navigation to devices running Android 1.6 and higher.
Dec. 1: TeleCommunication Systems (TCS) announces intention to acquire Networks In Motion for $170 million.
Dec. 15: TCS completes acquisition of privately held Networks In Motion. TCS says the acquisition enhances its portfolio of Tier 1 location-based wireless applications, deepens its longstanding relationships with three of the largest North American carriers and adds 13 patents and 44 applications to its portfolio.