Navigation – In search of the right business model

navigationIn the last few years, many industries have been impacted by mobile phones. Nokia is now the largest producer of digital cameras since the time cameras have been embedded into mobile phones. Another industry that is facing the heat is the Personal Navigation Devices (PND) industry. Now many new handset models are GPS enabled and maps are available from a host of companies like Navteq (Nokia), Google, etc. Despite a strong ecosystem building in this space and the high decibel noise navigation has managed to create, the adoption of this service is abysmal. Most of the industry players blame the developing content and low availability of digital maps for the low adoption. However, I would blame the wrong business model.

 

A look at the comscore, which provides the data on internet usage, reveals that on an average people use maps just two times in a month. Even in the US market, the number of visits is just over two. This means that people do not need the navigation/ map services very often as they normally go to places that they are aware of. Over 80% of the travel for most of the people is between home and office. People need navigation only when they are on vacation or on weekend trips or when they going to a completely unfamiliar area. However, such occasions are few and hence the subscription model for navigation deters high adoption. The high annual subscription charge of $75-$150 prevents people from committing themselves for this service. In many markets, this is substantially higher that the ARPU (e.g. in India, the annual revenue per user is $72) which means that it is way beyond what most people could afford or are ready to pay for.

 

Which business model is likely to succeed? I have no answers to this question but the industry players need to try out different models before hitting the sweet spot. It is clear that the subscription model at the current pricing will not cut ice. There are various other mechanisms to monetize the navigation service. On the methods could be monetizing through advertisements in which the advertisements are displayed on the map. The advertisers can entice the users by pushing promotions and deals which the consumer can utilize for instant gratification or information. The opportunities for advertisement are enormous as the screen keeps changing as the users navigate from one location to another. However, the difficulty here is that the usual advertisements cannot be charged based on CPM, CPC or CPA model. The advertising models for navigation are still in the nascent stage. Another model is transaction based in which the user pays only when he uses it. If the cost per usage is as low as that of an SMS, users would use this service more often. Instead of sending business cards or address details, people would send location tags to one another which could be used for navigate to the other person’s location. Yet another way of monetizing could be using the location for applications like traffic and for applications aiding security. The developers should be encouraged to develop applications that use location as an input so that the consumers find utility in the GPS and navigation. I am happy to hear announcements at Mobile World Congress by various handset vendors and OS players on setting up application stores. The competition amongst application stores would encourage developers for innovation. Even the higher revenue share for developer is good news. Higher adoption of location based services would also result in economies of scale resulting in higher profitability at lower price.

 

The future of navigation is not on PC but on mobile and that has been understood well by Google which is trying to emulate the maps experience on mobile phones. Once the maps are available on phone and the consumers start to use navigation and other location based services, the usage on mobile would jump from twice a month to at least ten times a month. Can we see a day when the navigation services are free and money is bade from advertisements and other applications based on location?

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13 Comments on "Navigation – In search of the right business model"

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Luis F. Solórzano
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Luis F. Solórzano
7 years 4 months ago
Before thinking about the business model, you should analyse the user’s needs. Definitely, I need a map to move around unknowm places where I am. Points of interest, in general or specific (e.g. hotels, restaurants), will help me to find local services when I need them. However, if I do have a map and I know my current location, I could easily figure out how to go there. I would not pay for this premium service unless there is some value added, such as real-time traffic information (contextual navigation). I guess in the future most of the cars will have… Read more »
Steve Johnson
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Steve Johnson
7 years 4 months ago
A very interesting question and one that was given a considerable airing at Orange; and because of costs my old LBS team signed up to go with Nokia maps. Luis has a point when he says analyse the users needs … the crux of the issue is simply that once you have bought a personal navigation device such as a tom tom there is virtualy no more cost until you want to update the maps. – one point! From the VAS side there is a considerable infrastructure and development cost and your customer has the device of his choice already.… Read more »
Aneesh
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Aneesh
7 years 4 months ago
As per me the business model has to vary market to market. There is a matured market vs emerging markets. Mohit has already referred about ARPU in the article We should first try to figure out the reasons for poor adaptation: a) I agree to the fact that 80% of the time user’s travel office to home (or vice-versa). And they need such services only over week ends or special travel plans. b) There is one more angle- are we discussing about Emerging Markets like India where asking for directions is a simple stop by at a signal or road… Read more »
Saurabh Tewari
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Saurabh Tewari
7 years 4 months ago
Usability also plays an important part in the acceptance of any service. I’ve just returned from Kenya where many subscribers still do no know how to use SMS! MMS is almost non-existent. In most countries subscribers generally prefer to call their colleagues, friends or families who live in or around the locality they’re visiting. If its a foreign country, they prefer the comfort of an outdated lonely planet paperback or the internet rather than resorting to something that sits in the palms of their hands simply because they don’t have a clue on how to use it. It would help… Read more »
Leon van de Pas
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7 years 4 months ago
Hi Mohit, you have THE visionary in house: Michael Halbherr (former Gate5 and now Nokia)! He, Gilles Tessier (Nokia) and their respective teams are working on this question for more then 4 years. I was only involved on behalf of Tele Atlas in 2005/2006 to define the break trough business model that enabled the initial roll out of Nokia Maps. My assumption was that the perceived end user value of maps as such is close to 0 and therefor you can only charge services (like turn-by-turn navigation) on top of the enabler; the digital map. The result was a revenue… Read more »
Bill Berens
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Bill Berens
7 years 4 months ago
On 02/23/09 9:35 AM, William (Bill) Berens wrote: ——————– Hello Mohit – I think your data on the frequency of use and the cost is right on target. I have been using GPS for 4 years now. I have a portable device and a built in device in my car. I do only use this when I am going to an area that I am unfamiliar with – also I do not even want to pay the upgrade fee for either device as I see the content I have as good enough. So the issue is subscriptions. I would consider… Read more »
Hans Han
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Hans Han
7 years 4 months ago
To tackle the problem, we’d better make a full analysis of the user, particularly regarding their needs, demands and current usage behavior. In China the consumers who are using static navigation device (including PND, smartphone, PDA, etc) soon get bored of the device due to a list of factors. Generally they drive commuting from home to office and they are familiar with the route and traffic, therefore they find the navigation device useless. Some may argue that the situation will change when real time traffic information is added and feature of dynamic routing is offered. Even so, what if we… Read more »
Thaly Gutierrez
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Thaly Gutierrez
7 years 4 months ago

I agree with Luis F. Solórzano when he comment “[…] if I do have a map and I know my current location, I could easily figure out how to go there. I would not pay for this premium service […]”
Commercial Businesses are the ones who should be GPS enable, that way it´s geo info will prompt out in users PND, catching users interest in new products or services.

shivani
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shivani
7 years 4 months ago

hi mohit,
Business models can work only if we have a solution which fulfills a consumer need. Talking about navigation is passe. Its a part of a bigger pie ie Lbs. Can we monitize lbs should be the question you should ask and not navigation which is just means to an end.
Will Lbs become big in the future.. Maybe maybe not.. If being connected to your network real time fulfills a consumer need.. Yes lbs would become big and under its umbrella even navigation..
All eyes on lattitude currently to see consumer acceptance of lbs!

Mike Flom
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7 years 4 months ago
The PC Internet teaches us the local search, maps and directions have low value – there are many alternatives including printed maps, calling or asking a person at your destination, garage/petrol attendant, free services on WAP or downloaded apps from Yahoo and Google. On the PC internet, no cosnumer pays for maps and directions, the business model is ads. Voice navigation has very high value when it is needed, but it is needed often only by a limited group – travelers on vacation, business travelers, sales people and other non-fixed route business users. For frequent users, subscription services make sense,… Read more »
Gopal S Pai
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Gopal S Pai
7 years 4 months ago
This is a great example of having a good VAS without analysing the target segment both in terms of tech status , market size and also in terms of cost consciousness of the end customer esp in these recessionary times ! 1. Any estimate of how many GPS phones there are in the marketplace? I think max 5 to 7 % –WHY ? Availability of low cost GPS phones and cost of GPS /data usage are the real constraints ?! 2. Ever tried using GPS phones for downloading data esp when on the move ? Also must try the network… Read more »
Josh Anderson
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Josh Anderson
7 years 3 months ago
I personally believe that the mistake is assuming that there IS a business model in PND itself. Excepting devices that attempt to emulate Garmin-style turn-by-turn directions (a competition in which a cellphone company would be ill-advised to participate), most PND implementation in the cellphone markets are fundamentally data applications. Google’s maps applications for the iPhone, Blackberries, and other suitably capable devices are essentially glorified web browsers that have access to the GPS feed from within the device. Trying to shoe-horn a business model into that technology would likely involve imposing unnatural restrictions on applications’ access to the GPS feed. Historically,… Read more »
Chad Pralle
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Chad Pralle
7 years 18 days ago
For the vast majority of trips, it is sufficient for the driver to know the endpoint only because it is likely a new POI in a known area. For this, it is sufficient to consult a written map or an internet map on a PC or internet-enabled phone (or one with Google Maps). As mentioned previously, it is a rare enough event to travel to a new POI in a NEW area as to make it not worth a monthly fee. So in my mind, the only value-add for navigation on a regular basis is one that involves traffic avoidance.… Read more »
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