Navigation – In search of the right business model
In 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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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 PND embedded and I do not think we will need navigation instructions for pedestrians (a local map and search engine is enough).
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. It highly unlikely that an end user will change their phone to obtain Navigation. So the infrastructure costs are unlikely to be recovered through the device; however there is a potential island of benefit over the client.
Once the client is installed it becomes a conduit for data. The issue here is that data is not always bundled and not always cheap. So to use the device there is an ongoing costs to the consumer which you don’t get with the (say) Tom tom.
My advice to Orange was that the service needs to be free to the end user to promote adoption. At this time I can only see a few possible revenue opportunities
* paid advertising – using POIs and pushing adverts – similar to google with required POIs listed in order – sponsored first, non sponsored last. Another option here would be to suggest ’send a text to 8551 for a discount voucher’. Here the text revenue can be secured in addition to the push advertising. This is a two stream option – push and requested. Push advertising could be displayed on the screen as you get close to the POI; requested comes up when the end user asks for ‘restaurants’.
* The client. A one off license fee to obtain the client. a higher fee could maybe remove certain levels of advertising.
* add-ons… these could be developed in joint partnership. For example speed cameras. Also there could be possibilities of specialist add-ons – maybe an overlay for vineyards or whatever your hobby is (I do have one friend who would probably pay to know where electric train shops are!). These add-ons could also be business focused – for example you are a sales rep selling patent parts – an overlay with all the workshops would be ideal. These could be developed by partners.
It is also possible to consider overlays for tourists – places to go and places NOT to go… even a few pounds would be cheaper than a guide book and could be backed up by on-line access for a limited period.
All of these services would drive usage and potential advertising revenue.
One thing is for sure I do not know anyone who wants to pay for the service or be constantly charged exorbitant data rates!
PS – ex LBS PM recently made redundant, looking for new role
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 side. Why will a user pay for a service in such scenarios? In city Navigation/speed ways – is it really required , we always have proper signage’s.
c)Also there are too many constraints for these services like- available on limited handsets, data plans, accessibility only on data (no sms, USSD etc), map content, local information etc…
A few points for the take off and business model can be:
1) Navigation need not necessarily to be real time, I see a huge potential for monetizing driving directions too.
2) No service should be free to end user- even one cent will do
3) The adaptation of the service is poor- I see poor distribution. A very few capable devices in the market-Are we looking at targeting the current devices (may/may not be GPS) compatible through navigation/direction services? Unless we aren’t, we cannot really say poor adaptation.
4) Unless we are targeting masses, we will never find a successful business model as there are two many players involved in the ecosystem looking for their own pie of cake
5) There two possible sources of monetization- end user and Media. End user monetization should be kept at minimum to increase the adaptation (but shouldn’t be free), we should then use the all possible way of monetizing media with location our contextual advertising. But these things will fly off only when the adaptation happens and this cant happen with few millions of capable devices and too many dependencies like data plan, bandwidth etc.
6) Lastly adding value add on the top of basic services can be features like traffic update, low cost route etc- which can be charged at premium to the user.
It should be more about transforming the location awareness of a user to help him in reaching a destination from a given start point instead of making use Navigation Product. Navigation is one of the ways for helping him in reaching a particular destination. I see Nokia trying Navigation solution in a good spirit but how do they transform Navigational or Routing product for mass adaptation across markets is the challenge. Once we achieve this, I don’t think we will then need to discuss Business model, adaptation itself will bring enough investors (esp for media monetization)
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 share model for the services and were for mapping and routing was offered free of charge to the end user. As soon as there is a volume//reach then the internet model will start to pay off and able to pay the digital map according to the internet model of xx cents per 1000 clicks. High respect for Anssi Vanjoki and his team (Nokia) who had the guts to introduce GPS and related map services in mass volume and in time advertisement / banners / sponsored links / etc. will take off.
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 tremendously if both vendors and networks got together and educated customers by holding competitions and stuff like treasure hunts exploiting built in or assited GPS for clues to promote use as well as encourage subscribers to learn to navigate using a GPS built into a phone as well as other location based services.
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 consider the mass consumers who just drive along the route connecting home and office? So navigation, even dynamic navigation will be of value to those traveller who go to a unfamiliar places.
Nowadays, connected PND and smartphone are emerging and gradually prevail on market. Even some other features like DAB, CMMB are added upon by offering services of film or video downloading/broadcasting on connected PND or GPS enabled phone.
Some service providers are following the business model of charge the users on a yearly/monthly/per time basis. For instance, they charge the user on real time traffic service at a rate of 25 rmb/month or 2 rmb per time. They can hardly garner a large adoption. Generally speaking, mobile carriers may prefer this kind of business model.
Steve Johnson has put forward quite promising business model, to obtain revenue from advertising, either in a way of pushing or in a way of pulling. In China the highest number of POI provided by map provider now exceeded 15 million, this serves a good basis for advertising with addition of feature of real time traffic information services. However, how successful it will be, will depends on the test of market.
I personally believe that it may not be a rewarding business to obtain revenue from these kind of operation and service to cover the cost. I personally think that these services may be just a differentiating feature of the product, of the phone. Just like GPS, it is a feature which differentiate the GPS-enabled phone to those they have not. Because of this differentiating feature, it will sell better in market.
One more issue, PND has started to show the trend of giving way to GPS phone. In the latter half of 2008, this trend is emerging and getting steamed by the dropping sales of Garmin, Tom Tom and Mio, the top PND makers in the world. Their quarterly financial reports and their stock performance also coincide with this.
On 02/23/09 9:35 AM, William (Bill) Berens wrote:
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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 an option to partner with TomTom, Garmin and others to run their software on your device as an option perhaps – maybe license the service on more than one device – that would then carry over as long as someone has the phone – that would be a nice carryover benefit and a backup to the subscriber at the very least. The main issue is to get the subscribers for now. Worry about the business model down the road. Incentives.
Other issues, to me, besides the subscription cost, is the size of the screen – too small? To me it is. What about the volume of the speaker in a phone, is it loud enough for a person?
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.
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!
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, though they are so often high ($10/mo) when combined with data usage ($10-15/mo if purchased exclusively for navigation), that the combined price – $20-25/mo, or $240-300/year, is not competitive with fixed price PNDs now selling for as low as $100.
For occasional users, a price per week, day or transaction makes more sense, provided that they don’t have to re-download or re-install the application. This price needs to be in the $1/transaction range to garner mass adoption, or be sponsored by the destination (e.g. a merchant) at even lower prices (since $1 to a merchant is $1,000 CPM, about 10x higher than feasible.
One of the challenges in getting prices this low is the cost of the data, e.g. Navteq/Nokia or TeleAtlas/Tom Tom, which puts a floor on pricing; and the >50% markup of most carriers, which for many applications has limited volume by increasing consumer prices. Both data suppliers and operators need to get comfortable with the elasticity of demand in order to lower their prices/markups. If the cases of data suppliers, free open map alternatives are becoming more feasible and could take over the low end of the market, particularly price sensitive advertising based models.
Author is a wireless/LBS consultant to wireless operators, application providers, infrastructure providers, and financial institutions (VC’s, investment banks and yes hedge funds and private equity)
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 of Airtel (so-called leading opertor on India) –call drops all over the EE Highway as well as other roads leading to huge costs /pain of redialling ! Also I have tried the just launched (a month ago) 3G services of a leading Public Utility operator –network sucks with only 20 to 30 towers operational , though I know it is in the infancy .
3. Also , the typical ARPU of most Indian mobile service providers is the range of Rs. 130 to Rs. 150 and almost 85 to 90 % of the mobile base are prepaid customers , what do u expect ? I know to a large extent prepaid is encouraged by industry to safeguard bad debts and save mktg costs.
4. Typically the whole concept will work if the Mobile is made into a comprehensive tool with a range of utility services at an affordable fixed monthly price. This is reinforced by the fact that VAS’s today constitute only 5 to 7% of the operators’ revenues in spite of heavy promotions (mainly SMS –esp contest sms’s -and chats ) !
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, the regulation of technology along this philosophy of arbitrarily disabling features has failed miserably.
Steve Johnson commented on the TelecomCircle site that a suitable business model might be add-ons, and I believe he’s on target here. One need only look to the phenomenal success of Apple’s iPhone apps store to recognize that cellphone manufacturers and service providers are best at providing PLATFORMS on which novel applications may run. If the industry recognizes this fact, then a community can be fostered in which every niche application reliant on GPS location can be allowed to grow without the overhead of management by the providers.
In my opinion the answer is to provide the basic elements of the platform for free — Google maps and the like — while allowing application developers to plug their add-ons into the platform for a fee. Let THEM determine if their business model works with the fee model charged by the carrier/manufacturer, and structure it so as to most effectively encourage developers to provide applications while earning a suitable profit for the platform providers.
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. Because this service necessitates a live connection to servers with traffic information, the cell phone is providing a service intrinsic to its primary use: mobile connectivity.
A business model that should be studied is a minimal on-time fee per use: either limited by destination or time-of-use. Having personally subscribed to a monthly navigation service for a time, I found that I would have gladly paid a small fee per use, but I found myself irritated by the charge on the bill if I had not used the service.
Furthermore, I believe that consumers are a bit beleaguered in general by the "small monthly service fee". While this is fine for services that are ongoing–say, long term storage or broadband–people are starting to understand when they're being taken advantage of. In the case of navigation, "taking advantage of" would be something like charging $240 for two years use of a turn-by-turn navigation system that is significantly inferior to a $99 dedicated navigation device with an update-able stored map (i.e., one that works when there's no coverage).