Free Navigation – End of Road for PNDs

Recently two news items caught my attention – Nokia announced 10 million downloads of its free navigation service and Google announced free turn by turn navigation on iPhone and in UK. The free navigation announcement by Nokia and Google has threatened the entire GPS navigation industry. The shares of PND companies have been on the decline ever since the free navigation announcement was made (e.g. Tom Tom share price in the figure below)

These are significant announcements and underline the fact that the companies are continuously under threat from adjacent industries. Mobile devices industry is not directly related to the Personal Navigation Device (PND) industry but still it is getting impacted by the mobile phones in the same way as the alarm clock or the radio industry got impacted.

Why did Nokia and Google launch free navigation?

To understand the navigation industry better, it is important to get a quick overview of the history of the industry. Till early 2007, the value chain was clearly defined with mapping business dominated by Tele Atlas and Navteq. GPS device manufacturers like Tom Tom, Garmin and Nokia used to license map data from the mapping companies. Google also licensed the maps from Tele Atlas and Navteq. The real value in the value chain was in the mapping business which saw their market capitalization soaring. Google started to build its maps and allowed other companies and developers to build on top of its map APIs. This led to consolidation in the industry with the GPS device manufacturers buying the mapping companies – Tele Atlas was bought over by Tom Tom for $2.7 billion and Navteq by Nokia for a whopping $8.1 billion. Later Google dropped Tele Atlas and Navteq and started to offer its own maps free and later made the navigation free on Android devices in America. Nokia followed in early 2010 and made its navigation services free. This had a serious ramification on companies like Tom Tom and Garmin which were charging high subscription fee (Tom Tom charges $99.9 for its iPhone application). Vodafone decided to close down Wayfinder that it brought last year. Vodafone’s Wayfinder was the first victim of free smartphone navigation. Before making navigation free, Nokia itself was charging 70 euros for one year of navigation services.

The question is that why did Nokia and Google launch free navigation? This is a very valid question especially if there are companies (Tom Tom, Garmin, etc.) that are making money and still Google and Nokia are leaving the money on the table. It can be argued that the motive behind both the companies to make navigation free was different but I would say that the end game is probably the same. Nokia saw an opportunity in increasing its device attractiveness through free navigation. Also, it believes that after it has made available the maps and navigation APIs, the developers would develop compelling applications that would further enhance the attractiveness of the Nokia devices. Google’s thinking was slightly long term. It intends to control the maps economy by making its maps data freely available hoping that in future it would be able to reap the benefits through location based advertising. Another advantage is that it would give a push up to its mobile operating system, Android. Currently, Nokia’s proposition is more attractive to the consumers as it offers free navigation in all the six continents. But Google is fast creating features like voice search and street view that could ultimately help it turn the tide in its favor. Also, crowd sourcing of map data is likely to enable it to create the maps in emerging markets much faster than the competition.

Is this the end of road for PNDs?

I believe that the future of navigation industry is now firmly in the hands of Google and Nokia. I see very little value proposition for PND players. The mobile phones have several advantages over PNDs but the vice versa is not true:

  • Pedestrian Navigation – It is possible to have pedestrian navigation on mobile phones as it can be carried by the users unlike PNDs that are fixed terminals
  • Applications – The mobile phones have become very powerful and there is a vibrant developer community engaged in developing mobile applications. The map APIs are available from leading players and there are a few great applications like the Michelin guide and Lonely Planet guide available to make the navigation experience better and complete.
  • The mobile phones can also be used as the way the PNDs are used and can be fixed on the dash board of the car with dash-mount accessories that are available in the market (one such dash-mount accessory is shown in the figure alongside).

A report from iSuppli Corp. was released last September that reports PNDs will continue to lead the navigation market in 2009, but by 2014 usage of GPS-enabled smartphones will exceed PNDs. I believe that the lead of PNDs may actually disappear much faster. Navigation is so far a western countries phenomenon but if the emerging markets also get on board then the demand for mobile navigation would far outstrip that on PNDs.

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