This post is a continuation of my previous post on this topic (Part 1). Given that smartphones are going be location aware and and that the PND market may indeed be shrinking, what can PND vendors do to dull the blow? Well, here are some possibilities…
- Get into the exploding mobile market as value added suppliers to cell phone manufacturers or carriers. This will allow them to leverage their expertise, relationships etc to essentially provide ‘white-label’ LBS to mobile vendors. Striking up partnerships is key!
- Developing markets is an untapped market. While it may be a challenge to develop telematics in these markets, the potential is huge. The BRIC bloc could be a great revenue driver. The Middle-Eastern and the South-Asian market are also good ones to go after. The PND market in China is growing at a 40% clip and TomTom decided to enter this market in late 2010 and may decidedly see good returns.
- Consolidation. Could we see some mergers/acquisitions in this space? Pooling of capital and resources always has its benefits in a shrinking market. Garmin’s recent Navigon acquisition is a great example. So, consolidation is already underway!
- Diversify. The automobile market by far is the main revenue driver of the PND vendors and is the market that would face the most decline with the onset of GPS friendly cell phones. So expanding into other domains/vertical markets makes sense. But, diversification will be CAPEX oriented as there no time for organic diversification. Clearly, only the larger players can indulge in this.
- Software. All of these vendors have great in house software (mapping, telematics and the like) expertise that can be leveraged. The wonderful thing about software is that the development expenditure is mainly OPEX and redirecting OPEX is much easier than mucking around with CAPEX. This speaks to bullet (1) to an extent – getting into the OEM market will not be bad idea and will be a good hedge against market decline.
- LBO’s. A distant option. Maybe get bought out by a Private Equity house and then use the infused capital to reshape company and direction. And if everything goes well, go public again. This route will make sense if the ‘new’ direction require large infusion of cash or if the vendor is grossly underperforming and has potential to be turned around. Often PE companies will also vertically integrated their portfolio companies to create platforms that could be re-launched. While buy-outs are a distant option, it may make sense for some.
- To add more detail to consolidation, it is interesting to note that Nokia in 2007 acquired NavTeq a preeminent provider of mapping data. In 2008, TomTom acquired Tele Atlas which essentially is a competitor to NavTeq. Obviously, Nokia (the world’s largest mobile device manufacturer) saw a synergistic play here. And this may very well turn out to be one of Olli Pekka’s (Nokia’s former CEO) better decisions. As Nokia turns more towards the smartphone market, it would be looking for a strategic partner to help transcode these maps – an excellent opportunity for Garmin/Magellan. Nokia recently announced that they are EOL’ing their Ovi Maps platform – so this is an opportunity for the PND folks. And in the case of TomTom, it already has the maps and I guess it should now be looking for mobile phone vendor partnerships.
TeleNav, another player in this domain I think has a distinct advantage. TeleNav has been dabbling in the mobile LBS world for the better part of the last decade. Its products are already in the mobile market. In case you have not noticed, even the carriers want a piece of the mobile LBS pie, hence the likes of products such as AT&T Navigator, Sprint Navigation etc – proudly “white-labeled” by TeleNav! Many Android phone now have a TeleNav navigation app that typically comes pre-loaded with the phone.
It is also interesting to note that the tablet market which Apple helped create in 2010, is also another real threat to the GPS vendors. As this market quickly matures, GPS is starting to be standard functionality. And that’s an added barb that’s going to hurt the GPS vendors. Aviation/marine maps are now available for cheap on these devices and the day is not too far off when some of these devices are going be certified by the FAA or other federal bodies for use in rugged industrial environments. If that happens (which I think it will), Garmin/TomTom and the like will see further erosion of revenue, market share and most definitely profits.
No matter how you look at this, the PND market is in for a decline. Well, I guess they are getting a taste of their own medicine in that they helped orchestrate the decline (not yet the demise) of the paper maps industry. And the medicine is only going to get more bitter!