Has the mobile phone eaten PND’s lunch? – Part (2)

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…

  1. 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!
  2. 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.
  3. 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!
  4. 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.
  5. 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.  
  6. 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.

The PND dominoes are falling!

    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.

Aarrrgh....Bitter Medicine..!

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!


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One Response to Has the mobile phone eaten PND’s lunch? – Part (2)

  1. Mike says:

    Laxman — I agree with you that the battle is not over for PNDs, but I think they really have only one of three options to pursue:
    1. Ingredient Brand — Make a product so great that mobile phone OEMs are breaking down the doors to use the PND label on the mobile’s nav capability. Unfortunately, the time for this may have already passed. A couple of the PND companies tried manufacturing mobiles, but the devices had a Frankenstein appeal and were not big hits (Garmin comes to mind).
    2. White-label — Follow the TeleNav model completely and be the ingredient without a brand recognition. There’s less money in this strategy, but i may be easier to traverse. This can be a race to the bottom for PNDs since the winner essentially becomes the best low-cost supplier to the industry. One advantage is that this is a similar path as the MNV model and mobile companies are probably easily able to embrace this concept.
    3. Specialize — Become really good at GPS and drive the cost down to the point where it is cheaper to embed GPS chips in everything than it is to buy a GPS device. Make everything GPS-enabled and make money on configuration of each device for teh most salient use.

    For me, this is parallel to the computer networking business. Intel introduced an 10Mb Ethernet card in 1990 or so and it was moderately priced at $495. Yeah, that’s almost five hundred US dollars back when those dollars were more valuable than today!. The big advantage was software configuration, which eliminated the problem of moving, and re-moving, jumpers on the daughter-card. Fifteen years later the component integration and manufacturing cost, along with the requirement and ubiquity of Internet access for business and personal use, drove the $495 Ethernet card to become a chip mounted on the motherboard at the cost of pennies. Now, Ethernet connectivity is available in many, if not most, urban spaces and accessed by huge numbers of both general and specialized devices, including those GPS-carrying mobile phones.

    Thanks for bringing up an interesting subject!

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