Back To Your Routes

A proven success for the likes of Garmin and TomTom, navigation services are going mobile. Advances in handset form factor and functionality could enable the cellular industry to position the mobile phone as the heir to the SatNav kingdom.

The location based services (LBS) sector has long searched for a winning application. But despite the volume of ideas – ‘find my nearest’, friend finders and location-enabled marketing are all stalwarts of those blue-sky scenarios conjured by LBS conference speakers over the years – the quest has proved largely fruitless.

As the mobile location sector has wondered around in circles, though, a thriving industry has grown up around personal navigation devices (PNDs) – or sat-navs – proving that location-enabled services can sell. Analyst house In-Stat has put 2007 PND shipments at 30.7 million and forecasts rapid growth to 68 million by 2012.

These figures are dwarfed by the sales of mobile phones, of course; in the second quarter of this year, handset shipments hit almost 305 million by Gartner’s estimation. But while the PND sector might represent just a fraction of the mobile industry, it has achieved something that, thus far, has eluded its cellular counterpart: the creation of a successful location-based proposition.

This has not gone unnoticed in the mobile industry and, with advances in handset technology – larger screens, improved UI and, crucially, the addition of GPS – mobile phones are being positioned by some as alternatives to dedicated PNDs. This is not a new development – Ovum estimates that as many as two million Americans were regular users of mobile navigation services at the end of 2007 – but it is a development that is now gaining significant momentum.

Nokia’s $8bn acquisition of digital mapping outfit Navteq, which concluded this summer, signalled the intentions and faith that the world’s largest mobile phone manufacturer has in the sector. And when Nokia makes a bet that large, you can be fairly certain there’s something in it.

Proponents of mobile navigation services point to the size of the addressable market. For PNDs this is the number of motor vehicles. For mobile navigation services it’s the number of people.

It’s widely accepted that ten per cent of handsets shipped are ‘smartphones’. And Nokia’s senior vice president for context and advertising solutions, Ilkka Raiskinen, says that GPS functionality is now viewed by the market as a default capability for smartphones, like cameras and mp3 players. So if 30 million smartphones (ten per cent of Gartner’s sales figure) are being shipped each quarter, navigation-capable mobile phones are outselling PNDs four to one.

Numbers alone don’t make a market, of course, and just because a phone has a certain capability doesn’t mean people are going to use it. After all, how many video calls have you made recently? PNDs famously lead their users astray from time to time and the mobile sector has much work to do if mobile location services are to prove to be more than just another LBS blind alley.

There is no shortage of confidence within the industry, though. Oren Nissim is CEO of Israeli mobile navigation outfit Telmap, which provided the solution that Vodafone UK took to market on the Blackberry 8310 last September. He is convinced that navigation services on mobile phones will ultimately destroy the market for PNDs. “The mobile phone will soon be able to do everything [that can be done by today’s PNDs],” he says. “So it won’t be worth people buying another accessory when they can have it all on their phone.”

His enthusiasm is not shared by Steve Crammond, a partner at PA Consulting. Crammond believes that the PND suppliers, led by US firm Garmin and Dutch vendor TomTom, are not under threat from the mobile sector. “The PND manufacturers supply something that people need. It does something useful, it sells well, it’s got a good price and it doesn’t seek to replicate anybody else’s services or facilities. It’s not broken and it doesn’t need fixing. What is broken is the mobile sector’s ambition to create vast amounts of service revenue out of LBS on phones,” he says.

PNDs certainly have key strengths. Purpose built for the job, they have screens, interfaces, audio capabilities and form factors that satisfy a small, specific set of requirements. While high-end phones are benefiting from improvements in these areas, they cannot yet compete evenly with PNDs for in-car navigation. Size is key – a TomTom won’t fit comfortably in your trouser pocket, which will always be a requirement for mobile phones, even those at the top end.

And PND firms are specialists in the area of navigation. Their data and the way they present it benefits from the time they have spent honing their offering.

Users also like the payment model for PNDs. With a one-off purchase price – entry level models can be well under $200 – and no ongoing costs, the TCO for PNDs is agreeably manageable for the consumer. Mobile navigation services, on the other hand, all involve subscription fees, so the cost is never capped. While some PND users might look to update their map data from time to time, the majority simply stick with what they bought.

The pricing model is, for Steve Crammond, a deal breaker for mobile navigation services. “PNDs are successful because they’re free to use after the purchase cost. Life cycles probably depend mostly on crime rates; people tend not to buy a new one because the old one wears out. My view of the subscription model is that consumers don’t like it, end of story. People like to know that what they’ve paid for in this sector is the end of the commitment.”

Crammond might be right. But if he is, it’s bad news for the PND sector as well as the mobile industry. A one-off cost may appeal to the consumer, but it’s not enough for the likes of TomTom. With current pricing models PND firms can only increase their revenues by selling to new customers. What they now want is ongoing relationships with their users which is why, as the mobile sector gravitates towards navigation, the PND suppliers are advancing on mobile.

Mark Gretton is TomTom’s engineering director: “We proved that there was a real market need, which was to get people from A to B when they didn’t know where B was. We’re beyond that point now and we’ve realised that the number of times you drive to B when you don’t know where B is, is actually not that often, unless you’re a professional driver.”

So TomTom – and its competitors – are adding connectivity to their devices. “We believe fundamentally in connected navigation,” says Gretton. TomTom’s latest product range in Germany, Switzerland, France, Belgium, The Netherlands and the UK ships with a pre-activated Vodafone SIM embedded that will enable the firm to dynamically update its guidance content to respond to real time shifts in traffic patterns. These firms have identified the key benefit of the mobile phone – connectivity – and built it into their own offerings.

TomTom customers will have access to the upgraded services free of charge for three months, Gretton reveals, after which they will have to pay a monthly subscription of around $20 to continue using them. If they elect not to pay this subscription, their device will continue to function as an unconnected PND. TomTom’s aim is that connected devices account for half of its sales by the end of 2009. The firm has not publicised its subscription uptake targets.

But Gretton must be confident that people will be willing to move to a subscription model? “We have to charge a subscription for dynamic services because there’s a cost to providing those services,” he says. “We have to run data centres and pay for the airtime. But until we have that in the market and have made that simple proposition available to everybody, we can’t answer the question of how many people will buy into it. But I think it will initially appeal to the higher mileage and professional drivers, before filtering down gradually as people see the usefulness of it.”

A connection to the in-car screen opens up a range of opportunities for the PND suppliers – many of which will be familiar to mobile players. PND screens could represent a new advertising inventory. They could be used for search services or outbound communication. What users of these devices won’t be getting, says Gretton, is a full browser or, for the time being at least, any connection faster than GPRS. “If we did that, and people were watching YouTube or iPlayer, it would bankrupt us,” he jokes. “We want to go on providing connectivity at a fixed rate.”

Nokia’s Ilkka Raiskinen argues that the organisations providing subscription navigation services have an obligation to educate end users as to how best to manage the cost of operation. In some scenarios, map data is downloaded on a per use basis, meaning that data charges will add to the price of the subscription.

“People need to be careful how they use these services, especially when they’re roaming. But we and the operators are working on schemes to make this more affordable,” he says. “So we need to tell people to pre-load the maps when they’re at home and just using the service for the navigation element. If you use it like that there’s a huge impact on the amount of data you need to download. We need to be extremely careful how we market this and inform the consumers about the smartest way of using these types of services.”

Mark Gretton does not believe that his company’s products will be squeezed out of the market by mobile navigation services. Eventually, he says, PNDs will probably be supplanted by navigation systems built into vehicles at the point of manufacture. But the development cycles of the motor industry are painfully slow by comparison to the consumer electronics industry and PNDs, he says, will be around for many years to come.

Central to TomTom’s operation is the firm’s resolution to restrict itself to in-car navigation solutions. It has no intention to branch out into products or services for pedestrians. And it is in this segment – outside of the automobile – that mobile players have stronger opportunities, as Gretton concedes. “The moment people get out of the car and still want guidance, the weight of average shifts in favour of having the application on the phone. I’d be the first to agree with that,” he says.

In-car, however, he is convinced that the kind of device convergence that many within the mobile industry believe could lead to mobile phones superseding PNDs will never happen. The success of the PND, he says, proves that dedication and simplicity are what people want from navigation services. The more you cram into a single device, he says, the more simplicity is sacrificed.

Nokia’s Ilkka Raiskinen chooses the same words as Gretton when he says: “This is not a black and white situation.” Nokia is the world’s leading supplier of digital cameras but this hasn’t destroyed the market for standalone digital cameras, he says, which remains in rude health. Nonetheless he expects handsets to steal market share from the in-car solution providers when form factor improvements and GPS functionality become more widespread in handset portfolios.

The limited availability of GPS in phones is felt by many within the sector to be the biggest drag on mobile navigation services. It remains a feature to be found only in the top end handsets, although Raiskinen predicts a rapid spread into Nokia’s wider portfolio, a trend that will likely be evident across the handset sector.

Raiskinen describes Nokia as “one of the key providers of navigation services for mobile today,” adding that, “the service element is really important.” Users can purchase the Nokia solutions direct from the handset vendor as well as through operators – although most of the navigation licences are sold as part of the device package.

Nokia’s ambitions in the service arena are well documented and, in the navigation space, all of the stakeholders are competing for the customer relationship. The PND suppliers, for example, have always sold their wares through the domestic electronics retail channel. While consumers can now buy TomTom units with Vodafone SIM cards inside, these products carry none of the operator’s branding. Vodafone’s involvement is deliberately invisible; the device is just a TomTom that has connectivity and the sales strategy won’t change from retail for the time being.

Mark Gretton says there are no plans to try selling the devices through Vodafone’s channels. “People are used to buying our products in the retail channel and that’s where we’ll carry on selling them,” he says. “Part of the problem for the whole location based services sector is that mobile operators have not necessarily been a particularly good channel for things that aren’t associated directly with mobile operators.”

Oren Nissim concedes that operators “aren’t technically necessary” for the mobile navigation sales chain. But, he says, “we need to work with the people who know the users best, and that’s the operators. The operators give the sales pitch a level of quality.”

The reality, as the mobile industry has realised in many spheres of its operation, is that collaboration will be essential. There is no disputing the strength of the billing relationship that carriers have with consumers and, while vendors like Nokia are clearly keen to build their own end user relationships, they realise, along with the operators, that partnership can be profitable.

And partnerships between carriers and PND providers are likely to grow in number. As the Vodafone/TomTom deal has illustrated, selling services to end users is not the only way for carriers to make money from navigation services. As more PNDs ship with connectivity, carriers can cash in on what could prove to be a reliable revenue stream.

Despite the questions he raises about operators’ suitability as a TomTom sales outlet, Mark Gretton hints at deeper collaboration with carriers in the future. “We are engaged in a number of more traditional discussions for operator-oriented solutions where the channel is the operator,” he says. We’re not ignoring it, we believe it will happen.” The firm already sells a software-only version of its solution that can be loaded onto compatible smartphones and it is likely, as the range of available devices grows, that this will become a significant channel for the PND vendor.

The mobile industry has always felt that its core products – the mobile phone and its connectedness – has limitless potential, which is why it believes that the more applications you can cram onto a handset the better. There is a view within the mobile industry, says Ovum, that navigation is a function masquerading as a sector. Certainly the mobile industry looks in large part to navigation for what it can enable rather than what it brings for and of itself.

Oren Nissim describes it as “a base service – it’s what people do with it that will make it interesting.” Perhaps this is to miss the point, though. Location information has been available for years. And what people do with it, to take Nissim’s point, has proven to be not very much at all. The industry needs to be wary of looking beyond the immediate possibilities of navigation for navigation’s sake. In the longer term it may well enable a wider range of services – those restaurant searches so beloved of conference speakers. But right now it could be its own raison d’etre.

TomTom’s Mark Gretton sums it up: “The only thing you can say today is that navigation is a real market; a service for which people are prepared to pay. All that other stuff, all those other applications, it’s just speculation. We don’t know whether or not it will prove valuable to people.”

The location based services road has been a long one, often with not very much at the end of it. Navigation – proven in a slightly different format – could turn out to be the service that makes the journey worthwhile.