Nokia's Navteq acquisition bid shows value of map IP in GPS supply chain, says iSuppli
iSuppli - October 18, 2007
Holders of map Intellectual Property (IP) now occupy the most important position in the global GPS navigation supply chain, according to iSuppli. Navteq Corp. and Tele Atlas N.V., the two remaining major independent map IP suppliers with broad geographic coverage, are in the process of being acquired. With Nokia recently announcing a bid for Navteq, the combined TomTom/Tele Atlas may be an acquisition target for Microsoft or Google, reasons iSuppli.

iSuppli believes that Google has a greater motivation to buy TomTom/Tele Atlas than Microsoft due to its desire to offer mobile location-based services.
“Speculation has arisen that Microsoft is considering a purchase of Garmin,” said Richard Robinson, principal analyst, automotive electronics, for iSuppli. “iSuppli considers this to be less likely than Microsoft buying TomTom/Tele Atlas. This is because the key item in the supply chain is the map IP, rather than the navigation devices themselves.”
Nokia’s $8 billion bid to buy Navteq Corp. illustrates the critical position that the two independent holders of map IP with broad geographic coverage now occupy in the global navigation market -- and may presage even larger acquisitions in this area, iSuppli Corp. believes.
With Nokia’s purchase of Navteq, the world’s last remaining independent provider of detailed, comprehensive global map IP for GPS systems, the competitive structure of the navigation market has been altered fundamentally. Furthermore, with the deal also exposing the enormous supply-chain value wielded by map IP suppliers like Navteq, technology behemoths like Microsoft Corp. and Google Inc. soon may engage in similar acquisitions to maintain their position in this fast-growing market.
Navigation opportunity
The stakes in the navigation market are huge, with dozens of companies offering products including Personal Navigation Devices (PNDs), built-in automotive systems, and navigation-enabled smart phones. iSuppli estimates 40 companies now are offering GPS navigation capabilities in a range of products, from PNDs and embedded systems, to smart phones.
Worldwide PND shipments will rise to 50.4 million units in Calendar Year (CY) 2010, up from 12.7 million in CY 2006, iSuppli predicts.
Meanwhile, global shipments of GPS-enabled mobile handsets are expected to reach 250 million units by CY 2010, up from more than 70 million units in CY 2006.
Of the 40 companies offering products in this area, the market is dominated by the major PND makers, Garmin, TomTom and Mitac, which collectively account for 85 percent of worldwide shipments. But while there are many sellers of navigation products, there are only two independent providers of the map IP that is the sine qua non of such products: Navteq and Tele Atlas NV. Without map data from Navteq and Tele Atlas, there can be no navigation. Because of this, the two companies have carved out an indispensable niche in the global navigation market. The major PND OEMs are heavily dependent on these companies, with Garmin exclusively using Navteq map data, and TomTom and Mitac using only Tele Atlas.
Playing duopoly
The map IP companies didn’t always occupy the navigation market’s cat-bird’s seat.
Gathering map data is a painful, laborious process that is very expensive and time consuming. Because of this, map making was long considered to be the least sexy link in the navigation supply chain.
For many years, Navteq and Tele Atlas struggled in relative obscurity. Both companies labored to keep their levels of “cash burn” down, in the knowledge that the end device manufacturers would simply go to their competitor if the deal was not right. This squeezed margins at both companies to the very limit of profitability.
The duopoly of map suppliers ensured map IP costs remained low. However, as map formatting became standardized, the end device manufacturers -- particularly the PND makers -- began to realize that product differentiation was impossible if all their competitors essentially were displaying the same data. Device makers could create attractive map graphics and nice interfaces, but taken to the logical conclusion, standardization of maps means that pricing is the only bargaining chip left on the table for these companies over the long term.
This realization changed the status of the map IP companies from wallflowers to the belles of the ball.
Navigating to riches
The map IP companies gained further stature when it became clear how much they were valued by the market. The first sign of the map companies’ true valuation came earlier this year from PND manufacturer TomTom, which launched a bid to acquire Tele Atlas for around 2 billion euros. Why would TomTom make such a move when it previously had struck very favorable deals with both map companies -- and maps were never a huge cost item for the company anyway?
The reason is that the acquisition was a strategic move by TomTom to create differentiated products. By bringing the map creation and updating process in-house, TomTom will be able to more effectively manage its future products. Such products will be less about hardware and software and more about building a community of users for services that provide ongoing revenues.
Viewed in this light, TomTom’s acquisition of Tele Atlas was a shrewd move, iSuppli believes.
Re-charting the supply chain
The TomTom/Tele Atlas deal made Navteq the main map supplier for the rest of the navigation device makers. However, Nokia’s deal to buy Navteq for $8 billion eliminates the last independent map IP supplier.
Every participant in the navigation supply chain is affected by these events, from first-tier automotive electronics companies, to navigation systems makers, to vehicle OEMs, to PND companies, to search engine and software suppliers. Any company that owns the map data IP, which is effectively impossible to recreate, is not only able to control mapping data quality and freshness, but most critically -- price. Nokia and TomTom now are in control of this critical element that determines product differentiation and pricing for every player in the navigation market.
With their acquisitions, the major map suppliers may begin offering two tiers of service. While the two map providers will not be able to drastically increase map prices for other customers due to antitrust legislation, there is nothing to stop them from degrading the top-level data. It’s clear that the control of map IP could be very damaging to the supply chain over the long term, particularly to the expanding range of device manufacturers that will be forced to buy maps from their competitors, and then sell their products into the same vertical markets.
Market response
How will other companies in the navigation supply chain respond to the map IP power grab?
One possibility is a counter bid for Tele Atlas by TomTom competitor Garmin, which potentially stands to lose a great deal if both acquisitions go through.
Although Nokia’s Navteq acquisition has been approved by the board of directors of each company, it still must pass regulatory approvals and must be ratified by Navteq’s shareholders. The TomTom/Tele Atlas deal has been referred to the European Commission for approval.
A more intriguing possibility is an acquisition bid for the combined TomTom/Tele Atlas from the two heaviest hitters in high tech today: Microsoft and Google. By acquiring TomTom and Tele Atlas, Microsoft would be buying a top-selling consumer-electronics brand -- along with the key map IP.
Google needs maps to become a key provider of location-based services, particularly for mobile devices, making a TomTom/Tele Atlas acquisition highly desirable. iSuppli believes that Google has a greater motivation to buy TomTom/Tele Atlas than Microsoft. This is because of the obvious importance of moving from static to mobile location services.
With location-based systems, wireless service providers can use the position of a user’s phone to triangulate his position and send information related to his location -- such as location-based ads. This cannot be done without the capability to access maps and obtain refreshed data.
While Microsoft would also gain from the acquisition of map IP and the valuable TomTom consumer-electronics brand name, it has less of a stake than Google.
Speculation has arisen that Microsoft is considering a purchase of Garmin. iSuppli considers this to be less likely than Microsoft buying TomTom/Tele Atlas. This is because the key item in the supply chain is the map IP, rather than the navigation devices themselves.
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