Dutch Company Bets on Interactivity to Make G.P.S. Devices More Useful in the U.S.
location based services
MILAN, Aug. 12 — If you have ever been lost on the tiny, twisting, one-way back streets of Prague, Brussels or Milan, you have a pretty good idea why navigation devices that use the Global Positioning System are vastly more popular in Europe than in the United States.
But what if that same device could also inform you about an accident on your route just minutes after it happened, or could tell you the average time a drive would take depending on the hour and day of the week?
It then becomes an appealing proposition for anyone who has experienced random traffic on the freeways of Los Angeles or the avenues of New York.
“If you make four right turns in New York, you are in the same spot, but if you make four right turns in Rome, you are lost,” Alain A. De Taeye, chief executive of the digital mapmaker Tele Atlas, said.
“If you tell me to get to Fifth Avenue and 42nd Street in New York or most other American cities, I can do that without a navigation device,” he said. “But if you add the right information, you create a map that is compelling also in the U.S. market. Suddenly your navigation device tells you not just how to get from A to B, but also that you shouldn’t leave at 8 a.m. and take Fifth Avenue, but rather leave at 8:10 and take a different street.”
The push to create the constantly updating digital map — what Mr. De Taeye calls “the industry’s holy grail” — is what lies behind the planned $2.7 billion acquisition of Tele Atlas by TomTom, the world’s largest maker of car navigation devices.
The deal, announced last month, would give TomTom, based in the Netherlands, a better chance of gaining market share in the rapidly growing American market for navigation devices. The purchase is to be concluded by the end of the year if it is approved by regulators and Tele Atlas shareholders.
A few years ago, G.P.S. devices were almost exclusively the terrain of high-end cars. But with prices dropping quickly, 15 percent of cars in Europe have G.P.S. and about 8 percent in North America, according to Tele Atlas.
TomTom and Garmin, which has operational headquarters in Kansas, dominate the worldwide market for navigation devices and are pushing the products into the mainstream as they add services and functions like voice activation. In the United States, Garmin has 47 percent of the market and TomTom 16 percent, according to the British research firm Canalys.
TomTom wants to build its United States presence and create a constantly updating digital map. That plan depends in part on contributions from users, who update the company’s map database directly on their devices, and then send that information to TomTom. The company verifies the changes and then makes them available to all users, creating a community of users much like Wikipedia or Amazon.
TomTom’s digital maps will also be enhanced by the acquisition of Tele Atlas, which uses more than 50,000 sources — including satellite photographs, local governments and vans that drive back and forth taking photos — to add new features like three-dimensionality to its maps. (Navteq, the main competitor of Tele Atlas, is also introducing 3-D features.)
The deal will help TomTom increase its revenue and help compensate for the falling profit margins on the sale of navigation devices, said Chris Jones, a vice president and principal analyst with Canalys. Though sales and profit at TomTom have been growing in the last few years, the company’s profit margins have been dropping since 2002 as the prices of the navigation devices have also fallen.
Some analysts criticized TomTom’s deal for Tele Atlas, which gets about 30 percent of its sales from TomTom, but also sells to many TomTom competitors. Those clients might be wary of buying from a direct rival.
But Mr. De Taeye said that with the market expanding so quickly, all companies are going to want to buy the best map available regardless of who makes it. TomTom says about 7 million portable navigation devices will be sold in the United States this year, compared with 2.5 million in 2006. In Europe, about 15 million will be sold compared with 8.5 million in 2006. “You have to be a pessimist to think that market penetration will be only 50 percent in Europe in five years,” Mr. De Taeye said.
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