ARCHIVE  2011

Navigation Providers Try to Find Their Way

June 24, 2011

News earlier this month of Garmin’s acquisition of Navigon, a Germany-based developer of navigation and driving based solutions, surprised few market observers as the navigation market undergoes consolidation. Although an official transaction value has not been formally announced by either the acquirer or existing owners General Atlantic, it is expected that the price tag paid by Garmin will reflect the obvious popularity of free turn-by-turn navigation services from Google and others and the increasing domination of smartphone-based applications. However, the acquisition also represents how navigation players are looking to fight the tide and reposition themselves in the mobile location-based services market, which we believe will be worth in excess of $10bn in 2015, up from a value of $2.8bn at the end of 2010.

In Pyramid Research’s latest research report, Location-Based Services: Market Forecast, 2011-2015, the expected growth trajectory is clearly visible through the segmentation of revenues between advertising, people finder and navigation. As illustrated, we expect the most aggressive revenue growth in location-based advertising segment because advertising-funded models and the continued growth in local search drives this segment to account for a projected 60% of all location revenues by 2015.

We expect competition to remain fierce, with telecom operators well positioned to capture new smartphone navigation users and utilize the billing and access relationship that they have with end users to  supplement free services with data and premium service revenues. In comparison, the personal navigation device market outlook is less rosy, but herein lies part of the logic behind Garmin’s strategic acquisition. Navigon, alongside other producers such as TomTom and Route 66, sell and distribute smartphone application through app stores, which will give Garmin an important foothold, particularly in Europe, where Pyramid expects LBS revenues to grow at a CAGR of 32% between 2010 and 2015.

The application opportunity is certainly not new to traditional providers of navigation services, although their higher price point has resulted in limited success of late particularly when compared to the range of free services on the market. However, Garmin’s rival, TomTom, is looking to address this issue head on through the launch of an iOS and Android app (TomTom Places) later in the year, which allows users to park their car and navigate to their final destination on foot. The free app will be funded through the increasing popular search revenue model, and will introduce a strategically important new revenue stream to the company, which also entered into an application preload agreement with HTC in 2010.

Despite the inevitable room for innovation in the market, we believe that traditional navigation providers now find themselves at an important junction in their evolution, with further consolidation not out of the question given the dynamics of the mobile location-based services market. It is, however, worth pointing out that this transaction does not leave Garmin will all of its eggs in one basket. Navigon had also developed a number of key relationships across automotive OEMs in Europe, with this providing another growth area for the new owner as it looks to compensate the inevitable erosion of top line revenues from its core business.

— Julian Morrison, Research Manager

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