Google, Garmin, And Free Navigationby
Six years ago this week, and before I worked for BusinessWeek, I wrote this profile of the GPS company Garmin in Forbes Magazine. (I have a scan of the print version of the story here.) I thought of it this morning as I read Rob Hof’s post as well as today’s front page story in The New York Times about how about how Google’s introduction of free turn-by-turn directions to its Android smart phone platform is upending the navigation device industry.
For the story six years ago, I asked Garmin co-founder and CEO Min Kao about the competitive threat or business opportunity he saw from GPS-enabled wireless phones. Phones, he said, were the kind of “commodity market we want to avoid.” Motorola and Nokia and other phone companies were just starting to embed GPS chipsets on phones in 2003, and and some phones could already give you turn-by-turn directions, though nothing as good as what you could get from a Garmin navigation system mounted on the dashboard of a car. Garmin was at the time starting to push the iQue 3600, a Palm OS-based PDA (remember those?) that had all the capabilities of one of its navigation systems. As you can see, it didn’t sell terribly well and has long since been discontinued.
Fast forward four years to late 2007, when I wrote this story for BusinessWeek on how wireless phone companies were teaming with services like Networks in Motion and TeleNav to provide their own wireless navigation services on their phones.
Now Garmin is trying its hand at the smart phone business. The results, are, as Steve Wildstrom wrote recently, not terribly impressive. Meanwhile Garmin’s biggest rival TomTom — a company that was not on my radar screen until 2006 — has turned Apple’s iPhone into a powerful in-car navigation device.
Garmin was the up-and-coming navigation company in 2003, and it got that way very quickly. At that time it had been only three years since President Clinton had ordered a permanent end to the policy of Selective Availability on the Global Positioning System constellation of satellites. This policy, which had been in force since the launch of the system, required that civilian GPS signals be made deliberately inaccurate so that they couldn’t be used against US forces on the battlefield. While the civilian signal was good enough for hiking and hunting, it wasn’t accurate enough to provide turn-by-turn directions in a car.
As soon as that policy change made civilian signals more accurate, an industry sprung up around in-car navigation. Automakers started building sophisticated nav systems into dashboards, and that companies like Garmin and TomTom, Magellan, and others sought to compete in the aftermarket, and even jockeyed for the attention of Detroit. Garmin and TomTom are the two biggest players, and every holiday season compete like crazy in the retail business.
But the rate of creative destruction of business models in the navigation business has been nothing short of shocking, even for the fast-moving tech industry in general. Garmin and TomTom made paper maps all but obsolete with their devices. Wireless carrier-based services quickly rose after that to challenge them. And now, both are being challenged by Google and its free phone-based offering. This has all happened in less than a decade.
Earlier this month, market research firm iSuppli noted that sales of personal navigation devices — those Garmin and TomTom dashboard devices — had entered a period of “slowing growth,” and that sales may actually decline this year, and remain flat after that. And in September, iSuppli projected that navigation-ready smart phones will surpass PNDs by 2014, a ratio of more than 2 to 1. ABI Research said earlier this year that GPS will be included in 9 out of 10 handsets within five years.
One reason for these relatively quick turns of fate is the relatively low barrier to entry in the navigation business. The civilian GPS signal is provided to the entire world free of charge, courtesy of the US taxpayer to the tune of about a billion dollars a year. GPS chipsets that can be built into phones, or frankly any other device for that matter, have been coming down price for years. If you want to build a better navigation device, there’s not much to stop you. You’ll also need a source of mapping data, and for that there is Navteq, now owned by Nokia, and TeleAtlas, now owned by TomTom.
There is certainly a compelling case to be made that if free is the default price for navigation on a smart phone, as it appears it will be with this new Google service, then this is bad news for the Garmins, TomToms, and TeleNavs of the world. The 7-dollar and change drop in Garmin’s stock price over the last two days certainly reflects that.
But will the Google service be as good? Garmin and TomTom have a lot of practice in providing directions, and have honed their skills over the years, and build devices that are highly reliable and accurate, and which don’t rely on a cellular data signal at all. That may turn out to be a key marketing point for the PND industry. When you’re driving in the middle of nowhere and outside of the range of a cellular signal, the last thing you want to worry about is getting lost. Either way, I’ll be interested to compare Google’s service side-by-side with a dedicated PND and see which is better.