Changing Course, Nokia Needs a Map
Nokia's mapping business, called Here, looked like a dud for years. But now that it's for sale, buyers are lining up from the U.S., Germany and China, and the geography of its ownership has even acquired political significance. Nokia should consider hanging on to the unit, a decision I would welcome as a user.
Nokia's cartographical interests began in 2001, when it took part in the European project Tellmaris to develop a "3D map interface for tourist information on mobile computers," such as they were then. A string of acquisitions followed, culminating in the 2007 purchase of U.S.-based in-car navigation company Navteq for $8.1 billion. Unfortunately, Nokia's dominance in mobile phones was about to end -- it bought Navteq just three months after Apple's first iPhone arrived, taking the mobile device industry in a whole new direction and almost destroying the Finnish company.
As Nokia struggled, so did its mapping division. Its 2011 operating loss was 1.5 billion euros ($1.7 billion at today's exchange rate). Research and development expenses that year were almost 40 percent higher than revenue; competing with Google Maps was costly for a company in rapid decline.
Still, the in-car business inherited from Navteq and consolidated since -- Here says it has 80 percent of that market in the U.S. and Europe -- has kept Nokia in the game. To Nokia's credit, Here remains competitive quality-wise. It has all the functionality of Google Maps, including plenty of information about businesses and attractions near any particular location. Last year, it introduced apps for Android and iOS that had an important advantage over the competition: Free downloadable maps of countries, cities, even entire regions, making navigation without an Internet connection possible, using just the GPS signal.
The apps, however, aren't as popular as they should be. According to App Annie, the service that tracks sales in Apple's App Store and the Google Play Store, Here reached the Top 100 most downloaded apps for iOS in just five countries, compared with 99 for Google Maps. In the Android universe, it's no contest because Google Maps comes preinstalled on all devices. As far as the mass audience is concerned, Here is a niche product.
Experts, however, know it for the treasure it is. So, when Nokia raised the prospect of spinning-off Here in the aftermath of its mega-merger with Alcatel, interest was instant. At this point, there appear to be two main contenders: Facebook, and a consortium including three major German carmakers and Google's Chinese competitor, Baidu.
Facebook has quietly signed a deal with Here to use its maps for location services in mobile apps. The social network could squeeze more ad revenue out of these services, the way Google does. Ownership would make it easier for Facebook to tailor Here to its purposes.
As for the carmakers and Baidu, they mainly want to prevent Here from falling into the hands of Facebook, Apple or, God forbid, Google. Baidu wants to dominate navigation in China, which Google is forbidden to map and Nokia is not. The carmakers are afraid of being dependent on U.S.-owned companies for navigation technology, not least because it's a crucial component of future self-driving cars in which both Google and Apple have declared an interest. The last thing the consortium members -- BMW, Mercedes maker Daimler and Volkswagen 's Audi -- want is to fall behind in assisted driving because all the reliable navigation software is owned by potential competitors. According to the Wall Street Journal, the automotive giants have been lobbying the German government to help them keep Here European (Baidu would only have a license to use Here technology in China).
All of which makes me wonder whether Nokia shouldn't keep Here. The division's book value is just 2 billion euros; even if potential buyers offer three times that much, Nokia still won't recoup what it spent building the business. It's not clear why the Finnish company should consider that investment a sunk cost now that mapping shows more promise than ever because of its growing usefulness to both social networks and the auto industry.
It won't cost Nokia anything to hold on to Here, which finally reported positive operating income of 31 million euros last year. Moreover, even abortive discussions with potential buyers may deliver lucrative licensing deals instead. Nokia can do business with Facebook, Baidu and the carmakers without selling, or at least without ceding a controlling stake.
On Tuesday, Nokia board chairman Risto Siilasmaa said the company's "review" of Here may not result in its sale. I hope he's serious, if only because as a user I'd feel more confident that would keep the Here app in the application stores. Unlike major U.S. internet companies interested in swallowing up a competitor, or the carmakers with their specific needs, Nokia will pursue all possible revenue streams, including, potentially, ad sales Google Maps-style. Even as Nokia transforms itself, there's no need to sell a goose that can still lay all kinds of cartographical golden eggs.
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