Did Google's Market Grab Spur TCS' Purchase of NIM?

December 9, 2009 By: Kevin Dennehy

LBS Insider Newsletter, December 2009

TeleCommunication Systems' recent announcement that it was buying Networks in Motion is one short-term indicator of the true impact that the "Google effect" will have on the marketplace, one industry insider said. Clearly the game has changed — and turn-by-turn navigation providers, content providers, mobile operators, handset OEMs and device makers, and platform providers will all feel the heat.

While much has been written by analysts and the trade press about Google’s recent invasion of the navigation market, TeleCommunication Systems’ announcement that it is buying Networks in Motion for $170 million may be a strong indicator of the impact the Internet giant will have on the location-based services marketplace.

Some analysts say that TCS was looking to expand its presence in the LBS market by buying a profitable player with a proven technology and subscription base. Others say that NIM wanted to get out of the market because of Google’s entry with a free navigation service.

“I think [Networks in Motion] was spooked by Google’s entry in to the navigation market, felt they were not well positioned to compete with Google and decided that it was time to sell. In addition, I think they realized that their products could potentially be devalued as Google continues to position itself in the wireless market for location based advertising,” said Michael Dobson, TeleMapics president.

Dobson believes that NIM gave in too early. “I suspect that [Research in Motion] may not elect to work with Google — and Nokia certainly does not want to work with Google. So it is likely that there would have been opportunities for companies like NIM to compete and survive in the LBS market,” he said. “While there should have been a number of licensing opportunities for NIM in the white label arena, their major competitor seems to have better at capturing this market than NIM. I suspect that NIM’s investors panicked and decided to protect their investment by converting one of the long-standing offers that had been on its doorstep.”

Dobson said that TCS was probably interested in the patents that NIM holds. “While I do not know the specific details of NIM’s patent portfolio, if their patents are early enough they could cause Google and others some difficulty. It is likely that NIM did not have the resources to prosecute its patents, while TCS certainly should have both the wherewithal and resources to do so, if, in fact — or perception, any of the patents are being used by other parties,” he said.

Others in the industry believe that Google’s moves challenge existing pricing models, force product innovation, and will affect the traditional mobile value chain with further industry consolidation including mergers and acquisitions and vertical integration of various players in 2010-11. In the mobile turn-by-turn space alone, NIM’s big competitor, TeleNav, has recently filed for an initial public offering. However there are still more than 30 independent mobile TBT companies competing for many of the same opportunities.

One industry veteran said that Google’s entry is hardly the end for the LBS market. “In fact, it’s really the beginning of something much, much bigger. As competition spurs innovation, the actions of key players across the value chain will ultimately push LBS from early adopters to a mass-consumer market generating significant value for both the industry and consumers,” he said. “TBT and other mobile players must explore every advantage to increase the value of their offerings, align with key partners to extend their capabilities, and differentiate from ‘free’ with unique services such as premium traffic and other LBS features.”

Google’s decision to offer free turn-by-turn navigation, and acquisition of AdMob for $750 million, reinforce the expectation that the viable business models for LBS in 2010 and beyond will include offering free or “freemium” services to consumers through ad-supported and other non-traditional funding models, said Dan Gilmartin, uLocate Communications’ vice president, marketing. “That said, the carriers subscription model still appears viable, at least for the short term, and consumers are proving to be willing to pay for what they perceive to be high quality applications both on and off-deck, navigation being the most prominent category.”

Google’s Move On LBS Market Analyzed…

While Google’s decision to offer free navigation has been the talk of the industry for more than a month, few know that the company has even bigger plans. “A few weeks ago, I was in Munich for the Telematics Update conference, and learned, much to my surprise, that Google has an automotive division. Is there a Googlemobile in your future?” Dobson said. “Before everyone goes off on the wrong tangent here, let’s remember that there is one main fact about Google and it is that the company makes approximately 95 percent of its revenue from advertising. In the third quarter of 2009, their revenues were $5.94 billion with operating income of $2.07 billion — and advertising contributed $1.96 billion of this profit. It should be clear to everyone that Google innovates to produce advertising income.”

Google’s development of Android, voice search, the Google Base, which is Dobson’s favorite term for the new navigable map data base of the United States created by Google, are aimed at continuing to find new and more efficient ways to dominate the local search and location-based advertising markets.

While Google might take some modest pleasure in teaching TeleAtlas and Navteq a thing or two about how to build a navigable database of the United States quickly, and at a relatively low cost, its interest in creating the Google Base had little to do with flexing its cartographic skills and more to do with its uncanny ability to figure out where the money is in advertising — and then dominating the segment that interests it, Dobson said. “Of course, you will not hear Google mention the word ‘dominate’ or they could have even more problems with the SEC, but the influence that they will have in the mobile local search and LBS markets is enormous. It is my opinion that Google built the Android platform to be able to compete with Nokia in the mobile-local advertising market. In addition, providing the platform to phone manufacturers and having them take a phone fully provisioned with Google application to the mobile carriers was a stroke of genius, as it will demolish the walled gardens so attractive to the carriers and allow Google to maintain a direct relationship with its end users.”

Dobson said that while the end user may think of Google as a utility providing search services, map services, routing services, and information services, the company thinks of itself as an advertising engine that has an opportunity to touch its end-users with advertising everywhere they go.

"To me, it seems that old parable about the flea on the elephant’s behind can appropriately be applied to map suppliers, app suppliers, and content providers. In the case of mapping, for instance, Google continues to pay TeleAtlas to use its U.S. navigation database, even though it is not using the data,” he said. “Its Android navigation app will cause huge problems for everyone who provides the same service on a fee basis, as well as for TeleAtlas and Navteq. Google’s mapping function will provide a huge problem for everyone selling databases for online mapping and its business-listing database may eventually crush companies who now make revenue providing business listings. However, disintermediation, dislocation, or whatever else may occur is not the point of interest here.”

The important thread in this discussion is that Google is not competing directly with TeleNav, or TeleAtlas, or MapQuest or anyone else who is not in the advertising business, Dobson said. “All the poor souls in mapping, navigation, LBS, and local search are being crushed by Google’s relentless innovation to produce a better advertising engine. It is impossible for most application companies to compete with Google today, because they regard their apps as a means to an end, not as the core business,” he said. “They are making so much money that they can afford to innovate, spend $50 million on a project, and dump it if it does not work they way they want it to work.”

Dobson said that while many companies are beginning to understand this conundrum, the problem for them is that today, there are no alternative advertising engines that they might work with to compete with Google, which dominates local search. “I suspect there will be many more casualties out there before real competition begins to emerge and nip at Google’s advertising empire. However, at the moment, at least in respect to the competitive landscape in local search, navigation, location-based services and mapping, Google is beginning to look as effective as the Four Horsemen of the Apocalypse,” he said. “The question of interest for companies in the geospatial arena is how to co-exist with the elephant? One of the easiest answers is to work with them. If you are in local search or LBS you need to think of your company as a distribution channel and how you can monetize your distribution.”

2009 Was A Tough Year for The Industry, but Location Companies Optimistic

While 2009 was marked with highs and lows, it also was a year of transformation for the LBS industry. As low-cost wireless navigation adoption accelerates, GPS device price points drop and community-generated map offerings became more prevalent, said industry veteran George Filley, Spot It Out co-founder and general partner. “What does it all mean? Navigation has officially achieved mass-market adoption and the value proposition is in the process of shifting from the navigation experience to the identification of and interaction with location-relevant content,” he said.

As navigation and traffic increasingly become commodities, innovative companies see revenue opportunities where location can connect with a lifestyle, said Kiyoshi Hamai, who along with Filley co-founded Spot It Out. The new company is part of a wave of companies bringing branded location-based content products to retail.

This year, the surge in the number of GPS-enabled smartphones, proliferation of handset and mobile OS application stores, and increased availability and consumer demand for free or low-priced LBS applications has had a huge impact on the traditionally carrier controlled LBS market, Gilmartin said. “The decreased costs and barriers to entry into the marketplace and ability to reach consumers through low or no-cost viral social marketing channels is enabling small application developers to compete with the established LBS developers. The result is a highly competitive landscape that beforehand was dominated by only a few major players,” he said.