Nokia’s Mapping Business Has Options, Issues

September 25, 2013  - By
Kevin Dennehy

Kevin Dennehy

In the wake of Microsoft’s recent purchase of Nokia’s mobile phone business, the Nokia unit formerly known as Navteq, and now know as HERE, has opportunities, but also a hard-to-guess future. At least one industry analyst believes that Navteq/HERE was not included in the Microsoft deal because it was too expensive.

“While much ado has been made of the Nokia/Microsoft deal in the press, I was interested in why Mr. Softy did not acquire Navteq/HERE with the other assets of interest. There are several possibilities to explain this omission,” said Mike Dobson, TeleMapics president.  “First, it could be the case that Nokia did not want to sell Navteq/HERE. Second, it is possible that Microsoft had no interest in acquiring its current map database supplier. Third, maybe the price for Navteq/HERE was too high. My vote is for number three.”

Dobson said that Nokia clearly would like to sell HERE, as it does not fit with the company’s profile, growth strategies, or competencies, on a going-forward basis.  “Just as Navteq was not a good fit for Nokia in 2007, it is now a less comfortable fit for the reconstituted company, which is being focused on network infrastructure services,” he said.  “Conversely, I suspect Microsoft was ambivalent about a deal that included [Navteq/HERE].”                           Under the proposed Nokia/Microsoft deal, Nokia’s mapping assets are to be licensed for a four-year term by Microsoft, which gives them time to firm up their future strategy for spatial data.  Note that the price of the license for the mapping products was not part of the $7.1 billion transaction, Dobson said.

“Why was Mr. Softy gun shy? First, I suspect that Microsoft concluded that owning a mapping company was not core to any of Microsoft’s current initiatives, including its bumbling approach to location and connected car services,” Dobson said.  “Next, Microsoft has enough problems competing with companies in its distribution chain, without adding another business that would serve to complicate its relationship with manufacturers and resellers. Of course, all of these objections could have been overcome if the price was right, it wasn’t, but that does not mean it won’t be in the future.”

Where Does Navteq Go from HERE?

Dobson says Navteq, Nokia and HERE are in a world of pain. “While the ‘new’ Nokia will have the ability to fund all of the development to enhance the Navteq database that it has deferred over the past five years, I think it is unlikely to do so. Nokia does not appear to understand the fundamentals of the location market, the automotive navigation market, or the connected car market,” Dobson said.  “Perhaps most importantly, they have lagged Google in evolving their map compilation process into a modern, synergistic, information sourcing engine. The Navteq approach to crowdsourcing hinders their potential speed to market with updated map information and has allowed Google to reach parity with Navteq in some areas, while exceeding it in quality in other markets.”

The future battleground in the location markets will devolve into a scarp for ownership of the last mile, Dobson said.  “The type of thinking that believes that the ‘last mile’ is all about road geometry, simply does not understand the problem. People want to know that the map will support their journey to a destination, but they are focused on the destination and the various opportunities that it presents,” he said.  “For example, the mobile phone has promoted an egocentric view of the world focused on ‘what’s around me?’  Providing the spatial detail of the total environment that surrounds the user is key to winning the last mile battle and I do not see Nokia having the assets to participate in this market.”

Nokia announced that HERE, at the recent Frankfurt Motor Show, partnered with Mercedes Benz, Continental Corporation and Magneti Marelli to offer connected products and services beyond navigation.  Nokia believes that connecting the car to the cloud is one of the biggest opportunities for the automotive industry.

“Whether the concept of the connected car offers Nokia a lifeline is unclear. Connectivity may suck the spatial data out of the car and into phone based systems,” Dobson said.  “Others would argue that smart cars will require a detailed, highly accurate database of spatial information to manage the safety systems in the automobile of the future.  I’m not wise enough to predict the future, but I think the Nokia is going to have a rocky road with Navteq/HERE.”

Dobson said that it is interesting that Microsoft has loaned Nokia 1.5 billion Euros in three tranches of convertible bonds.  “The bonds will be redeemed and netted against the deal proceeds, although the loan is not conditional on the deal closing, nor is Nokia obligated to exercise its option,” he said.  “However, it would appear that Mr. Softy and Nokia are not quite through with each other:  if Nokia exercises these options, Microsoft will become a shareholder in Nokia.”

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About the Author: Kevin Dennehy

Kevin Dennehy is GPS World’s editor for location-based services, writing a monthly column for the LBS Insider newsletter. Dennehy has been writing about the location industry for more than 20 years. He covered GPS and location technology for Global Positioning & Navigation News for seven years. His articles on the wireless industry have been published in both consumer and trade magazines and newspapers.