Could free apps kill the sat-nav industry?

Posted on 26 Feb 2010 at 10:14

Free navigation apps from Google and Nokia have upset the once cosy duopoly of TomTom and Garmin in the sat-nav market, with both companies warning of falling profits for the forthcoming year.

In Garmin’s recent financial statement, the company predicted personal navigation device (PND) prices will decline by 10% in 2010, piling pressure on profits. TomTom expects to sell around 11.5 million PNDs this year – a similar number to 2009 – though at lower prices, as the free offerings from Google and Nokia bite into the market.

“I think the PND business will decline over time but not as fast as people expect,” said Deutsche Bank analyst Jonathan Goldberg. “With time the PND business will become much smaller – a niche business, with good profits, high margins and slow growth.”

It is slightly worrisome that a company with monopoly-style profits in one area can invest and throw spaghetti at the wall to see what will stick

However, TomTom remains bullish, claiming customers will continue to shell out for accurate traffic information data and other premium services. “In our view, customers have over and over again been willing to pay for the best user experience,” said a company spokesperson.

It was a view echoed by the company’s chief executive, Harold Goddijn, who pointed to deals with car makers to build sat-nav devices into new vehicles. Goddijn claimed TomTom had already captured 10% of that market, and while he expects similar deals to keep profits high, he admitted that Google’s entrance into the market represented something of a wildcard.

“It is slightly worrisome that a company with monopoly-style profits in one area can invest and throw spaghetti at the wall to see what will stick,” he told the Financial Times.

Alternative routes

While TomTom believes deals with car manufacturers will help it resist the impact of free apps, Garmin has pushed into the smartphone market with the Nuvifone, developed in conjunction with Asus. But in a market in which even established players such as Palm and Microsoft are struggling, can the Nuvifone really make a dent?

“Garmin-Asus Nuvifones are unique because they are built from the ground up to be a GPS-centric device, rather than a smartphone with added navigation,” a spokesperson claimed. “It’s also important to note that like Nokia’s navigation (or Google Navigation), navigation on the Nuvifone is free. There is no monthly or one-time navigation fee.”

That may be the case, but it appears customers have yet to be convinced. TomTom is predicting sales at its automotive/mobile segment to fall by 2% to 3% in 2010, and analysts have suggested it could take another two years for the smarphone to find its feet.

Either way, it appears the glory days are over for TomTom and Garmin.

Author: Stuart Turton