According to the New York Times, sales of GPS Navigation Systems -- devices that mount to an automobile dashboard or windshield that tap the Global Positioning System of satellites to determine directions and provide audio turn-by-turn directions and other features -- are on the decline as more smartphones are equipped with GPS capabilities (“Sending GPS Devices the Way of the Tape Deck?” July 7, 2009). Apple’s iPhone, for instance, comes with a map application that uses the phone’s GPS capabilities to do largely the same thing as larger, and often pricier, navigation systems.
Indeed, more than 40 percent of all smartphone owners use their devices to get turn-by-turn directions, according to Compete, a web analytics firm. For iPhone users, the figure is higher at more than 80 percent. Shipments of smartphones in North America are expected to grow by 25 percent this year, with more than 80 percent of them equipped with GPS, according to ABI Research.
Not surprisingly, sales of traditional GPS units from companies like TomTom, Garmin, and Magellan have fallen sharply. TomTom reports that it shipped 29 percent fewer GPS units in the first quarter compared with the same period in 2008. Garmin said that unit sales fell 13 percent in the first quarter compared with the previous year.
Garmin and TomTom, the two leaders in GPS navigation systems, have adopted radically different strategies to deal with this competitive threat. TomTom has announced plans to offer a portable navigation application for the iPhone that would include turn-by-turn directions and audio prompts. Unlike existing GPS apps for the iPhone, TomTom intends to charge a one-time flat fee rather than require users to pay a monthly subscription fee, according to the Times. Doing so makes TomTom available across different platforms, extending the product’s reach.
Garmin, meanwhile, has plans to develop and launch its own combination navigational device and cellphone, called the Nuviphone, later this year. It essentially intends to turn its navigation system into a mobile phone, with sophisticated navigation features that should far outpace current smartphone map applications. In doing so, it will leverage its expertise at developing, selling, and maintaining devices.
Which is the better strategy? On what assumptions do you believe each company’s strategies are based? What obstacles might each encounter as it attempts to respond to the decline in its core business? We’d love to hear your thoughts.
Wednesday, July 8, 2009
Which is the Better Strategy?
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2 comments:
I'm inclined to prefer TomTom's strategy. I've used a lot of OEM and aftermarket GPS units, and at the end of the day the only essential feature is turn-by-turn directions through the map interface. The other stuff is cool but not absolutely necessary.
In terms of a business model, it would be even better if TomTom tiered their offering so that you pay a one-time fee for basic features, and then an optional monthly subscription fee for premium services that people may care about (like traffic monitoring in your route). People could also pay for major navigation software upgrades and possibly map updates.
The downside to TomTom's approach is that they'll most likely end up competing against other GPS application developers, since the barrier to entry is lower. While brand recognition will help initially, it may be tough to stand out in the long run.
With the Garmin approach, I admire the chutzpah of throwing a direct shot at Apple, RIM, and Palm, but it's a huge, expensive gamble. Even established phone manufacturers like Nokia and Samsung have had little success in developing a credible and commercially viable competitor to the iPhone to date. I'm not sure how Garmin can fare any better. The risk is also inherent in the investment, as hardware design and manufacturing is more costly than porting software to a new device. Then they need to negotiate terms with carriers, all contributing to initial and ongoing overhead.
In short, I feel like TomTom's strategy targets the general populace, whereas the Garmin approach is aimed at GPS enthusiasts.
i sould think about it
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