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TomTom shows Google the way

For all of Google’s intellectual brilliance, they currently do not have a business model for their maps — they have a superb tool, a lot of customers using it, no doubt a lot of costs … and unfortunately no outward sign of revenue. Even the attention-grabbing tiddly text ads don’t make an appearance.

On the other hand TomTom, the mapping specialists, have just declared record profits of €317m for 2007 on revenues of €1.7bn, expanding market share, and expanding into new areas by signing MVNO deals with Vodafone.

Step one: build a better mousetrap

TomTom differs from Google in that navigation and mapping is its core business and they sell dedicated devices. In fact, its nearest competitor is Garmin, who is stronger in the USA. TomTom finished Q4 2007 with a 49% market share in Europe and a 27% market share in USA.

The TomTom success factors are that its devices are:

  • easier to use,
  • more accurate than the competition and
  • a lot of people need help in navigating the roads.

In 2007, they launched two products that will keep them ahead of the pack. The first was MapShare, which actually employs the TomTom user base in correcting its maps and sharing the results with the rest of the community. A wonderful way to both lower costs and generate a sense of ownership for the product. Over a million of these map updates were delivered in 2007.

The second is TomTom HD which uses the Vodafone GPRS network to improve estimation of journey lengths and suggest alternative routes avoiding traffic jams. This is currently live in Holland and is coming soon to France (via SFR), Germany and the UK.

In fact, TomTom has signed a MVNO deal and with a 2-way always-on channel now to the devices, the options for innovation are pretty limitless. This is in stark contrast to Garmin who has recently entered the cutthroat handset business.

Some challenges remain

As far as we can see the only potential dark clouds on the horizon for TomTom are: the approval and integration of the TeleAtlas acquisition for €2.9bn; the complexity of migrating to 3D maps to show buildings as well as streets; and Google and Nokia wanting to muscle in on TomTom’s turf.

Any acquisition brings risk, but it helps that TomTom was already using TeleAtlas data, so that is minimised. The alternative of TeleAtlas falling into a competitor’s hands is probably much worse than the challenges TomTom currently face.

3D maps will entail new data collection challenges, require software upgrades and also certainly hardware upgrades. However, once the next generation products are launched, they will bring a new level of usability and also the potential for plenty of new services.

TomTom works to integrate technology and partners

The greatest ally to TomTom is fighting off both Nokia and Google will be to partner and share the revenue with key mobile networks. Obviously, they have an European partner with Vodafone and we expect a similar partnership to be announced soon in the other key market of the USA.

TomTom has a big advantage over Google in that GPS technology is already integrated into the product with the device knowing exactly where you are. This data can also be shared with others — an example being the TomTom Work application which morphs into a fleet management tool.

There is also the major point that both Nokia and Google have no track record in the subscription business, whereas TomTom has some limited experience and claims a current base of twelve million. But ultimately, the winner will be the company that provides the most compelling products.

From a one-sided to two-sided model

TomTom has a great opportunity to expand its business model into a 2-sided one. For instance, it is only a slight stretch from where they are today to offer customers a “guide me to my parking space” in city centres and automatically take payments via the mobile operator.

And with a GPRS modem already included in device, SMS-like functionality can easily be integrated to offer not only general chit chat, but also emergency and Yellow Pages services.

We believe TomTom has a bright future and it will see off all its challenges and challengers. It is also a perfect example of a multi-modal device which would benefit from a sprinkle of the 2-sided business model magic fairy dust.

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