|TomTom to Buy Tele Atlas – Shock Waves Surge Through Navigation Market |
July 24, 2007
TomTom plans to buy map data supplier Tele Atlas, supposedly to improve the maps used by millions of drivers, but leading industry analysts say there is more behind the deal.
“As people looked at the growing Location Aware market, it became clear that if you own the data, you can control the market, “says Michael Ippoliti, Research Director, Telematics & Automotive at ABI Research. “Fundamentally, everything hinges on the geospatial data and street-level data that is used to locate people and points-of-interest.”
Creating street-level map data is a tough process, slow and expensive, which is why there are only two major players, says Ippoliti. It is logical that data owners, and owners of data collection technology, are being snapped up by companies with plans in the Location Aware space.
“For TomTom, it will be a huge cost advantage. Map data is the single largest cost element for navigation devices, and when the largest personal navigation device maker can save millions of dollars on licensing fees, it will have significant impact on the marketplace,” says Ippoliti. “TomTom can greatly reduce its costs, while also reducing PND competitors' options, sending them into the arms of NAVTEQ, which gains de facto monopoly power unless TomTom creates a legitimately open business model.”
For navigation device makers, and other users of map data such as automotive suppliers and Web portals, the immediate impact will be small. Map data is modified (compiled) to run on individual device platforms, meaning device makers can compile the data from NAVTEQ or Tele Atlas, or both, without changing how their devices function. As end-users often can’t tell which company supplied the map data, price has become the battlefield, and a price war was looming. Tele Atlas had been very aggressive, making news a few months ago by convincing BMW to switch from NAVTEQ.
Both NAVTEQ and TeleAtlas have begun direct-to-consumer advertising, in the form of logos or tag-lines, saying they supplied the map data for a given device. In the same manner as Intel versus AMD, many consumers don’t care whose sticker is on the device they buy, so long as it does the job.
The merger will bring great relief to NAVTEQ, which has been competing vigorously with Tele Atlas and aggressively pushing for more market share. From the NAVTEQ perspective, its biggest competitor will be handicapped by being associated with a device maker. Other device makers will not want to support the profits of a competitor, and are more likely to choose NAVTEQ as a supplier. “This gives NAVTEQ much greater pricing freedom, and in fact may raise the eyebrows of regulators who could see antitrust concerns,” adds Ippoliti.
It is highly possible that the TeleAltas and TomTom combination may not pass regulatory approval. Despite the claims of due diligence and of creating an open business model, it will be much harder for TeleAltas to continue serving companies who directly compete with TomTom. TeleAltas could discount their map data, but at some point that becomes a money-loser for TomTom.
Word on the street is that TeleAtlas shareholders wanted a stock offer, not the all-cash deal TomTom has proposed. They wanted to share in the presumed growth in value for TomTom due to their acquisition. “So, could someone else swoop in and offer something to TeleAtlas which they can’t refuse? It would have to be a fair amount greater than the TomTom offer, because the deal has a 1% (20 Million Euro) break fee to TomTom, should the TeleAtlas board recommend anyone else’s offer. But at this level of play, 1% isn’t much,” explains Ippoliti.
Speaking of play, it is widely assumed this means NAVTEQ is now in play. There have been many smaller acquisitions of geospatial data companies, but this deal opens up a new level of consolidation. The other PND makers are probably feeling some pressure to snap up the only other street-level data vendor. Meanwhile, other Location Aware players may see this as “their only chance to own the data that underlies the market” according to Ippoliti. NAVTEQ stock jumped over 20% on the news, ending the day up over 18%. The jockeying for position has begun. Google is the obvious first candidate, since their presence and ambition in LBS is well known. Add in Microsoft, Nokia, and the PND makers – things could be very interesting over the next few months.
“Will the Tele Atlas sale actually improve map data?” asks Ippoliti. “TomTom has started collecting user input to modify map databases, a kind of Wiki-Map approach.which is interesting, but not very useful yet. One could argue the shift in competitive forces among map data suppliers may actually harm the quality of maps in the market. In the longer term, the buy-out could be a stimulus for other companies to develop alternative business models for map databases.”
Both TomTom and Tele Atlas are Dutch firms based in the Netherlands; it is hard to say if this will help the sale or not. It certainly simplifies the creation of a combined organization. If there is a required waiting period, or opportunity for counter bids, things could get very interesting. Microsoft, Google, and Nokia have been mentioned as potential bidders. Competitive PND makers such as Garmin and Magellan have to be wondering if their only option is to assemble a buy-out of NAVTEQ.
The market is collectively holding its breath waiting on the other shoe drop.