Could GPS technology become a commodity?

From the cell phone to the car, GPS technology is everywhere—and getting cheaper every year. Some say it’s now a commodity, and traditional GPS makers will struggle to compete. We take a look at the changing arena in the outdoor and fitness markets.
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GPS technology was the hot thing three years ago, with Garmin being one company that enjoyed a sharp rise in sales and in stock prices. But in the fast-paced world of electronics, what’s hot one day may be cool the next: There’s talk that GPS technology has already become a commodity, and some people say GPS companies like Garmin should be sweating.

Not only have a greater number of companies rushed into the automotive and phone markets with GPS solutions, but in the past few months Google and Nokia have launched free GPS turn-by-turn services for smart phones. When Nokia announced its free service on Jan. 21, 2010, the Motley Fool posted a story with the headline “Is This the End of the GPS?” (Click here to read the Motley Fool story)

So, is this the end? SNEWS® decided to ask the manufacturers themselves who market the technology for any number of outdoor, fitness and lifestyle devices from navigation aids to training equipment. The answer? Not really, said the folks both at Garmin (www.garmin.com) and DeLorme (www.delorme.com), two GPS players in those markets. While GPS technology might have become a commodity in certain sectors such as the automotive industry, and the proliferation of smart phones does pose a challenge, representatives from Garmin and DeLorme said they are still very much in the GPS game. 

“People have been prematurely declaring our death every time someone comes out with a new GPS device,” said Jake Jacobson, senior media relations specialist for Garmin. “People keep raining down doom and gloom on us, and we just keep doing what we do.”

Still, there’s no ducking the fact that when Google launched free turn-by-turn directions for its Android phones in October 2009, Garmin shares dropped 17 percent. Analysts questioned whether a company that focuses on making GPS units could ultimately compete with larger technology companies that create all-in-one electronic devices and also flood the market with free GPS applications. In October, the New York Times reported that analysts said they thought “Google’s service could chip away at sales of stand-alone GPS devices.”

According to the NYT report, GPS manufacturers also must deal with the trend of phone-based navigation systems: “By 2013, phone-based navigation systems, which are already more popular among younger smart phone owners, will dominate the market, according to a recent report from Forrester.”

To be sure, GPS companies are running fast and hard to keep up in certain markets, and indeed sometimes stumbling, but that doesn’t necessarily mean they will fold. Last year, Garmin introduced the Nuvifone, which combines a 3G cell phone and GPS, though it did see mixed reviews and disappointing sales.

However, in its earnings call Feb. 24, Garmin (Nasdaq: GRMN) reported revenue in its outdoor and fitness segments grew 24 percent in the fourth quarter compared to the same period last year. For the fourth quarter, the company’s total revenue reached $1.059 billion, up 1 percent from the fourth quarter of 2008.

The key is that there is still a strong contingent of athletes, outdoor and fitness enthusiasts and professionals who want and need specialized products with features not offered in the types of smart phones that appeal to general consumers.

“We focus on the serious outdoor activity market—where the pavement ends is where we pick up,” said Caleb Mason, vice president of the DeLorme consumer division. “We have a large following of people who think we have superior rural mapping and off-road mapping. And they like that we offer integrated products that do many things well—how we let you layer information on maps, go get aerial imagery, and have a rugged, waterproof, highly accurate GPS.” Mason said DeLorme has been especially successful serving businesses whose workers require the highest level of mapping capabilities and accuracy.

DeLorme is also branching out with new GPS solutions for those traveling beyond the pavement. At the 2010 Consumer Electronics Show in Las Vegas Jan. 7-10, DeLorme announced that it is partnering with SPOT to launch the new PN-Series GPS device, which uses SPOT’s satellite system to send text messages from remote locations where cell phones don’t have coverage.

Jacobson pointed out that Garmin’s Nuvifone and its GPS devices have the advantage that they don’t rely solely on available cell service. “With a lot of smart phone solutions, you have to tap into your data plan and your cell phone for navigation,” said Jacobson. “If you need directions and you’re in the middle of nowhere, suddenly you don’t have it when you need it the most. With our PND (Personal Navigation Devices) or the smart phones we’ve developed, the directions and points of direction are onboard, instead of offboard, and you don’t have to tap into a tower somewhere. “

Jacobson said Garmin’s position in the GPS market is also strengthened by the fact that the company serves a variety of markets.

“There’s no one else out there who does aviation, marine, auto, outdoor, fitness and mobile,” he said. As a result, Garmin doesn’t have to put all of its eggs in one basket. And the company he said also has a keen understanding of the needs of these niche markets.

“Our new portable aviation unit has everything you would expect in an avionics stand-alone unit, but also has the familiar interface of a Nuvifone, because pilots have to drive to the airport,” said Jacobson. “This way, they’re able to use the same unit in their car and in the plane. If you look at one of the other new smart phone solutions, it’s not going to have a pilot in mind.”

Garmin benefits from the additional fact that its employees participate in activities that their products serve. “We have people who are cyclists, triathletes and runners developing our fitness products, and we have people who hike developing our geocaching products, as opposed to someone just deciding, ‘Hey, there’s a market where I can make some money,’” said Jacobson, who himself ran a marathon PR at the 2009 Chicago Marathon he says in thanks to the smart pacing allowed by the Garmin FR60 sport watch he wore and trained with. (Click here to see a November 2009 SNEWS review.)



The challenges ahead

While GPS companies are entrenched in certain niche markets, they certainly face an uphill battle in the automotive industry. The automotive sector accounts for about 70 percent of Garmin’s business, and in the fourth quarter of 2009, revenue in its automotive/mobile segment decreased 2 percent to $812 million.

The automotive market is flooded with competitors, so margins and profitability are definitely being affected, said Jacobson. For example, Garmin’s Nuvi 885 Portable GPS Navigator was originally introduced at $999, and now sells for $200.

For its part, DeLorme has steered clear of the automotive sector.

“DeLorme consciously did not go into the in-vehicle market because we felt it would become commoditized quickly,” said Mason. “There’s no doubt the in-vehicle PND GPS market has become commoditized. And it is also under serious threat from the proliferation of free maps, and free GPS applications for cell phones. I’m glad we stayed clear of the PND market because it would have been overwhelming for a small company like ours.”

Still, Jacobson said that Garmin can afford to stay in the automotive game, as well as in its other markets. “Our margins have gone down just a few percentages in 10 years, because we find ways to do things smarter and reduce price of development,” he said.

In the meantime, the company continues to shrug off the notion that it will eventually be squeezed out of the GPS market. Jacobson said that those predicting doom for Garmin assume that the company is standing still. “And we have a whole load of engineers making sure we’re not standing still.”

--Marcus Woolf

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