Bryan Mistele, INRIX

The disruptive impact of Google’s two major moves in recent weeks -- switching to its in-house-generated map database, and offering a free Turn-By-Turn (TBT) navigation app with its Android 2.0-based smartphones -- has yet to be fully understood.

Accompanying the precipitous drop in the stock of companies like Garmin (-16%) and TomTom (-21%) on the day of Google’s Maps Navigation Beta announcement, rampant discussion ensued across the rapidly growing location-based services (LBS) sector questioning the long-term viability of the two main map providers, Nokia-owned NavTeq and TomTom-owned Tele Atlas; navigation providers such as Garmin, TeleNav and NIM; as well as the future of location-based services as a whole.

Does Google’s moves signal checkmate for the LBS industry? As the CEO of INRIX, a company with more than 80 customers and partners in this market, I offer the following perspective on these developments: Yes, the game has changed; No, it’s not the end of the LBS market; and likely, it’s the beginning of something even bigger. Let me explain:

1) The game has changed. Currently, NAVTEQ and Tele Atlas’s duopoly position in providing map data to web sites, mobile applications, portable navigation devices, automotive navigation systems and dozens of other applications accounts for combined revenue of more than $2 billion, of which 70%+ is attributable to navigation. More than a dozen companies including TeleNav, NIM, MapQuest, TomTom, Navigon, ALK, MotionX and others offer turn-by-turn (TBT) applications for smartphones that cost around $10/month or $60-100 for “lifetime” subscriptions.

Google’s move to create its own map database and offer “free” (ultimately to be supported by advertising) TBT navigation on Android devices not only threatens the application providers’ future ability to successfully monetize their applications but poses an even greater threat to the mapping duopoly which has defined the space for the last 10 years.

For consumers, the immediate convenience of a free app is a win but one with potentially negative long-term implications if a) Google’s free app does not deliver on its promise in terms of quality or reliability and b) the rest of the marketplace dries up leaving them without other choices – free or otherwise.

2) It is not the end of the LBS market. While Google is willing to act as an “irrational economic player” in an attempt to disrupt the established ecosystem, it does not “cut off the air supply” for the rest of the industry. However, it does have some important implications for the market, most notably:

Reduced Price for Map Data. Building a map dataset is a tremendously expensive task, requiring tens if not hundreds of millions of dollars to create and maintain a competitive product. Google’s moves will drive down the cost of map data, hurting Tele Atlas and NAVTEQ’s bottom line. As Google joins Nokia and TomTom as the only companies that own their own map data, as well as a device in the market for distribution, these companies will shift focus toward monetizing their ecosystems through other products and services just as Google does. Other companies like Garmin will become even more incented to forgo the expense of building their own map dataset knowing they can likely license the data from one of these three players for less expense over time due to the increased competition. The resulting impact of Google’s entrance into the space is a lower barrier for entry for application providers and other third parties IF they can break through with applications that can compete with Google’s free alternative.

For the application providers, the key question is whether Google’s navigation application will become the default app for all platforms offered by all operators and all handset makers – sucking the life out of the entire category. However, such an assertion is laughable by those who have been in the mobile space for a while as they understand that it’s not in the best interests of the many, many players across the value chain to allow this to occur since mobile operators, handset makers and platform providers always want to offer differentiated products. Rather, it’s much more likely that each of these companies will be even more aggressive offering their own navigation applications bundled with each of their individual products and differentiated with unique services such as premium traffic and other LBS features.

In short, Google’s moves will definitely cause disruption in the competitive landscape, but it’s hard to see how it will result in less competition either in the map data market or in the TBT navigation market. Instead, Google’s move will likely serve to spur innovation and increase competition in both markets even as it continues to challenge pricing models.

3) Likely, it’s the beginning of something bigger. Why? Because as technology markets emerge, the move is always away from standalone fees and subscription packages to bundled offerings.

In the early days of the automobile, car radios were an optional feature. Now they are bundled in. Car buyers still “pay” for these radios – it is just that their costs are now included in the base price of the vehicle. Likewise, in the early days of the PC, fonts were sold as an optional feature. Now they’re just bundled into the operating system and “free” to the end user.

This is a common trend and not even new to LBS. Although much is made of Google’s move to offer a “free” navigation app, the reality is the majority of navigation apps today are “given away.” When TeleNav (the largest mobile navigation application provider) recently filed to go public, it was revealed the majority of their “subscribers” are actually “free” because they automatically get the service as part of Sprint’s Simply Everything bundle – meaning the user pays for a high-end data plan and the navigation application is bundled in for “free." This is a good trend because although it will mean lower price points in the market for TBT apps, the volumes will be much, much higher as consumers benefit from them becoming a standard feature of smartphones, carrier data plans and mobile operating systems.

So, what can we expect moving forward? Instead of representing checkmate for the LBS industry, Google’s actions will likely galvanize the LBS market and push it from the early-adopters to a mass-consumer market.

The move should signal to every handset maker, mobile operator, and mobile platform provider that map data and TBT applications should be a standard feature of their services, and application providers need to adjust their strategies to align themselves with these firms. Longer-term, it will result in a much, much larger market than exists today, generating value for both the industry and consumers

Bryan Mistele is President & CEO of Kirkland-based INRIX, a provider of traffic services in North America, with over 80 customers and industry partners in the LBS space.

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