Thursday, February 26, 2009

Navigation – In search of the right business model

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In the last few years, many industries have been impacted by mobile phones. Nokia is now the largest producer of digital cameras since the time cameras have been embedded into mobile phones. Another industry that is facing the heat is the Personal Navigation Devices (PND) industry. Now many new handset models are GPS enabled and maps are available from a host of companies like Navteq (Nokia), Google, etc. Despite a strong ecosystem building in this space and the high decibel noise navigation has managed to create, the adoption of this service is abysmal. Most of the industry players blame the developing content and low availability of digital maps for the low adoption. However, I would blame the wrong business model.

A look at the comscore, which provides the data on internet usage, reveals that on an average people use maps just two times in a month. Even in the US market, the number of visits is just over two. This means that people do not need the navigation/ map services very often as they normally go to places that they are aware of. Over 80% of the travel for most of the people is between home and office. People need navigation only when they are on vacation or on weekend trips or when they going to a completely unfamiliar area. However, such occasions are few and hence the subscription model for navigation deters high adoption. The high annual subscription charge of $75-$150 prevents people from committing themselves for this service. In many markets, this is substantially higher that the ARPU (e.g. in India, the annual revenue per user is $72) which means that it is way beyond what most people could afford or are ready to pay for.

Which business model is likely to succeed? I have no answers to this question but the industry players need to try out different models before hitting the sweet spot. It is clear that the subscription model at the current pricing will not cut ice. There are various other mechanisms to monetize the navigation service. On the methods could be monetizing through advertisements in which the advertisements are displayed on the map. The advertisers can entice the users by pushing promotions and deals which the consumer can utilize for instant gratification or information. The opportunities for advertisement are enormous as the screen keeps changing as the users navigate from one location to another. However, the difficulty here is that the usual advertisements cannot be charged based on CPM, CPC or CPA model. The advertising models for navigation are still in the nascent stage. Another model is transaction based in which the user pays only when he uses it. If the cost per usage is as low as that of an SMS, users would use this service more often. Instead of sending business cards or address details, people would send location tags to one another which could be used for navigate to the other person’s location. Yet another way of monetizing could be using the location for applications like traffic and for applications aiding security. The developers should be encouraged to develop applications that use location as an input so that the consumers find utility in the GPS and navigation. I am happy to hear announcements at Mobile World Congress by various handset vendors and OS players on setting up application stores. The competition amongst application stores would encourage developers for innovation. Even the higher revenue share for developer is good news. Higher adoption of location based services would also result in economies of scale resulting in higher profitability at lower price.

The future of navigation is not on PC but on mobile and that has been understood well by Google which is trying to emulate the maps experience on mobile phones. Once the maps are available on phone and the consumers start to use navigation and other location based services, the usage on mobile would jump from twice a month to at least ten times a month. Can we see a day when the navigation services are free and money is bade from advertisements and other applications based on location?

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