Tuesday, November 30, 2010

Got Maps?

Last week’s announcement that Steve Coast, the founder of OpenStreetMap, had been hired by Microsoft’s Bing Map group was the latest move in the high-stakes play to own and control the digital map, and the underlying location-based services. In four years, the industry has moved from the seemingly unbreakable duopoly of NAVTEQ and Tele Atlas to a place where most of the major players want to control their destiny through proprietary map data, or, failing that, an open, free data set.

Digital maps are notoriously hard to build and expensive to maintain. NAVTEQ and Tele Atlas have invested billions building authoritative map databases. Until a couple years ago, the assumption was that they would remain unchallenged in a not-so-benevolent duopoly. The two rivals awkwardly mixed their desire to capture emerging business models with a in-bred conservatism and desire to maintain high margins in the automotive and PND markets. Since they controlled the eco-system, they decided which business models to support and consequently which services could be offered. This control led to high valuations: in 2007 NAVTEQ and TeleAtlas were acquired by Nokia and TomTom for $8B and $4B respectively.

But technology and markets have never favored the stodgy, and when the stakes become high enough, previously unreasonable alternatives become reasonable. Google led the disruption, using their StreetView assets and a major investment to build their own maps, first in North America and more recently in ten new countries. I was asked by a banker about Google’s Return on Investment in building their own map. My answer: “It is a meaningless question. Google never asked that.” They did it because they needed to control such a valuable asset. They didn’t want to wait for quarterly updates or ask a business affairs group if, pretty please, they could use a new business model or attach their own ads to the maps. So they are building their own and phasing out the incumbent (Tele Atlas).

So now Google’s competitors have a problem. Google will own their own maps and have the flexibility to further their dominance of the mapping business and the lucrative local search market.

Nokia has a solution (NAVTEQ) although they can’t be happy with the price paid. And the self-imposed Chinese Wall between Nokia’s Ovi business and NAVTEQ only inhibits Nokia’s ability to capitalize on that asset. My bet: that wall crumbles over the next year and Nokia combines its mobile assets to improve the mapping assets.

The other people who want to compete with Google have a problem. They can’t afford the investment to build their own maps, but equally can’t have their future paths held hostage to pricing strategies designed for the automotive industry. The answer: Look at crowd-sourcing options, with the leading candidate being OpenStreetMap.

OSM was started by Steve Coast five years ago as a wiki-style map alternative to the British Royal Ordnance Survey. When I first met Steve 5 years ago, I thought “Cute idea. It will never work.” Today, OSM has over 300,000 contributors and has mapped much of the world, often in much more detail that the commercial map vendors. An imperfect but useful analogy is to think of OSM:NAVTEQ and Wikipedia:Encyclopedia Brittanica. And all this was done with little funding by folks who just like mapping.

Last summer, OSM got a major boost from AOL/Mapquest when they announced that they would use OSM for some territories and would fund the community to accelerate the building of the map. Their goal is to develop an alternative map, possibly richer than the conventional ones and certainly less encumbered with restrictive business models. And last week, Bing entered the fray, hiring Coast and announcing material support for the project. What was once a small movement is getting powerful sponsorship from major brands who see it as a low cost way to neutralize the advantages Google and Nokia have achieved through massive investment.

Two big names aren’t in the fray yet: Apple and Facebook. Both have big ambitions in location. To date, Apple has relied on an uneasy partnership with Google Maps. At the same time, they have made two map-based acquisitions and clearly have work underway.

Facebook is a more recent entry with strong moves to launch a check-in service around Facebook Places and subsequently Facebook Deals associated with those Places. They may be making the strongest competitive move of all: basically asserting that maps aren’t that important after all. What really counts is a robust places directory and the ability to determine what is nearby. This is characteristic of the map-less location revolution that has been commented on by Tyler Bell and others. If that view prevails, the massive investments by Nokia and Google will look misplaced. But if Facebook thinks maps are important for local search, user context or any other reason, look for them to invest in a solution that will give equal independence from the map data suppliers.

The recent investments in OSM by AOL Mapquest and now Microsoft can fundamentally change the choke point that map data has had on the market. Other start-ups like Waze will also offer solutions. But these will need scale to succeed. They will also need to answer questions about accuracy, completeness, authority and licensing. But the market need is evolving quickly, and the bar for “Good Enough” may adjust to allow for many solutions not though possible a few years ago.

Thursday, July 29, 2010

Tracking M&A in the Location Business

Jon Spinney has been tracking M&A activity in the LBS world for about 4 years, kind of as a hobby. He has been good enough to make the information public; you can find the spreadsheet here. For many of us in the business, it has been a great resource and as interest in the location market grows, I find it one of the really good, free sources if information on who is buying what and for how much. Sometimes that historical perspective can be very useful. There's not much commentary on the why, but that can happen elsewhere.

For a variety of reasons, Jon has decided that he wants to pass on the management of the list and I have agreed to take it on an maintain it. Jon's blog on the transition is here. There's also a very cool graphic showing M&A activity by year that you may enjoy.

My involvement and goals will be much the same as Jon's.
  • I am doing it as a volunteer but will do my best to maintain it as a useful list
  • I will continue to make it available for free
So my thanks to Jon for all his good work. Take a look at the spreadsheet. Download it if you'd like to play with it. Mostly, please help me keep it current. If you see or hear of anything that should be included, let me know. As the "location" business spreads out, it's less clear what should and shouldn't be on the list but that's where judgment comes in. For better or worse, the list is now subject to mine, but I am open to input.

I was also thinking of doing a similar list of financings in the LBS space. that's a much more complex world, but let me know if that would be interesting. Or if it's already done elsewhere, let me know where.

Wednesday, July 28, 2010

The Billie Ray Valentine Contest

I've been hearing about an underground discussion among the tech crowd called the Billie Ray Valentine Contest. I am not the originator of the contest but since it seems only to be passed on in the crowded hallways of tech conferences, I thought I'd explain it here.

Who is Billie Ray Valentine?

Billie Ray is the Eddie Murphy character in the movie Trading Places. Think Dan Ackroyd and "Lookin' Good, Billie Ray".

The story line in Trading Places is that the Duke Brothers (evil Investment Bankers) bet each other "the standard amount" ($1) that they can take a bum off the street and make him into a Wall Street Wonder. Billie Ray gets picked after he tries to rob their exclusive club and they proceed to make him into a star trader, to the detriment of Louis (Dan Ackroyd) and the benefit of the general viewing audience via copious coverage of Jamie Lee Curtis, back in the day before she was pushing digestive-friendly yogurt, if you know what I mean.

What's that got to do with Tech?

Believe it or not, there is a feeling that the opinion makers of technology sometimes get it wrong. In fairness, a lot has to do with jealousy. But fairness is always a lot less fun than unfairness so here we go. Let's assign roles for the technology crowd:

Think of Duke #1 as a Tech Pundarrati (played by, say..Michael Arrington, but you could cast Om Malik, RWW or any number of others) and Duke #2 as a rock-star Angel (starring maybe Ron Conway, Dave McClure, etc.). They bet the standard amount that by Duke #1 doing some on-line drooling about the New New Thing and Duke #2 investing a modest amount ($20K, $10K, $10...does it matter?) in some useless company, they can launch it into the techno-stratosphere. Not sure who the Dan Ackroyd character is, and if you're wondering who the Jamie Lee Curtis character is,
she doesn't exist, at least not in any tech crowds I am in.

The object of the game is: Who would you cast as Billie Ray Valentine?

I'll leave it to someone smarter than me to figure out how to run the game online but chime in in the comments if you want. Maybe it needs categories like the Academy Awards. I'm in the location business and I've heard a few nominations in that genre.

Looking Good Billie Ray!

Unrelated: The other game that would be interesting is to find the Kevin Bacon of Location. For another time.

Monday, November 2, 2009

Notes from the TeleNav S-1 Filing

On Friday (Oct 30, 2009), TeleNav filed an S-1 form in preparation for an IPO in the coming months. There is always a lot of interesting information in the S-1's since they give the first inside look at successful private companies. Given the interest in location based services, TeleNav's success, the lack of other location based IPO's and the recent announcements by Google about navigation, I've been wanting to read this one.

The following are some of the things I picked out of the S-1. The full document is here if you want to see it yourself.

Nice Financials

TeleNav has hinted at strong revenue growth and the filing backs that up. They've had sequential revenues since FY05 of $7M, $17M, $28M, $48M and $110M in FY09. Income went positive in 2008 and they has $41M EBIT in 2009. Earnings per share were $0.12 in 2009. Pretty impressive numbers.

11M paying subscribers

Subscriber numbers are always a little hard to understand since the business likely consists of annual subscriptions mixed with some short term usage. But $110 revenues on 11M subs sounds like an average of $10/sub/year. And that includes the costs of map data. So I am guessing that a lot of those are short term subscriptions. They are also getting a lot of subscribers through Sprint's bundling program, which would reduce the ASP. Still, a very nice number of subscribers.

Two Big Mobile Operators account for 89% of the revenue

Sprint is 55% and ATT is 34% of revenue. It's a pretty concentrated business model. Five year ago, Sprint was at 90% so they have grown the ATT business well to balance that. 90% of the revenue is from GPS Navigator and only 10% from their MRM product. Not too unexpected.

They talk about expansion into automotive, and the obligatory comments about building business in location based ads, social networks and commerce. Unless there's a lot more happening with WhereAbouts, I haven't seen too much there.

BIG organization

735 people, with 453 of those in China. That's a lot of engineering firepower.

Risks and Competition

Yes, they did amend the S-1 to mention the last weeks announcement of a free navigation service from Google:

"Competition from these free offerings may reduce our revenue and harm our business. "

Yeah, ya think?

They also talk about increased competition from small companies providing similar service via App Stores (FullPower, Skobbler, etc.).

TeleNav has done extremely well and built a very nice business, but the challenge will be to support that business model in a quickly changing environment. The Google threat is pretty obvious and has been well documented. But the challenge from the App Stores is equally serious: freed from the necessity to support multiple handsets and the carrier-managed gauntlet, small engineering teams can launch competitive products for very low prices. And then all those costs to support the carriers become liabilities.

Ultimately, a lot of TeleNav's strategy is based on aligned interests with the carriers. Sprint and AT&T are making a lot of money from these services. They can't be happy about the move to free either. But it's not clear that they will have the capability to provide a compelling alternative.

The next vote on TeleNav's potential will be cast by the capital markets. Be interesting to see.


About Me

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Palo Alto, CA, United States
I have worked in the location business for 15 years, starting when you had to tell people what GPS was. I help companies involved with (or wanting to be involved with) the geo market in the areas of marketing strategy, M&A and Corporate Development. I blog sporadically.