Where some see nothing but travail, others see opportunity. TomTom is among those in the latter group. As both TomTom and chief rival Garmin, in their recent earnings reports, admitted to flattening sales of standalone PNDs, the two have set out on divergent strategies.
For Garmin, the strategy is diversification emphasizing marine, aviation and outdoor recreation. TomTom, on the other hand, like an embattled ship captain at sea, is turning towards enemy fire – narrowing its focus on providing the best navigation/routing/traffic solution with connectivity as a wild card. In spite of the brilliance of its European strategy, though, the U.S. remains an Achilles heel for TomTom.
This week TomTom clarified its plans to implement a new open platform and push its connected device strategy. TomTom’s approach is not without risk, but no one can fault the company for being bold. When Google is breathing down your neck it is certainly time to be bold.
The cornerstone of the company’s new strategy is a reduction in the monthly fee for TomTom’s HD Traffic subscriptions from 9.95 Euro/month to 5 Euro/month. But there is much more to the campaign than a simple price cut.
First of all, TomTom is able to adjust its pricing because of a new deal with Vodafone. Where Vodafone had a revenue share in the past, it now receives a flat fee from TomTom. While the revenue share may have been satisfactory – as TomTom recruited 700,000 Live Service subscribers – the thinking is that the flat fee will make more sense for both parties as TomTom engages in a broad PND/navi connectivity campaign.
As part of the new campaign, purchasers of TomTom connected PNDs – beginning early in June (in Europe) - will get a full year of free access to HD Traffic data. After that first free year, customers can subscribe at 5 Euro/month or annually for 49.99, a 10 Euro savings on the monthly subscription.
TomTom’s objective in launching this program is to increase the purchasing percentage of connected devices from 40% in 2010 to 60% in 2011 and 80% in 2012. Given the fact that the average PND/navi – by TomTom estimates – lasts 3-4 years before replacement, the company expects that 90% of its customers could be connected by 2014.
By TomTom’s estimates, that means a user population of more than 25M units reporting GPS probe data for traffic analysis on top of the existing Vodafone cellular hand-off data. TomTom and Strategy Analytics are certainly in agreement on a few things, chief among which is that traffic data is the single most important data element to navigation device users.
This analyst believes that TomTom’s HD Traffic is the industry standard for accurate traffic data. TomTom, not surprisingly, also believes this to be true and is expanding the scope of HD Traffic data to 16 European countries from 7, although the timeframe is unclear. Live Services will also be offered to a wider base of 14 European countries.
TomTom is a little unclear on which countries will get HD Traffic or Live Services and when. The company actually has a total of 30 countries set for Live Services launch within the next 12 months, 17 of which are expected to get HD Traffic.
Clearly, HD Traffic has become a key to TomTom’s strategy. It is a critical differentiator. But TomTom recognizes that competitors are working aggressively to integrate both their own cellular hand-off data inputs and GPS probe data. The new TomTom strategy appears to be targeted at cementing the company’s existing traffic leadership position ahead of the arrival of competitors.
TomTom’s Vodafone relationship is unique “force multiplier” for TomTom. The hand-off data not only gives TomTom an industry-leading traffic solution, it also opens doors to logistics business opportunities such as billboard, cell tower and store location and municipal and regional traffic management.
But TomTom’s ability to extend this advantage to the U.S. has run into intransigent U.S. carriers and existing players – AirSage and IntelliOne – that have already negotiated their own access to cellular hand-off data. This impasse is evidenced in the TomTom product plan which includes devices with “local” and “Euro-wide” data, but only a handful of models that merit a mention of U.S. data.
TomTom says its new campaign will eschew “ultra-low margin” products and price points and focus on mid-high segment products targeted at replacement buyers. The strategy appears to be an acknowledgement of two key issues:
#1 – PND/navi buyers are a unique breed and prone to replacement purchases. TomTom claims a high customer loyalty rate (80%) and clearly wants to win over Garmin customers.
#2 – Most of the growth in navigation is coming from mobile/smartphone and embedded navigation customers.
Which brings us to the final “fly-in-the-ointment” for TomTom. TomTom’s own market survey’s show traffic as the single most popular application for navigation customers, a finding corroborated by Strategy Analytics studies. TomTom also acknowledges in its own research that Google Search is the second most popular application.
While TomTom has opened up its platform – via its implementation of the Webkit OS – and plans to open an application store, the company will eventually have to reckon with Google. TomTom has no answer to the bottomless pit of POI data resident within Google.
TomTom’s community-based approach to map updates and POI data is a powerful answer to the strategies of OpenStreetMaps and Waze. But unless TomTom can find a POI or search partner to counter Google its bold new marketing campaign may come to naught.
http://bit.ly/bMeg36 - Global Mobile Handset Navigation Forecast 2004-2014 – Nitesh Patel - Navigation and Location Opportunities
http://bit.ly/aoQdpd - North America Mobile Handset Navigation Forecast 2004-2014 – Nitesh Patel – Wireless Media Strategies
http://bit.ly/aHhWeV - Nokia & Google Shake Up $3.8 B Handset Navigation Market - Nitesh Patel - Wireless Media Strategies
http://bit.ly/cc6O9K - PND Owners Unlikely to Discontinue Using Their Device - Chris Schreiner - Automotive Consumer Insights
http://bit.ly/c5f65I - Automotive and Portable Navigation Market Forecast 2008-2016 - Joanne Blight - Automotive Multimedia and Communications Systems
http://bit.ly/b5W8ZS - Nokia and RIM Push Into Automotive as ‘Apps’ Competition Mounts - Joanne Blight - Automotive Multimedia and Communications Systems
http://bit.ly/9NoM13 - From Probes to Crowd to Community to Ads – Traffic Data Evolving Rapidly - Roger Lanctot - blog - Global Automotive Practice