When TomTom announced last July that it has agreed to acquire Tele Atlas for $2.77 billion, the navigation industry praised the bold move and wondered about the rational behind. Is it an offensive move or rather a defensive one ? We believe there are four good reasons:
- Mapshare: TomTom believes in leveraging its huge community to update maps with its mapshare technology. The only way to be allowed to change the maps is actually... to own them. TomTom then hope to generate the most updated maps ever.
- Growth: one of the most promising markets for the next 5 years are also the less covered by map providers: Latin America and South Asia. Buying a map provider would provide TomTom an opportunity to speed up coverage.
- Content: with declining hardware margins and battles on price, GPS manufacturers are eager to generate recurring revenues and improve differenciation. Content will be the king to achieve these goals: dynamic points of interests and user-generated content should soon complement the current content offer from Navteq and TeleAtlas. And acquiring one of them is a way to move up the value chain.
- New market: GPS phones are about to hit the market, each of them with a map and a navigator. Owning the map, TomTom will grab a substantial piece of the market.
This move has now triggered a battle between TomTom and Garmin. The latter (as reported here) is now making an agressive counter offer. We should know this week how TomTom will react. And if the original move was offensive, TomTom is clearly now on the defensive side !
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