You know, sometimes you just get a feeling about things and I have that feeling about HERE, so I wrote this blog. I do not have powerful data to support my opinions, but my time in mapping tells me that my feelings on the issues are right, or as close to right as one can be without having inside information – which I do not have. This is not a “How to win friends and attract clients” topic, but lets have a go anyway.
Yesterday I read an article detailing the departure of Michael Halbherr who was the head of HERE, Nokia’s mapping division.
I chortled to myself when the reporter of the article noted that HERE, according to nameless analysts, “…could fetch around $6 billion if Nokia decided to sell the unit.” What the reported did not mention is the Nokia paid $8.1 billion for NAVTEQ (now HERE) in 2008. Presuming a conservative, cumulative rate of inflation between then and now, the purchase price in 2014 dollars would represent approximately $9 billion. Through superior management, groundbreaking strategic planning, and the reduction of budgets for compiling map data bases, Nokia has managed to lop off $3 billion in value in 6 years. In addition, some rights related to the use of HERE’s map data were provided to Microsoft as part of the interestingly engineered purchase of Nokia’s handset division. Whether a potential acquirer of HERE would pay $6 billion might depend on confidential aspects of the grant of rights that Microsoft negotiated with Nokia regarding their future use of HERE data. Guess this means that the loss might be even greater than $3 billion after the bids fly.
According to the Time’s article, Halbherr, who reportedly had clashed with Nokia’s new Chief Executive Rajeev Suri, was leaving the company “…to pursue his own ‘entrepreneurial interests outside the company’.” The departure should generate a doozy of a non-disclosure, non-compete agreement. Imagine that, leaving a unit that could be the target for an acquisition to pursue your own entrepreneurial interests. I think I would have waited to see what happened – unless of course nothing was going to happen. On the other hand, I might leave if I was interested in joining a group that was interested in buying HERE – especially if the potential acquiring entity was a financial buyer (more later).
I am sure that Halbherr was frustrated with Nokia’s management. I am equally certain that Nokia was frustrated with Halbherr’s lack of strategic focus.
Let’s look at the situation from a few perspectives.
2007 – 2012
While thinking about Halbherr’s departure I noted that I had written some sage words about the deal at the time that it happened. In a 2007 report I opined that the acquisition would create new competitors in the mapping industry. The reasons for my conclusion were:
1. The deal (along with the acquisition of Tele Atlas by TomTom) would create uncertainty surrounding the supply of data in various industry segments (Automotive, Mobile and Online).
2. PNDs (personal navigation devices such as Garmin or TomTom units) exploded into the market in 2005-2007, but it was likely that the volume sold would rapidly decline in the face of the migration of navigation and mapping to the smartphone.
3. The deal would generate pricing concerns in the industry due to the consolidation of map database suppliers.
4. Other strategic considerations surrounding the acquisition might reduce NAVTEQ’s effectiveness in the marketplace (competition, brand management, integration with Nokia, etc.)
5. A belief that new technologies and new approaches to map compilation might lower the cost of map data collection.
I note, in retrospect, that all of these events transpired and none of the outcomes were beneficial to Nokia.
My understanding is that life in NAVTEQ-land came to a standstill after the acquisition. Nokia botched the integration and then fired many of Navteq’s managers who understood both mapping and the target industries that could have been further exploited by Nokia. Examples of marketing errors abound, but let’s not forget one of my personal favorites – OVI Maps
Several companies integrated new technologies to reduce the cost of data collection. Google developed its mobile location pod that generated Street View and numerous other pieces of data that could be used to reduce the cost of map compilation, while expanding the currentness and breadth of the data that was needed to create a modern mapping system. Crowdsourcing changed the face of the industry and its economics, but Navteq was slow to embrace it, and even slower to find a way to adequately compete with Google’s fleet of low-cost map data collection vehicles.
PNDs took a calamitous nose dive as expected, but Nokia was not quick enough in integrating mapping applications into its phone-based ecosystem.
2012 – 2014
Given the declining performance of HERE in the online market and its seeming inability to keep competitors out of its niche in the dashboard and bus of motor vehicles, it is my opinion that HERE’s main weakness is (and has for some time been) underfunding the expansion and continued development of its map/navigation database.
My belief is that HERE has grown into a marketing driven data company that wears blinders. The industry reports are that HERE does not listen to its customers. Furthermore, the company has been slow to produce the data and innovative services that its customers need.
Lastly, HERE has been seen by Nokia’s management as an embarrassment to, as well as a leaderless entity within, the Nokia family of companies.
I doubt that Nokia can afford to compete in the mapping wars with Google and Apple.
The last potentially meaningful data we have on Navteq’s database development and delivery was that it spent $273 million in the first nine months of 2007 in the pursuit of a better database. At that time the amount that NAVTEQ spent during a partial year far outstripped the combined expenses of all of its competitors for several years. I doubt that HERE is now spending at a comparable rate to maintain and expand its database.
While the amounts that Google is spending to expand its mapping/navigation/location databases may not be sustainable in the long run, the large investments in mapping that they continue to be willing to make have put them far ahead of anyone in the mapping arms race. Perhaps the more important issue is that few potential acquirers will understand that the amount of money HERE is spending on database development is grossly inadequate to grow the business in the mapping/navigation/location marketplace or to compete with Google or Apple in the future.
Buyer, buyer, who has the buyer?
First, I am not sure that there are many strategic buyers who would be interested in HERE.
I have heard from my contacts that Samsung was once interested, but its recent financial difficulties seem to preclude taking such a step. Microsoft could be a potential buyer, but seems to be looking inward and may have already made a bad investment in Nokia that could sour future interest in another Nokia-related acquisition. Certainly it is possible that some strategic investor may try to low-ball a bid for an entity that Nokia no longer wants, but I am not sure any company that might make such a bid will have either the wherewithal to manage the company to success or the bankroll to make it competitive.
Intel tried to get in to mapping/location with its acquisition of Telmap, but has already closed that company and taken another approach to the location market. Other potential buyers may be out there, perhaps in the form of companies in the mobile phone ecosystem.
The alternative scenario is that a financial buyer will see HERE as an opportunity to make beaucoup bucks (esoteric financial term). What a horrible mistake that would be for them and HERE!
Strategic buyers often find it necessary to reduce the expenses of an acquired company to make it look like an acquisition is working to generate new profits, but in the case of the underfunded HERE, this could be a disaster. Financial buyers usually take the same approach, but often complicate the situation by adding a layer of management representing the values of the financial investors. Often, the new CEO will be a person who met a principal of the new owners while playing golf. The financial manager will note that this potential CEO once used a folded map, said that they really like Google Maps and Street View. He or she will have been the head of marketing for a consumer products company.
Oh, my head already hurts for HERE. The common approach of financial buyers is that they will flip rather than fix companies that underperform. It appears that turning a company around degrades the time value of money too much. My guess is that it would take at least three-years to transform HERE into the formidable machine that was once NAVTEQ.
The sales pitch during the acquisition will be, “We don’t know anything about your business (true), and we will not try to manage it for you (false).” They may not know about HERE’s business, but their bid will be based on how well they think the HERE business could/should perform and how far they think they can beat the fat out of its management based on expense considerations, not strategic considerations. And when the business does not perform well after these reductions, they will cut the budget again – and, at that point, it will become abundantly clear that the acquirer knew little about the business of HERE.
Of course, in this case such a lack of experience is to be expected. Who does know much about running a map and navigation business nowadays? Neither Google nor Apple are independent mapping companies. They are companies that forward integrated into mapping to expand their core businesses. Perhaps this is the road that needs to be taken with HERE, although this is the failed road that Nokia took in 2007.
After I finished reading the Halbherr resignation article I laughed once again, but this time at the irony of the whole thing. After all, the logical endpoint of Nokia crashing HERE is a duopoly in mapping of Google and Apple. Imagine that – in 2007 the duopoly fears focused on NAVTEQ and Tele Atlas going to Nokia and TomTom, companies that would have an insurmountable lead in the world of mapping. So much for insurmountable leads. TomTom…TeleAtlas…. Don’t even ask!
By the way, I have been working on a piece about symbolizing maps for those lacking a background in the language of maps. Every time I pick it up I realize that it would take a book to do the topic justice, but I do not want to write a book. So I start rewriting. Someday I hope to finish the article, but it’s a pain trying to find the right approach and tell the story concisely. Sorry for the delay.
One more thing – it’s late (about 2:15 AM PDT) and I apologize for any typos in this blog. My eyes are just too tired to “see” them.
Until next time.