Exploring Local
Mike Dobson of TeleMapics on Local Search and All Things Geospatial

More Insights on TomTom and the TeleAtlas Acquisition

July 23rd, 2007 by MDob

Although this follows the format of our earlier report we have added more details and taken a crack at answering the questions we posed earlier. Take a look.

Earlier today, TomTom announced a record breaking quarter. They also announced that they intended to acquire TeleAtlas in
what would be a $2.5 billion dollar transaction. The offer was a 32% premium over the then current TeleAtlas Stock price. On
the other side of “the pond”, Navteq (the industry leader) saw its stock rise approximately 20%, after the news of the
pending acquisition was announced. It is expected that the transaction will close late in 2007.

TomTom’s strategic acquisition of TeleAtlas has all of the intrigue one would want in a mystery novel. Questions that are
on the minds of industry analysts include:

Question: Does TomTom intend to develop an in-car navigation business in addition to its successful PND (Personal Navigation Device Market)?

The answer here looks to be a “Yes”.

Question: TomTom was 40% of TeleAtlas’s revenue. Other PND manufacturers were responsible for another large chunk of revenue, while in-car systems accounted for less than 20% of the total. Will TomTom continue to support these revenues lines or, will the cost savings on its map database licenses be so significant that it can jettison some of these businesses after a couple of years, leaving Navteq even better positioned than it is now in terms of market leadership?

We believe that TomTom will remain in these businesses for a while, but will eventually exit them as it becomes at
cross-purposes with its potential customer base. Although TomTom has shown its mettle as a consumer products company there
is little evidence that it has the appetite or wherewithal to become a data supplier to others in the industry.

Question: If TomTom accrues significant cost savings by acquiring TeleAtlas (reducing licensing fees for its use of map data), will it be able to lower the pricing of its PNDs? Currently, the going rate for a database license from either
TeleAtlas or Navteq is in the $20-$25 range. In essence, the data is more expensive than the GPS chip, processors, screens,
keyboard, case and other components, perhaps except software. Will this change in market dynamic give Navteq the ability to
raise its data licensing price to the PND industry?

TeleMapics feels that the cost savings related to reduced data licensing fees will allow TomTom to “move markets” through
cost reduction. Navteq will have the ability to raise prices to the industry, but can do so only at the risk of spurring new
competition in the market.

Given the time it would take to build up competing databases, it is unlikely that the threat of a strategic competitor will
dissuade Navteq from raising prices (although the Justice Department might). However, it is possible that increasing data
pricing will raise the specter of regional or country-based competitors, who desire to compete on a localized basis, since
this type of company could develop its database and attributes on a reasonable time-valued investment basis.

Question: Does TomTom see the end of the PND market and the rise of its successor -the mobile Location Based Services market? Is the acquisition of TeleAtlas a strategic move to capture more of the supply chain for what will become an enormous market?

We believe that TomTom is well aware of the potential threat that cellular Location Based Services will leapfrog the PND
market. Whether they have the skill sets necessary to compete as a “supplier” in the complicated world of wireless telecom
is less clear. On the other hand, this may make TomTom a desirable acquisition for one of the leaders in the world of
telecoms. Perhaps TomTom might become a desirable acquisition candidate for a savvy handset manufacturer, such as Nokia, who understands device manufacturing and software.

Question: Will TomTom remain interested in supplying maps to online mapping services like Google, Yahoo, MSN and everyone else, or will it abandon the business to Navteq?

We suspect that they would like to continue supplying these data, since it is a lucrative source of income. Perhaps the
inverse question is more appropriate. Since all of the online providers of mappings and local search are developing
platforms for wireless Location Based Services, will they want to play with a supplier who will also be a competitor in this
market? We think the answer to this is “no”.

Question: What reaction will online mappers have to the acquisition? Will the industry complete its move to using Navteq data or will they attempt to stay with TeleAtlas (if it continues to supply the market)?

It is likely that the online search companies who use maps in support of local search and other online and wireless products
will migrate towards more dependence on Navteq. It is possible that the larger providers will consider entering the data
side of the business, but only if it is a necessity provoked by their estimate of the probability of Navteq being acquired.

Question: Will the change in supplier flexibility spawn new suppliers in the map database market since most companies like to have at least two suppliers for strategic reasons?

As we indicated above, it is too early to tell. Building navigable map databases is a complicated process and it has taken
Navteq and TeleAtlas twenty years to produce the coverage that they now have (which is not yet global). New suppliers will
likely emerge on a local or regional basis and may eventually grow to become a significant threat.

Question: Will the near release of the augmented Tiger Files (the TIGER/MAF modernization research) and the potential absence of TeleAtlas as a supplier spur the entry of a new supplier who will use these new, spatially accurate files as the basis for creating a navigable map data base for the U.S? We think there is a high probability that this will become a reality.

Question: What will Garmin’s reaction be?

Currently TeleAtlas is a minor supplier for Garmin products, but in May of this year the companies announced a deal in which
Garmin will use TeleAtlas data in a PND to be distributed in Singapore and Malaysia. Garmin’s overall concerns will be
focused on the leverage this deal may give Navteq in the future and the pricing pressure it may allow TomTom to exert on the
PND market.

Question: Will the potential ability of TomTom to significantly reduce its cost of goods through a reduction in its map licensing revenues and newfound pricing flexibility put Garmin between a rock and a hard place (reducing price at the expense of profit since its map licensing costs will not decrease)?

Maybe. Especially if Navteq raises prices as it leaves its present duopoly with TeleAtlas behind. If Navteq does raise
prices, data users may have to re-evaluate their products and the data coverages that they can afford to provide. In effect,
PNDs might be sold only with comprehensive state databases in the US or country databases in Europe accompanied by a “highway map” type of detail for adjacent regions.

Final thought: Don’t look for Navteq to enter the bidding for TeleAtlas (too many insurmountable market dominance issues). But now that the industry is in play would Google or some other company really feel the need to protect their mapping assets by ensuring access to navigable map databases and acquire Navteq? Although I had thought this move unlikely to happen, acquisitions of suppliers often produce unique responses. Until now, Google has shown little interest in owning data assets and great interest in owning technologies.

Question: Will that change with the TeleAtlas acquisition?

There may be a unique solution to this problem in the form of a consortium (let’s say Google, Yahoo and Microsoft) that would
acquire Navteq to preserve access to the data needed by a growing number of companies. If this is true – be sure to call us for our master plan before you proceed! Just Kidding (maybe).

Thanks for tuning in!

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Posted in Data Sources, Google, Mapping, Microsoft, Personal Navigation, TeleAtlas, TomTom

One Response

  1. software developers

    That was inspiring,

    Keep up the good work,

    Thanks for writing, most people don’t bother.