GPS: Locating an uncertain future

Global Positioning System (GPS) data is seeping into practically every segment of business and society. Trucking companies use it to manage their fleets. Surveyors use it to map streets. Businesses use it to control remote machines. Drivers use it to find their way on highways and streets. Sailors use it to navigate the seas. Golfers use it to measure distances on the course. Police use it to track stolen vehicles and monitor sex offenders. And that's just a partial list of uses.

In particular, the growth in automotive and consumer applications has contributed to a worldwide GPS boom, including in untapped markets outside the U.S. For that reason, the global market for mobile location technologies is expected to rise at a compounded annual growth rate of 20 percent. That means the worldwide GPS industry will top $70 billion by 2013, according to a new research study published on ReportLinker.

At first glance, that forecast appears to be great news for shareholders of TomTom and Garmin, the world's largest retailers of portable GPS-based navigation devices. However, the two heavyweights should be concerned about another trend that looms as a threat to their market dominance.

Cell phone handsets equipped with navigation applications are eating into the big two's market share for portable devices. By 2013, GPS-enabled handsets will account for 66 percent of the market share for portable devices, research suggests. Not good news for TomTom, Garmin and other device makers.

Consumer demand for cheaper navigation solutions is driving this trend. Voice-guided navigation systems with turn-by-turn directions are available today on the IPhone. For example, AT&T offers its Navigator app free, but the company charges $69.99 annually for the service. Magellan RoadMate and TomTom offer slightly lower priced applications. However, unlike the AT&T solution, the apps must be paired with expensive ($120-$130) car kits. Even that is cheaper than Garmin's new portable GPS unit, the NUVI 379OT, which retails for $449.99. TomTom's XXL 550 goes for $249. Application developers for IPhone will be able to exploit the price differential between the software solution and a dedicated navigation handset.

Consumer demand for navigation applications is robust. According to market research by J. Shapiro and Associates, 24 percent of today's cell phone users want navigation services on their next handset. Just six percent of cell phone users currently have the application. This underscores the pent-up demand for GPS technology on a single device that can not only function as a navigation tool, but perform other tasks as well.

The big portable navigation device makers recognize their products risk becoming the next CB radio. In fact, Garmin is hedging its bets with a smart phone of its own that uses Google's Andriod operating system. However, Garmin's track record in the cellular handset arena is lousy. Its earlier Nuvifone marketed in 2009 had many critics. Garmin claims it has fixed the problems and the sequel, called Garmin Fone, will be able to hold its own against other smart phones, especially at a retail price of $199. That sounds like wishful thinking. The folks at Apple probably aren't losing sleep over Garmin's latest entry into the smart phone market.

That isn't to gloss over the problems with current GPS applications on the IPhone and other smart devices. The sound quality for directions tends to be poor. Incoming phone calls disrupt the navigation guidance. Then there is the drain on battery life. All these issues contribute to some bad experiences with GPS on smart phones. But the issues are being addressed by handset makers. Given the growing importance of navigation applications, there is plenty of incentive for the handset manufacturers to solve these problems.

In the end, consumers will vote with their wallets. The bet here is that consumers will prefer a single device to meet the needs of voice, Internet and navigation. That means Garmin and TomTom's days are numbered. They won't disappear overnight. But remember you can still buy a CB radio, too.