Nokia surprised the market this week by announcing that Nokia will acquire digital mapping firm Navteq for $8.1 billion. Navteq is the leading supplier of digital maps for vehicle, personal navigation devices (PNDs) and other corporate mapping systems, and also owns Traffic.com, which provides traffic information for the US. Nokia will finance the acquisition with a mixture of cash and debt.
We think that there is more to this acquisition than meets the eye.
Nokia is positioning this acquisition as a means of accelerating its strategy in mapping and providing some key technologies for realizing its broad vision for how mapping/navigation/traffic services will evolve. These are conceived partly as a set of richly-featured services in their own right, and partly on the idea maps will be a core component of other Internet services.
There is strong logic to that. Nokia's vision for the services is very ambitious and today it does not have all the technology pieces it needs to realize that. In August, for example, it had mentioned that it was already working with Navteq on traffic information.
Nokia has also said recently that the early take-up of the navigation service available to N95 users is very encouraging - 100% of N95 users have used the Nokia Maps application and over 20% have subscribed to the navigation service. That means that there is some justification for Nokia to accelerate its implementation.
But did it have to buy Navteq to achieve this‾
Here there is a defensive angle to the acquisition. Nokia was dual-sourcing maps from Navteq and TeleAtlas. When the TeleAtlas acquisition by TomTom was announced earlier this year, there were strong rumors that Navteq was a target for companies such as Google, Yahoo! and possibly Microsoft. For Nokia, the risk of having both of its map suppliers owned by competitors would not have been attractive.
Interestingly, this may also be a way for Nokia to strengthen its presence in the US market.
But this is a large acquisition and it leaves Nokia's Internet services portfolio rather unbalanced. We are sure that there are plenty of Nokia executives who would love to have an injection of $8bn for expanding their area.
Nokia will soon need to let the market know whether this is a one-off, or whether it signals a general acceleration of the Internet strategy with additional sizeable acquisitions to follow.
Martin Garner is Director of Wireless Intelligence, the Ovum GSMA joint venture, responsible for bringing the service to market and commercialising it.