Nokia's maps giveaway - changing the game or fighting its corner?

OvumLast week Nokia announced that it is making its premium Ovi Maps navigation service free to consumers. In public statements accompanying the news, Nokia has been typically bullish, predicting that offering Ovi Maps for free will enable it to become number one in navigation, just as adding cameras to its phones at no extra cost helped it become a top camera manufacturer.
On the face of it this is an aggressive, offensive play, but in our view Nokia’s move has a more defensive coloring.
Nokia is determined to be the leader in navigation and location services, and has been ramping up its expertise in this space over the last few years, notably through the acquisitions of Navteq and Gate5. It has put a lot of effort into making Ovi Maps a genuinely pleasing service and has always positioned it as the flagship in the Ovi portfolio.
A key differentiator touted by Nokia is the fact that most mobile navigation services require network connectivity to update the map but Nokia’s solution is on the phone and is not dependent on network connectivity.
Nokia might still be a giant in the mobile phone market, but it is losing market share and in particular is facing a serious challenge in the smartphone market from the likes of Apple, RIM, Google Android and even Microsoft Windows smartphones.
Nokia is going to fight with all it’s got to stay ahead of these rivals, and the decision to offer Ovi Maps for free should be considered in this light. Offering Ovi Maps for free will help Nokia shift more smartphones in the short term, but it will not be enough to take the edge off Apple and other rising stars in the longer term. Google has already launched its free satnav service in the US in October 2009 (so who is copying whom in the free stakes?) and Apple and other app store vendors will no doubt react.



Apple might feel some pain here as it offers a range of paid-for location services on its App Store, and the shift to a free model will hurt those developers charging for their location apps.
Business model
The shift to a free model for Ovi will help push the market for basic navigation and location services to a business model based on advertising, although we think there will still be scope for some premium applications that add value to the existing offer.
On the advertising front, Nokia will have its work cut out as Google is far more established and experienced in this area and recently strengthened its hand in mobile with the acquisition of AdMob. Nokia has of course made progress, but it is no match for Google in the advertising stakes (for more information.
In addition to the advertising, transaction and application revenues that it could generate, Nokia is also looking to upsell to its existing customer base and migrate users to higher-value devices over time. Part of its strategy is to drive upgrades, and then loyalty and customer retention.
The impact will be felt most by the standalone satnav providers such as TomTom and Garmin. TomTom’s shares fell with the announcement last Thursday.
Both companies had already felt the impact of Google’s free satnav announcement some months earlier. The likelihood is that these companies will see their share shrink in the future as consumers opt for free mobile services. TomTom does own Tele Atlas, the digital map maker, and may be better positioned to weather the storm by leveraging these assets.
Mobile operators will also be negatively impacted, although their investment in location-based services has not, in most cases, been huge. Services such as Verizon’s VZ Navigator service are likely to suffer in this fast emerging “free” environment.