LBS helps you find your way

By David Gill

A decade ago, when I was on a road trip or a business trip to a new city, I would stop at a 7-Eleven store and buy a local map. This had two immediate benefits: 1) 7-Eleven sells ice cream sandwiches; and 2) you can ask the clerk for directions.

Today consumers can just reach into their pocket for their mobile phone to find their destination. The market for mobile location-based Services is clearly on an upswing. U.S. carrier spending on GPS/LBS marketing campaigns topped $30 million in the first half of the year and surely will increase during the holiday season. Much of that marketing spend is directed toward the traditional services such as fleet and workforce management, but favorable carrier deck placement for LBS applications and the bundling of navigation services with data packages have driven downloads to record highs. According to Telephia, over the last nine months, revenue from the mobile LBS applications market has tripled and there are no signs of it slowing anytime soon.

Where am I going?
Navigation makes up the majority of application revenue today. Sprint Family Locator and Verizon Chaperone are both new and interesting applications, but of the $200 million that will be spent by consumers on mobile LBS services this year, 87 percent will be for navigation.

I believe there is a fundamental shift going on in the navigation business and it has to do with the age-old debate about device convergence. Consider the most popular single-function devices: digital cameras, camcorders, MP3 players, gaming devices and handheld GPS. Each of these has been incorporated into the mobile phone with varying degrees of success. The digital camera was wildly successful. But Nokia’s N-Gage failed to compel gamers to drop their Gameboys. MP3 players are probably somewhere in the middle, although the game here is a bit different considering the iPod’s iconic status.

Dedicated or converged?
If we exclude automotive telematics, total cost of ownership for personal navigation devices (PND) and mobile phones with navigation is about the same. But at the moment, the experience is quite different. Using PNDs in my opinion has always been a bit clunky. You buy an unsubsidized piece of hardware that does one thing really well, but then you have to keep it up to date. Typically all data resides locally on the unit itself and you generally need to spend $80-$150 on physical media to update the software. Physical media? What’s that? Conversely, the mobile LBS navigation market has dovetailed into the operator billing mechanism and over-the-air updates quite nicely. The PND market is counting on a state change itself, however. Connected devices from the established vendors will become the norm and price points for PNDs will likely dip below $100 this holiday season. A recent Telephia survey shows that the No. 1 motivator for consumers to use their mobile phones for navigation is price.

That brings up a peculiar situation for application developers. As it stands, LBS applications command a 2x price premium to their peers in areas like weather, music and even personal information management applications. At an average price/month of $9.23, LBS apps are responsible for more than half of all application revenue across the national carriers (see Chart). Companies like Networks in Motion, which powers VZ Navigator, are keenly aware of what’s happening and have performed very well in these market conditions.

So, what do you do when most consumers tell you that they would use your product if it were cheaper, but yet certain segments are snapping it up and paying relatively high recurring fees? Consumers often don’t really know what they want until they have it and use it. I think it’s quite likely that most people will find utility in mobile LBS, even if it’s a one-month purchase to look for houses, or to go on a road trip. Certainly with 130 million GPS-capable handsets in the U.S. there is great potential.

So, who wins?
Everyone in the GPS value chain will do well if these trends continue. I think Navteq (and competitor TeleAtlas, although it remains to be seen what will change as a result of the recent acquisition by device maker TomTom) will fair particularly well in the future. As the supplier of maps to mobile phones, PNDs, automotive and the Internet, I think Navteq may ironically benefit from device “divergence.” All of this is good news for LBS application developers as consumers are voting with their wallets and proving that these services have high value. I fully expect that in two years, “Find Nearest” will be one of the first things people turn to on their mobile phone …and it’s likely that many consumers will be searching for a 7-Eleven.

David Gill is director of mobile media and senior analyst at Telephia, a service of The Nielsen Co.

Telephia, a division of The Nielsen Company, is the world’s largest provider of syndicated consumer research to the telecom and mobile media markets. Referenced in the column are recent findings from Telephia’s Mobile Application and Multidevice Reports from Q2 2007.