Garmin’s Predicament

Garmin’s Personal Navigation Device (PND) business used to enjoy excellent gross margins but those margins are rapidly slipping as lower cost competitors are taking away significant market share.

 

I continue to admire Garmin for their ongoing innovation, and their PNDs are rapidly increasing functionality as general purpose GPS devices. However my own PND is an off-brand, purchased for $100 at Fry’s, and it even includes spoken street names (aka TTS) and NAVTEQ maps! It’s a Windows CE based platform so I give up some UI elegance in exchange for the low price.

 

So, one key threat they face is the entry of low cost competitors, some of whom have adopted an open-platform strategy. Garmin remains completely proprietary.

 

VZ-Navigator has also shifted the landscape, followed by similar offerings from Sprint, Alltel and others. Credible industry analysts are predicting that personal navigation and associated capabilities will be largely taken over by cellphone applications in the near future.

 

So, a second key threat they face is the emergence of cellphone applications as substitute solutions that can be easily adopted by consumers since they don’t require the user to possess yet another piece of equipment; everybody already has a cellphone.

 

Virtually all of these GPS solutions depend on geo-content obtained from either NAVTEQ, the leader, or TeleAtlas. I think Tom Tom, the leading competitor to Garmin in the PND space, foresaw how things would unfold and acquired TeleAtlas for the purpose of reverse integrating into what might actually become their primary business. There are many more barriers to entry in the geo-content space than there are for PNDs.

 

And, of course, NAVTEQ has been acquired by Nokia, the world’s leading cellphone vendor. (The strategy behind that move might be the topic for a future posting.)

 

So, the third key threat Garmin faces is that the primary suppliers of the geo-content upon which they depend are now allied with competitors.

 

What should they do? They are at a fork in the road, consisting of the following choices.

 

First, they could deemphasize their own proprietary approach and embrace third party platforms, then seek to become the navigation software application of choice for every cellphone, Windows device, and OEM’d nav solution in vehicles. Admittedly, they are late to the game here, and their differentiation is not obvious, but it may be their best shot at maintaining a significant share of the navigation market.

 

Alternatively, they can continue to embrace their proprietary platform approach and crank up the innovation engine to leave competitors in the dust. They may be late to the game here too. For example, they should have been first to market with a “Connected GPS” device, but Dash Navigation and Insignia beat them to the punch. Garmin wasted precious R&D time on the misguided Nuviphone when they should have pursued cellular connectivity as an integrated function, a-la the Amazon Kindle, rather than the primary role of the device.  A Connected GPS device is a GPS device first, and the cellular data connection is complementary.

 

(By the way, what could Garmin have been thinking when they invested in developing a cellphone? Yes, Apple succeeded, but that’s a very tough business to make a go of.)

 

With cellular data a GPS device can add many new capabilities, including the obvious ones of real-time traffic reports and traffic based routing/rerouting. As another example, I would love to have a PND that overlaid graphical weather right onto the map display. Think of a mash-up between a Garmin PND and the MyWeather application available as a download on iPhones.

 

So, I recommend the second approach: A high margin business based on innovation on proprietary platforms, but without the dominant market share they’ve been used to.

 

From where I sit as an outsider I can’t say they are assured of success long term in the consumer space. They remain well-positioned in aviation and marine products, but the entry barriers are much higher in those markets, especially in aviation where FAA certification is an expensive process.

 

I’m watching to see what their next move will be. I’m betting that Garmin’s Connected GPS device will soon arrive, but it has already missed the Christmas season. They have some catching up to do!

 

 

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