The debate continues — will navigation on smartphones kill personal navigation devices (PNDs)? Aaron Solomon explains why he believes PNDs will carve out their own future, and also what brands and manufacturers have to do to ensure this happens…
I am convinced that connected PND manufacturers can position themselves securely against the smartphone threat. The key will be specifically not trying to emulate how smartphones are evolving.
There has been a great deal of innovation in smartphones in the last few years:
- Major advances in hardware performance and a continual drop in prices
- More, better-quality mobile content
- Operating platforms that are becoming richer and better adapted to the mobile form factor
How then do these changes impact on the PND world?
- With access to better and much cheaper hardware generally built for systems running on a Linux core, new PND hardware integration and updates can be done cheaply and extremely fast
- Access to mobile content is now a lot easier. It is largely a case of choosing what is better adapted for the car environment. Since the content has already been formatted for mobile use, integrating it in PND is painless – think weather info, yellow pages…
- What is left to do is to develop an operating system (OS) that is better adapted for the car environment than the ones available in mobile phones. It should be an OS that enables multitasking on the same screen, rapid loading of new apps, apps running in the background, and apps that don’t consume 3G bandwidth but provide the exact service needed in a car.
- This OS will have to treat safety as the first criterion in determining what app runs on the screen, and how. The user interface (UI) of these apps needs to be particularly well designed – nobody should have to browse for a contact in the yellow pages when driving
The next step is then to get the devices connected and on the shelves. Here the parallel with smartphones comes back into consideration.
Importance of the operators
Mobile operators are still key players for anybody who wants to put a subscription-based connected device on the market. The Google Nexus One never took off because it tried to circumvent the operator’s business model.
It is essential to understand the operator perspective regarding the connected PND market in Europe. What sort of revenues can operators expect from these devices? Let’s take a look at the likely ARPU, the average revenue per unit.
In Europe, 22 million new smartphones were bought in 2009, most of them by already subscribed customers. Meanwhile 42,2 million smartphones were active in Europe in 2009, all equipped with GPS.
We can reasonably estimate that the average subscription for a smartphone is €40 a month. From there we can calculate that the total revenue from smartphone subscriptions for operators in Europe amounts to €20.2 billion.
During 2009, 15 million PNDs were sold in Europe. It’s safe to estimate that monthly M2M data connection costs would be about €1 for a connected PND (using GPRS), depending on the proposed or planned services.
Right now an estimated 8% of PNDs in Europe are connected. That comes to 1,2 million connected PNDs. For operators, this amounts to €14.4 million in connection and M2M revenue.
The difference is huge and stark. PNDs earn about 1,400 times less than smartphones for the operators.
The connected PND represents at best a marginal opportunity for them – discounting the fact that PNDs compare very unfavourably with smartphones as advertising revenue earners because of the lack of flexibility and applications that the car environment imposes on them.
To make matters look even more gloomy for PND makers, the relative novelty of the connected PND, the lack of strong brand power and the specificities of the applications require the operators to spend on advertising.
This is why operators will not hesitate to subsidise smartphones even if their cost is above €250 but they will refuse to subsidise a sub-€100 connected PND – even if the visible price of the PND appears superior to the consumer.
The driver exceptions
Mobile users pay an up-front cost to operators to get access to a vast array of applications. Apps are consequently very cheap or free. Reliability, start speed or quality of the app are not therefore a strongly perceived need from the smartphone user’s point of view. The apps are secondary. They are used infrequently, typically fulfilling a very specific need at a specific time.
A study by Flurry reveals the monthly usage of downloaded apps on the main smartphone platforms:
- iPhone: entertainment, 3 times a month; games, 5 times; lifestyle, 3 times; news, 8 times; social networking, 18.5 times
- Android: entertainment, 7.5 times; games, 5.5 times; lifestyle, 4 times; news, 10.5 times; social networking, 20.5 times
The study not surprisingly also demonstrates that after a month the usage frequency dives down. This of course will not be true of all apps. Email clients, maps, browsers and such will be used constantly throughout the phone’s life.
This pattern is reversed in the case of the driver.
A driver subscribing to a navigation service such as speed camera alerts or live traffic will look for the option that is the most reliable, instant and easiest to use. When behind the wheel, “availability” will become utterly paramount (think of the Coyote V2 radar alert device… always on and snug under the sunshield).
For drivers, the price paid by the user for the service is comparatively less of a priority than the expected quality. Of course subscription volumes for such services will never compare with volumes from mobile phones but the subscription price is substantially higher. To give a quick illustration, Coyote has sold way above 25,000 V2 models in France for €200 each with a monthly subscription of €12 a month for a one-year minimum contract.
Application developers could port their app to a number of connected PNDs and sell their services directly to the users – it is clear that there is an untapped opportunity there. A partially subsidised PND would leave some potential budget for the driver to spend on quality services.
But what this clearly shows is that in the context of in-car applications, service quality becomes a key strategic differentiator.
Can we expect a subsidised PND?
ABI Research believes that “PND survival is incumbent on its ability to become a viable component of the open mobile environment, a mutation that will require, among other things, speed. Generally speaking, the whole mobile industry is quickly moving to converged, open platforms which leverage third party applications as a means to capture consumer mind share.”
I agree with ABI Research analyst Dominique Bonte, the future of the connected PND will not stop once a base layer of apps has been developed and the subscriptions start growing. In mobile phones, once used solely for one application, the minute the OS allowed for the device to be used otherwise, an array of services appeared.
Dominique indicated last month that approximately 42.3 million PNDs would be shipped in 2010.
Once a device is in the car with a valid set of applications that pushes its sales and opens up opportunities for further revenues from third party developers, there won’t be any reason for more services to become available.
It is also very conceivable that once the set of apps starts growing beyond the feeble basic layer that today’s connected PNDs offer, the need for better and faster connectivity will become a priority.
At that stage, operators will have a valid business case to subsidise the connected PND as they do with the smartphone – especially if the apps are theirs too!
A few suggestions
None of what should occur is going to happen quickly; let’s hope it doesn’t come about as slowly as things did with the smartphone. However, this time lag could shield PNDs against the great predators such as Google and Apple.
Nevertheless we need to find ways to accelerate the growth of the consumer telematics market:
- Get operators to take notice; many suggest they have lost the battle of the mobile services. This is an opportunity for them to refocus on their existing enterprise customers and propose adapted services based on devices they actually own that don’t compete with smartphones
- To do that, we need to show them more revenues than are available today. So find more attractive services that require higher data consumption. Music streaming is very exciting. Streetview-style services are very attractive and very consumer-driven – only, when will those services be reliable enough to command their own data cost?
- We also need to look for operators that will understand the story and have a “first entrant” strategy. Once they are convinced that the revenues will come, they will naturally want to be first on the line
- Finally the story would not be complete if we did not look at the opportunities outside the key European operators for connectivity. There are other operators looking for opportunities in data-only connectivity, and who knows better how to handle it – can they scale? Can they upgrade rapidly if the need is there to switch to 3G? And what about other technologies – can Wi-Fi ever provide 100 percent coverage nationally? Players like Free.fr certainly think so
OK, I didn’t mention…
I deliberately overlooked a few small details to keep this article focused.
That’s why I ignored the entire MRM industry. For MRM the case for the connected PND is a lot easier and virtually straightforward.
I also stayed clear of the OEMs, insurers, car rental companies, tolling companies and a few other small players… I’ll focus on them next time!
For now, let’s give the closing words to ABI research associate Khin Sandi Lynn, who commented recently: “Stand-alone PNDs still have an advantage over smartphones. Their larger screens provide users with a clearer view that is also easier to use while driving. Although volumes are dropping, for automotive use stand-alone PNDs will remain the preferred choice for many users.”
A number of stats in this article were generously provided by PTOLEMUS and extracted from their Location study. To find out more about the study, visit www.ptolemus.com/study
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