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Garmin Gets Googled

Posted: Nov 10, 2009 13:15 PM by Eugene Bukoveczky

Tickers in this Article: OTC:TMOAF., MSFT, GRMN, NOK, AAPL, RIMM, GOOG

After basically cornering the market for internet search, Google (Nasdaq:GOOG) has just upped its game in a effort ot grab a major piece of the fast growing smartphone market.

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Recently, Google announced that it will be offering free navigation software on all mobile phones that host its Android operating system. Using the data in its GoogleMaps product, the system is bound to win over a lot of users with its 3D street views, real-time turn-by-turn directions, and plain English voice search and guidance features. The first smartphone to sport this handy feature will be the Droid, built by Motorola (NYSE:MOT) and sold with the usual voice and data contract by Verizon (NYSE:VZ).

Free Navigation - a Game Changer
While smartphones such as Research In Motion's (Nasdaq:RIMM) BlackBerry, Apple's (Nasdaq:AAPL) iPhone and others built by global handset leader Nokia (NYSE:NOK) have all been able to offer navigation functionality for a couple of years now, the service has come at a price. Google's decision to offer the service for free is a major game changer.

Collateral Damage
While the main target in this latest move by Google to own a sizable piece of the mobile market is Nokia, which now has a billion of its handsets in circulation around the world, standalone SatNav device makers like Garmin (Nasdaq:GRMN) and Dutch company TomTom NV (OTC:TMOAF) are now likely to suffer a major collateral damage hit from this ongoing clash of the tech titans. Some even see this as the final lethal blow that makes their products both technologically and economically obsolete. Nokia itself may well be challenged to question why it paid $8.1 billion back in 2007 to acquire digital mapmaker NAVTEQ, when the product it sells is now a freebie. The millions that Apple has been making by selling GPS software from its App Store are also likely to disappear, as well.

Eyes Are the Prize
By giving away SatNav functionality for free, Google's aim is to achieve, on the small mobile screen, what it has already accomplished on larger computer screens; acquiring a vast number of eyes that can be focused on ad content that Google serves up. It's unlikely that these ads will be too intrusive, as most people will be keeping their eyes on the road ahead. A pre- and post-trip pitch seems the most likely level of frequency. And that might be infrequent enough to convince consumers to switch over from paid navigation services in a big way. Small wonder, then, that Garmin's share price has shed 25% since Google's plans became known.

The Bottom Line
The tech space is littered with examples of how free product offerings from major players ended up crushing rivals with business models that obliged them to sell the same product on a full price basis. Remember what happened to Netscape when Microsoft (Nasdaq:MSFT) began offering its Internet Explorer browser for free? Garmin prospects could well be on a similar trajectory. (For more, see our article on Technology Sector Funds.)

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By Eugene Bukoveczky

Eugene Bukoveczky is a freelance writer and investment researcher. He holds a CFA designation and has spent several decades working in the investment business in places like Toronto, New York, London and Dubai. He currently resides in Nova Scotia, where, when not writing, he devotes his time to chopping wood, growing his own vegetables, riding his bike to the store, and thinking about other ways to reduce his carbon footprint.

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