[Reprinted with permission from NAVIBIZ, Issue Date: 2010-3-26]
[Reprinted with permission from NAVIBIZ, Issue Date: 2010-3-26]
Danny Kim, global navigation and LBS analyst, came to iSuppli after its acquisition of the Telematics Research Group (TRG) and is currently an analyst and global manager for the Portable Devices and Location Based Services (LBS) research for iSuppli’s Automotive Unit. Danny is a widely respected industry analyst who specializes in location-based services and mobile content distribution. Before joining the Telematics Research Group, Danny played multiple roles at a Samsung Electronics in-house ad agency in Korea and then ACNielsen Korea. Danny received a Masters degree from the University of Illinois and spent two years at a Ph.D program at the University of Minnesota, Carlson School of Management.
OEMs have increasingly had their eye on the development of navigation and traffic information service which is one of the most popular Telematics services. Meanwhile, the service is changing rapidly everyday and each player wants to fight for the leadership in this industry with great benefit potential, for example, Nokia has launched its free navigation service last month, which is really a bomb to the industry. So how to grab the dominant position in the industry and maintain stable and sound development?
NAVIBIZ this time has an exclusive interview with Danny Kim, a prestigious analyst from iSuppli Corporation, who will act as the Top Knowledge Partner for 2010 Telematics@China Tour (Shanghai) at March 26th. He will give us insightful analysis about navigation and traffic information industry with regard to product status and development, etc.
NAVIBIZ: How is the navigation industry changing these days?
Danny Kim: The Automotive OEM industry is taking lessons from the PND and smartphone industry these days, not as competing platforms, but as integration candidates and/or as benchmark platforms.
Fundamentally, mobile devices and Smartphones are setting the stage for future in-vehicle navigation and applications. First, for device integration, it is commonly realized that lots of content will be rendered on a mobile device so OEMs have to have platforms that are capable of supporting this. Secondly, the Smartphone world is giving birth to thriving eco-systems where openness spawn innovation from the developer community.
From the integration perspective, the challenges are how to figure out cost effective connectivity solutions and how to build standardized platforms that ensure long life cycles. OEMs and suppliers have to cope with a multitude of smartphones architectures which tend to be defined by their operating system rather than the device itself.
NAVIBIZ: What will automotive OEMs do to cope with these changes?
Danny Kim: OEMs have to figure out what their navigation strategy should be in light of the increasing commoditization of low cost (or free) navigation services on their cell phones. Luxury and near-luxury brands have the benefit of high-performance platforms to support an advanced Human Machine Interface (HMI) and high-end graphics processors, etc. Luxury and near-luxury segments will continue to support high-end infotainment platforms that offer advanced HMI features. HMI and acoustics will continue to thrive for in-vehicle electronics. Navigation will be the basis for in-vehicle LBS, but the value-add will come from advanced features and services built on top of navigation.
Meanwhile, the PND and smartphone navigation vendors are heating up a form factor war in the aftermarket that favors the smartphone long term. iSuppli believes that PNDs will linger in the market until they become cheap commodities. Despite the dominance of smartphones, for navigation we believe that this will increase overall attach rates for in-vehicle navigation systems because eventually the customer wants this feature integrated in their next vehicle.
Earlier in the 1980s, the aftermarket players pioneered in-vehicle radio systems, and automotive OEMs tried to catch up with more high-end radio systems to keep up with drivers’ needs for in-vehicle entertainment. After several decades, the CE industry is changing much faster than ever, but automotive OEMs have recognized this and are moving faster as well.
The key for OEMs will be the architecture of their next generation headunits. At the low end of the market, what was once a basic audio system became more advanced. A $400 low-end headunit that has built in navigation, plus hands-free and iPod integration will become the new minimum set of requirements for the high-volume passenger cars. At the entry-level segments this remains an option but middle segments will off this as standard.
The near luxury and luxury segments will go with optional high-end infotainment systems that justify premium prices through advanced HMI, and acoustics. The high-end solutions will require an open operating system first, followed by mass-market segments. Automakers are looking toward the future where open operating environments lead to an eco-system similar to the smartphone world.
NAVIBIZ: What is the impact of free navigation application products from Nokia and Google?
Danny Kim: Google’s native Turn by Turn (TbT) navigation application is significant to the industry value chain. A free application, with features deemed premium by other software providers and PND makers, will not be hurt by potential quality issues and complaints. Even worse for other competitors, Google would be completely fine with not making any money off this application, as its motive is to dominate the mobile search world, as it does in the desktop world.
It is inevitable for existing off-board navigation application vendors to lose some of their pie to Google, but Google’s dominance will not happen overnight. The volume for Google to disrupt the market will not happen until there are enough Android phones out there. There are also navigation users that do not want ad-based content.
In the meantime, the threat is that Google will seek more opportunities with non-Android platform providers, too. Apple would be least likely welcome this free app, as it is enjoying a revenue stream from sales of more than 10 TbT navigation application vendors.
Overall, this event is most beneficial for the end-users, as there will be tremendous efforts from premium market leaders to compete with Google.
Finally, the issue of international expansion will be an interesting one to follow. The Google Navigation application will be available in the US first. While it is sure that other markets will follow, it is important to note that the feature set for countries around the world will more than likely be different compared to the one released here.
Meanwhile, Nokia’s announcement has a bigger impact on the smartphone navigation industry than Google’s in terms of scale and global reach. Immediately, compatible Smartphones with the new Ovi Maps will surpass 20M on a worldwide basis.
Nokia is trying to bring more customers to its devices by providing a robust "feature set" with an attractive pricing offering, rather than bringing in revenue from individual services.
Nokia has the potential to become the single largest provider of turn-by-turn navigation worldwide, with over 65 million enabled devices. By comparison, iSuppli is forecasting a total PND volume of 41 million units in 2010.
NAVIBIZ: What is the future of PNDs and their impact on the low-cost in-vehicle navigation system?
Danny Kim: While there is still great momentum in this market, investors’ focus and concerns have shifted to category price erosion, which is pressuring vendor margins and leading to a dramatic slowdown in earnings from PNDs going forward. The lack of recurring revenue opportunities for PNDs after the point of sale is a significant weakness in this business model, particularly as severe ASP erosion has required device vendors to substantially cut their profits, while still being dependent on less flexible third-party suppliers for hardware components and map data.
The fundamental growth driver for PNDs remains the under-penetrated market for in-vehicle navigation. However, under-penetration has been an issue for at least the last 12 years, so clearly price has become a significant factor behind the recent boost in market interest.
iSuppli believes more automotive OEMs and traditional Tier 1 suppliers should be looking at the PND cost model with an eye to imitating the typical PND vendors’ expertise in connectivity, functionality and services. However, OEMs may also be looking to leverage established PND brand assets as consumer familiarity with popular brands- such as TomTom in Europe or Garmin in North America – will serve to enhance the "user-friendly" and mass-market navigation experience.
NAVIBIZ: Why are traffic information services important to the navigation industry?
Danny Kim: Traffic is the #1 requested add-on to navigation and enhances the consumer’s navigation experience and perceived value, as well as enables an extension to other dynamic content. Traffic data actually makes navigation relevant on a daily basis for the driver that already knows the routes they prefer.
Traffic in many markets will become free and probably ad sponsored in some way as that is how this business model is being played out. Premium traffic will remain a niche opportunity, but sooner or later premium features trickle down to mainstream features.
NAVIBIZ: What are the most currently emerging service delivery methods in mobile navigation devices?
Danny Kim: The cellular network remains the most important delivery network for portable navigation. Dash Navigation in the U.S. pioneered 2-way communication using cellular to deliver traffic information but they also pioneered a method of capturing user-generated content (via the so-called "probe" network). Unfortunately, Dash was slightly ahead of their time.
Meanwhile, smartphones are taking over the function of PNDs, rendering non-connected PNDs as cheap commodities. More recently, traffic vendors are writing traffic information service applications on smartphone platforms to deliver personalized interactive services in exchange of GPS smartphone probe data points from the end-users. At the end of the day, navigation systems (regardless of form factor) need connectivity to survive.
While cellular remains the main connectivity source for "push" and "pull" content, various broadcast methods will do fine for push-only content such as traffic, weather and various other LBS applications.
NAVIBIZ: How do advanced traffic information service vendors ensure traffic data quality with such emerging technologies?
Danny Kim: The overall perception of traffic data quality is a bit skeptical due to the slow delivery of RDS-TMC data and its equivalents around the world. Data from traditional radar sensors are accurate only when operating and prone to calibration issues as loop sensors only measure occupancy, so speed must be estimated.
On the other hand, emerging GPS vehicles and device probes require sophisticated technology and significant vehicle data density to provide accurate results.
Top players in the traffic industry have to manage the quality of their data sources before aggregating it. Each data provider must be carefully evaluated for the value of their data via several criteria: breadth of geographic coverage, roadway type (depth) coverage, vehicle type (consumer vs. fleet) and coverage, driving patterns, speed bias evaluation, quantity and consistency, latency, and outlier evaluation, etc. Then the aggregated, analyzed and combined sensor and probe data information get into a data fusion engine to produce more accuracy.
The individual players in the traffic flow data marketplace can be evaluated by two criteria: the ability to deliver high accuracy and ability to scale coverage. There are not many companies that can score high in both criteria. Major players such as Inrix and Navteq have increased their efforts on traffic data quality and service delivery methods, and have showed creativity in business models.
It is worth noting that US companies are expanding their businesses in Europe to aggregate the data from local traffic info service vendors.