Nokia announced a $12 Billion acquisition of map provider Navteq yesterday. Only time will tell if this acquisition will prove to be the next Skype (where eBay overpaid and had to write down the value of Skype) or the next MySpace (which looks to be a bargain at $580 million).
My question is this: Does Nokia need to own Navteq?
It is rumored that Google was bidding against Nokia in the acquisition race, so there is no doubt that the price may have been pushed beyond the boundaries of logic. It also didn’t help Nokia that the price of Navteq stock has tripled over the last 52 weeks (thanks in part to TomTom’s acquisition of TeleAtlas – the provider of Google’s maps). Nokia has paid almost five times as much for Navteq than TomTom paid for TeleAtlas.
I’ll give Nokia strategy points for location-based services having finally reached the point in time where they will start to be compelling in the market. The timing is now right thanks to the arrival of devices like the iPhone and other ‘tween devices that fall somewhere between a mobile phone and a laptop in form factor. At the same time however, I have to wonder whether they really had to acquire the whole Navteq company and all of the bits they don’t really care about. I would argue that they would have been better off pursuing Michael Raynor’s advice in The Strategy Paradox of deciding several years ago when location-based services became important to them to use a real option strategy and make a strategic investment instead of yesterday’s commitment of $12 Billion to an acquisition.
It still remains to be seen whether owning mapping software via the Navteq acquisition will provide Nokia any kind of competitive advantage. It is quite possible that a company like TomTom may decide to license the technology far and wide enough to make these services standard issue across all devices and not a competitive differentiator in the marketplace amongst handset manufacturers.
The way the market is developing, TomTom’s core product could be disintermediated by mobile phone handsets and new devices from computer manufacturers. TomTom may be forced to gradually move out of the device business and instead evolve into a software company. It is also not outside the realm of possibility that TomTom could instead morph into a mobile handset manufacturer with the help of someone like HTC, but that is much less likely.
The more likely scenario is that TomTom will provide map and location-based services functionality to Apple, Samsung, HTC, Motorola and others, providing them with a much larger installed base for a smaller investment.
So, is Nokia’s acquisition of Navteq foolish or Strategic? What do you think?