Nokia 2009 Annual Report Download - page 77

LocationBased Products and Services Proliferating
A substantial majority of NAVTEQ’s net sales comes from the licensing of NAVTEQ’s digital map data
and related locationbased content and services for use in mobile devices, invehicle navigation
systems, Internet applications, geographical information system applications and other locationbased
products and services. NAVTEQ’s success depends upon the development of a wide variety of products
and services that use its data, the availability and functionality of such products and services and the
rate at which consumers and businesses purchase these products and services. In recent years, there
has been an overwhelming increase in the availability of such products and services, particularly in
mobile devices and online application stores for such devices. We expect this trend to continue, but
we also expect that the level of quality required for these products and services and the ability to
charge license fees for the use of map data incorporated into such products and services may vary
significantly.
Price Pressure for Navigable Map Data Increasing
NAVTEQ net sales are also impacted by the highly competitive pricing environment. Google recently
announced its decision to make turnbyturn navigation available to its business customers and
consumers on certain mobile handsets at no charge. In January 2010, Nokia introduced a new version
of Ovi Maps for its selected smartphones that includes highend walk and drive navigation at no extra
cost to the consumer. We expect these offerings will increase the adoption of locationbased services
in the mobile handset industry, but we also expect it may result in additional price pressure from
NAVTEQ’s other business customers, including handset manufacturers, navigation application
developers, wireless carriers and personal navigation device (“PND”) manufacturers, seeking ways to
offer lowercost or free turnbyturn navigation to consumers. Turnbyturn navigation solutions that
are free to consumers on mobile devices may also put pressure on automotive OEMs and automotive
navigation system manufacturers to have lower cost navigation alternatives. The price pressure will
likely result in an increased focus on advertising revenue as a way to supplement or replace license
fees for map data.
In response to the pricing pressure, NAVTEQ focuses on offering a digital map database with superior
quality, detail and coverage; providing valueadded services to its customers such as distribution
services; enhancing and extending its product offering by adding additional content to its map
database and providing business customers with alternative business models that are less onerous to
the business customer than those provided by competitors. NAVTEQ’s future results will also depend
on NAVTEQ’s ability to adapt its business models to generate increasing amounts of advertising
revenues from its map and other locationbased content.
We believe that NAVTEQ’s PND customers will face competitive pressure from smartphones and other
mobile devices that now offer navigation, but that PND’s currently offer a strong value proposition for
consumers based on the functionality, user interface, quality and overall ease of use.
Quality and Richness of LocationBased Content and Services Will Continue to Increase
In addition to the factors driving net sales discussed above, NAVTEQ’s profitability is also driven by
NAVTEQ’s expenses related to the development of its database and expansion. NAVTEQ’s development
costs are comprised primarily of the purchase and licensing of source maps, employee compensation
and thirdparty fees related to the construction, maintenance and delivery of its database.
In order to remain competitive and notwithstanding the price pressure discussed above, NAVTEQ will
need to continue to expand the geographic scope of its map data, maintain the quality of its existing
map data and add an increasing list of new locationbased content and services. The trends for such
locationbased content and services include realtime updates to location information, more dynamic
information, such as traffic, weather, events and parking availability and imagery consistent with the
realworld. We expect that these requirements will cause NAVTEQ’S map development expenses to
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