Yesterday, Germany’s automotive industry made a major play: Its top three vehicle manufacturers — BMW, Audi, and Mercedes — have joined forces to take control of Nokia’s map business known as HERE for $2.8 billion.
At first glance, the purchase might not seem all too interesting, but the equal stake acquisition could be quite telling as to the future of the automotive industry.
Particularly, this collective effort gives us some insight into how the industry will defend itself against intrusions from Silicon Valley tech companies, many of which are already champing at the bit to get a piece of the automotive industry.
Between the wild success of ride-hailing app Uber and promises of driverless cars from Google and Apple, it’s no secret Silicon Valley has long had plans to stir things up for carmakers. It was only a matter of time before we saw a meaningful response from the latter.
In bypassing navigation suites such as Google Maps, BMW, Audi, and Mercedes are making one thing perfectly clear: They do not want Silicon Valley inside their cars. They want full control and are even willing to team up with their long-term competitors to make that happen.
The German Auto Alliance
If you’re wondering why the purchase of HERE was worth a cool $2.8 billion, there are a few reasons…
First, these three German automakers can now receive the licensing fees from major companies such as Amazon, Bing, Yahoo!, Flickr, SAP, and Oracle that already rely on the HERE mapping platform.
Second, the deal will allow automakers to take control of user location data and monetize it through local advertising. Essentially, this in digital form:
On top of location-based advertising and licensing fees, it’s also been widely speculated that the data will ultimately be used for the purpose of driverless vehicle navigation. Mapping is essential to vehicle automation for obvious reasons, and it makes a whole lot of sense that automotive companies will want to have control of that information.
Besides shutting out Google and others, this acquisition puts additional pressure on U.S., Japanese, and other international automakers to follow suit and purchase their own mapping software. If they don’t, the German automakers will hold a distinct advantage in the emerging connected vehicle market.
The following is certainly speculation, but I’d bet my bottom dollar Google won’t be willing to give up control of its mapping segment anytime soon. The company has already spent $1.1 billion on crowd-sourced navigation app Waze and just launched Google RideWith, so it would be a surprise to see it give up those efforts in the foreseeable future.
It’s likely Google will continue entering into partnerships with automakers such as GM, but a sale seems very unlikely. As a data company, Google understands the value of consumer information and would be smart to hold onto Google Maps as its own.
This leaves only a handful of mapping services for the automobile industry to scoop up if it wants full control as BMW, Audi, and Mercedes now do. I wouldn’t be surprised to see a run on mapping companies over the next several months.
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One company to keep a close eye on now is Telenav, Inc. (NASDAQ: TNAV), a small-cap company that uses a crowd-sourced mapping platform known as OpenStreetMap (OSM) — essentially the Wikipedia of mapping software — for its suite of navigation applications.
Telenav currently has partnerships with Toyota and Volvo. OSM also has additional capabilities and advantages over Google Maps such as offline mapping — one of the standout capabilities of Nokia’s HERE — making it a potential takeover target on multiple fronts.
Further, OSM reportedly offers mapping detail “as good as or better” than Google Maps, according to SearchEngineLand.com.
Here’s an image highlighting the additional detail:
In other words, the purchase of HERE is not particularly good news for companies like Google, Apple, and Uber trying to break into the automobile industry. It will likely prove a much greater challenge for Silicon Valley to enter into manufacturing than for automakers to integrate navigation software into their vehicles.
It’ll be interesting to see what happens with Telenav over the next year or so. The company is currently valued at just $282 million — one-fifth what Google paid for Waze and one-tenth of what BMW, Audi, and Mercedes paid for Nokia’s HERE.
If Waze and HERE are in any way indicators of what a mapping company is worth, Telenav is looking quite cheap at the moment.
Until next time,
Jason Stutman