The Economist Magazine: Maps for Navigation Are Hot Acquisition Target – Despite Pressure on Profits

The July 18, 2015 Issue of the Economist Magazine has an article entitled “Location, Location, Location” that describes the intense interest of prospective buyers for Here, the digital mapping division of Nokia. Here provides navigation data and maps to other companies, and its maps are in 4 out of every 5 new cars sold in Europe and North America. According to the article, Nokia may sell Here for 4 billion dollars. (You read that correctly. Billions with a “b”.)

Why are other companies willing to spend so much for Nokia’s maps and mapping tech? The article mentions three (3) reasons:

  1. There are really only two (2) competitors to Here on the market. One is Tom Tom, and the other is Google Maps. Companies like Uber and General Motors don’t want to rely on Google (who could be a competitor in the future) for their map data.
  2. It takes a huge investment in time and money to build up a reliable world wide map data set. (Just ask the folks over at Apple Maps.)
  3. Demand for mapping keeps expanding, as online commerce grows more reliant on precise location.

Even at a purchase price of 4 billion dollars, the buyer of Here will pay almost half what Nokia paid for the predecessor of Here, Navteq, just a few years ago. Why will Nokia see this loss on its investment? According to the article the reason is profit pressure from Google. Google pushes down prices for mapping data because its maps are made available for free to consumers and at very low prices to other companies. (Google does this to collect data from users that it needs to sell location based ads.)

This article has some interesting business lessons. Lesson Number One: Location data has value. It is an asset that should be properly maintained and managed. Lesson Number 2: Watch out for a competitor that essentially gives away your product or service for free because they’ve built an entirely different business model.