As cellular devices have evolved, they've morphed into all-in-one tools that even Inspector Gadget would envy.
With Google's recent announcement that it will offer users free turn-by-turn navigation on the Motorola Droid, available Friday, cell phones are once again boosting their resumes, this time at the expense of standard navigation devices such as Garmin and TomTom.
Although more than half of the adults in North America who own a navigation device currently use stand-alone systems, Forrester Research analyst Charles Golvin said that by 2013, cell phones will dominate the market.
While the shift won't happen overnight, Google's free navigation will prove that routing isn't strong enough to be a business in and of itself, forcing traditional navigation companies to reroute their business plans and lower their prices to stay afloat, analysts said.
"I'm not saying that either of those things are going away," Golvin said. "What I expect is that the people who don't do navigation today, those people are much more likely to adopt the system on their phone than to spend the money to get a [personal navigation device]."
One strategy that navigation companies should consider is to shift their focus from hardware to software, as that's where they have an edge over Google, Golvin said. Companies like Garmin and TomTom already possess the equipment to conduct the in-depth research necessary to provide travelers with the best information — whether it's simplifying driving on complex highways or avoiding toll roads.
While Google is an innovative company, it doesn't have the "insight and knowledge" that traditional navigation companies do, especially in foreign countries, Golvin said. And while the company has the cash flow to invest in such costly research, it seems to be more focused on providing location-based advertising than replacing PNDs, he said.
Traditional navigation companies should also expand their micro navigation capabilities, as most people's daily needs rely on finding points of interest near their location, not long-distance directions, said Thilo Koslowski, an analyst at Gartner technology research company.
What's more, they should develop their software to be more integrated, weaving together positioning with social networking, Koslowski said.
This is something Garmin has already started to develop through its Ciao! service, which allows users to locate their friends based on their GPS signal. But this service pales in popularity to the possibility of linking to sites such as Facebook or Twitter, and spokesperson Jessica Myers admits that the technology is still in its infant stages.
The market made its first significant shift toward cellular navigation when Nokia acquired Navteq in 2007. It was the first time a cell phone offered turn-by-turn navigation at the same functionality of a standalone device, though it's presence has been overshadowed in the US by the iPhone, IDC research analyst William Stofega said.
Myers said that since cell phone navigation is nothing new, traditional navigation companies have already started shifting their attention toward it and will continue to do so. TomTom, for example, has already developed a navigation application for the iPhone, which can be downloaded for $100.
Garmin has Garmin Mobile, which can be used on the BlackBerry, Palm Treo and other smartphones. It has also developed the Nuvifone, a cell phone equipped with a voice-activated navigation system, which it plans to expand on while also creating new models.
But the Nuvifone received lackluster reviews from techies who were disappointed with its delayed release and packaging, which wasn't as sleek as many people expected, Stofega said. What's more, developing a cell phone that will be competitive in such a crowded market is a costly undertaking, and one that may not be worth it to Garmin, Kowlowski said.
"Ultimately it will depend on the company's ability to look beyond the existing business that they have today," he said.
Stofega disagreed, saying that further developing the phone is one way Garmin can maintain its presence in the market.
Unlike other cell phone navigation systems, the Nuvifone comes with a suction cup that can attach to a car's windshield, giving it a convenience factor its competitors have yet to offer, he said. The screen is almost as large as one of its PNDs, the lighting is controlled and the screen is a much higher quality, which is especially crucial when driving in bright sunlight or at night.
This has done little to quell nervous investors, or convince analysts that stand-alone providers will come out unscathed.
Following Google's announcement, and TomTom's report that its selling prices were about 20 euros, or 9 percent lower in the most recent quarter, investor worries caused Garmin's shares to fall about 15 percent on Wednesday, despite reporting a 24 percent increase in profit. They did rebound slightly on Thursday, rising about 4 percent, but Needham & Co. maintained a hold rating on the stock, citing long-term concerns in light of Google's announcement.
What's more, Koslowksi predicts that by 2012, more than 200 million phones in the US will have GPS capabilities, and the price on a standard PND will fall from around $200 to about $50.
But for all the challenges that PND companies face, cell phone navigation also has its drawbacks. Aside from inferior screen quality and slower cues caused by their reliance on wireless networks, the rapid deterioration of a phone's battery is also something companies need to confront, Golvin said.
As a result, he predicts consumers will own both PNDs and cell phone navigation systems, adding that 4 percent of the 27 percent who own a navigation system already own multiple devices.
"It's not really an either/or choice," he said.
Nonetheless, Golvin admits that to stay competitive, traditional companies will need to adjust their focus to provide what Google at this point cannot — their deep understanding of how people navigate.