About nine years ago, I had a question for Min Kao, the CEO of the GPS concern Garmin. His answer was determined, and I thought of it yesterday as I watched the news from Apple’s Worldwide Developers Conference unfold.
In the summer of 2003, I was at Garmin’s headquarters in Olathe, Kansas, outside Kansas City, working on a profile of Garmin for Forbes Magazine. The GPS business was just warming up. Garmin was on the rise, and its two founders — Kao and the company’s first CEO Gary Burrell — were flirting with membership on the Forbes list of global billionaires.
GPS functionality appeared to be headed toward increasingly functional mobile phones, I said. GPS chipsets were getting ever cheaper and increasingly easy to integrate into other devices, while mobile phones were constantly doing more. Kao was unconcerned. Mobile phones were, in his judgement, “the kind of commodity business we would like to avoid.”
At the time, it wasn’t necessarily the wrong answer. The leading mobile phone companies were Nokia and Motorola. It was four years before the iPhone, though speculative rumors of an Apple-made phone were already in the air. Google was still a private company focused on search.
At the time, Garmin was focused on the launch of its first GPS-enabled PDA, the iQue 3600. The company had taken out a license for the Palm operating system and had written an application that mimicked what was, for the time, its top-of-the-line, dashboard-mounted in-car navigation device. The iQue even had voices that said “turn right” or “turn left,” which were still a novelty.
Later, back in New York, I pressed Kao again with follow-up questions via email. I laid out an even stronger case that the mobile phone represented a long-term threat to his businesses. He was unswayed. Phones were a low-margin commodity market, and phone manufacturers could never obtain the expertise in mapping and navigation that Garmin had worked so hard to create.
I was sincerely surprised at how readily an engineer as smart and visionary as Kao could dismiss the apparent trajectory that mobile phones were so clearly already on by 2003. Moore’s law, I reasoned, applied just as much to phones as it did to traditional computers. Just a few years would yield huge advances in processing power even on the smaller processors put in phones, thus giving them the ability to do much more than they could today.
And Kao wasn’t exactly lacking in the vision department. In the 1980s, he and Burrell had quit good jobs at the Allied Aerospace company (later AlliedSignal, now part of Honeywell) because they saw commercial potential in what was then the incomplete constellation of satellites that would later become known as the Global Positioning System. Initially intended for military use, by 2001 the civilian flavor of the technology was sufficiently accurate that common motorists could rely upon it and thus run out of excuses for getting lost on the road.
In broad brushstrokes, we all know how it turned out. Personal navigation devices did indeed turn out to be a big hit with consumers around the world. But, in parallel, phones got better, and Apple and Google both decided to play in the marketplace. Sensing a strategic opportunity in navigation, Finland’s Nokia acquired Navteq, a mapping data provider, in 2007; in 2008, navigation player TomTom acquired the other one, TeleAtlas, though only after a brief bidding war with Garmin.
In 2009, Garmin tried to build its own Android-based phones, but the whole idea just didn’t work out.
Fast forward to mid-2012 and yesterday’s demonstration of new mapping and navigation capabilities on Apple’s iOS 6. Garmin isn’t a nonparticipant in the smartphone ecosystem: It builds many iPhone and Android apps for navigation, boating, aviation and outdoor sports.
And, indeed, half of Garmin’s business is in those non-automotive areas. But it’s about to get killed in the half that everyone pays attention to: Automotive navigation. Some people will still choose to rely on a dedicated navigation system. But more often than not, they’ll buy one preinstalled in their car that doesn’t come from Garmin. And if, like me, they don’t own a car, they’ll use their phone to handle navigation when they rent one.
Today, TomTom — the rival that has for several years competed heavily with Garmin, particularly in the retail-navigation system space — confirmed that it had reached some kind of mapping-data licensing agreement with Apple, but said that it would provide no further details on the conditions of the deal.
Yesterday, Garmin shares fell 8.5 percent to close at $38.20. TomTom shares rose more than 11 percent today in Amsterdam, trading on word of its relationship with Apple. Seeing these results, it’s hard not to think back to that interview with the Garmin CEO almost a decade ago, and to consider it as having been a pretty important question.
My copy of the print version of the Forbes article is embedded below: