Google, HERE and TomTom – The gauntlet

Google throws down the gauntlet to HERE and TomTom.  

• The arrival of Android Automotive into the vehicle in the volume segment (Renault-Nissan-Mitsubishi) is a watershed moment for the automotive mapping industry as I think that it must now prove why Google Maps is not good enough for vehicle-based navigation.
• Today, there are really only two viable contenders to supply a map to a vehicle on a worldwide basis.
• These are HERE and TomTom who both have sizable legacy businesses in supplying this data to the automotive industry.
• In Q2 18 TomTom generated €62.6m from the industry upon which it made a very healthy 25% operating margin (together with €30m in revenues from enterprises).
• Assuming that TomTom has 20% share of this market, this would imply that HERE (which has the rest) generated revenues of around €240mm in Q2 18, giving an annual run rate of roughly €960bn ($1.1bn)
• If I take the global market of around 93m vehicles and take out China and Japan (who use their own maps), I get a global market of roughly 60m vehicles from which the map providers make about $1.4bn in revenues or $23.3 per vehicle sold.
• I think that this business model has been sustained by two factors:
  • First, Automotive grade: Both TomTom and HERE have been considered by the industry for many years to be the only providers of maps reliable enough for vehicle navigation.
  • If the user drives into a ditch in the countryside because the navigation system told him to, then the car maker has a significant problem.
  • HERE and TomTom have always been able to make that guarantee of quality and historically, they have been better than the Google Map particularly outside of urban areas.
  • This has meant that automakers, who are severely constrained by safety and reliability, have been unable to consider Google as an alternative.
  • Second, infotainment: Until now, Google has had no presence in the infotainment unit and so automakers have never been in a position to even consider it.
  • Google Maps via Android Auto is simply maps running on the smartphone being projected onto the infotainment unit screen and therefore has nothing to do with the vehicle maker.
  • Hence, if the user crashes because of a glitch in Google Maps running on Android Auto, liability remains with the user.
  • Furthermore, Google Maps requires connectivity which many cars today still do not have, obviating its use in the mainstream. (This is easily fixable).
• I think these two factors have kept this business model isolated from having to really compete with Google, but with the alliance (which ships 10.5m units or 11.3% of all vehicles) putting Google in its infotainment units, these barriers can be called into question.
• The big question is whether Google Maps is good enough to be considered automotive grade?
• If it is, then why would an automaker pay $28.6 per unit when it can get an equivalent quality map from Google for $0.
• Obviously, getting the Google Map into the dash for $0 means doing a deal with Google for Android Automotive which I have already called out as extremely risky (see here), but even with that, there is still scope for serious price erosion.
• Taking Android Automotive makes Google Maps available in the infotainment unit but the OEM is not locked into it.
• For example, Audi is still using HERE maps in the Q8 which will have Android Automotive at some point, and I suspect the same will be true for both the alliance and Volvo.
• However, the challenge to TomTom and HERE is to prove how their maps are automotive grade and Google’s is not.
• Failure to clearly demonstrate this fact will lead to every sales rep being asked at every meeting: “Why am I paying millions of dollars for your map when I can get the same from Google for free?”.
• This can only result in substantial price erosion and real problems for both HERE and TomTom.
• From my perspective, the jury is out.
• I have used Google Maps to navigate extensively across the world over the last few years, and apart from a few minor errors and a major slip-up involving a US army base in San Diego, it works extremely well.
• Hence for me, it would appear to be good enough.
• This is the challenge that Google is now making to the mapping companies and the ball is firmly in their court.
• They need to step up as scepticism in the market, (TomTom shares down 24% since the announcement) and among their competitors is now high.