Smartphones threaten navigation market

Handheld navigation device manufacturers are coming under threat from the growing number of smartphones in the market, and need to innovate or face extinction.

Personal navigation unit sales in SA have declined by about 15% over the past two years and are now flat year-on-year, while an increasing number of people opt to buy smartphones.

MTN, SA's second-largest mobile operator, said in the year-to-December, the number of smartphones it sold leapt 128%, to 3.6 million, while Vodacom previously reported it has 4.1 million smartphone subscribers.

However, only 900 000 personal navigation devices (PNDs) have been sold locally since taking off five years ago. There are about 8.25 million cars on SA's roads, according to the Automobile Association.

Kevin Bolton, owner of KJ Bolton Consultants, says the PND market shrunk about 15% in the past two years as smartphones and the recent economic meltdown took a bite out of sales.

Bolton notes that in December 2009, about 45 000 units were sold in SA, which dropped to just more than 32 000 in December 2010. Last year, sales were flat year-on-year.

However, in about the same time period, prices of PNDs have dropped by about half, and the cost of maps has also come down by 50%. Bolton's GPS Warehouse is still selling the same number of PNDs as it was two years ago, but turnover has dropped because of the price reductions.

Globally, as in SA, Garmin has the biggest chunk of the market, while Tom Tom is second, says Bolton. Locally, Garmin has between 60% and 65% of the market, and Tom Tom has between 30% and 35%, while a handful of other manufacturers share 5%, says Bolton.

However, the number of players in the sector has slumped dramatically. At one stage, says Bolton, there were as many as 26 brands in the market, and this has been whittled down to two main competitors.

Between November 2009 and May 2010, at least six PND companies left SA, says Bolton. He explains that companies exited mostly because they lost sales, as they do not offer backup, there is a lack of sales knowledge and maps are not accurate.

Swift Consulting CEO and tech blogger, Liron Segev, says the PND market is dying, but is evolving to breathe new life into the handheld devices. He says the sector has no choice but to innovate by offering new value-added solutions, or face extinction.

Segev explains information is key and PND manufacturers are offering services such as traffic information that require a nominal yearly subscription fee. He says the devices are becoming smarter, although manufacturers must be careful not to go too far and start making devices that are smartphones, as this will be a death knell.

Tom Tom SA country manager, Daan Henderickx, says, while consumer electronics sales slumped globally, the PND category in SA was “not worse or better than the rest of consumer electronics products”. In the first quarter of 2012, TomTom saw a positive trend in consumer sales compared to last year, he adds.

Henderickx says growth is hard to predict, but the company is confident that new innovations and an increasing share of real-time traffic will aid it to grow significantly this year.

Tom Tom does not see the smartphone market as a threat as it has a significant share of the application market and will soon launch new products, says Henderickx. He points out that smartphones only make up 20% of the cellphone market.

Bolton points out cellphones are a lightweight navigation solution and, while ideal as an entry point, do not offer all the functionality of a PND. In addition, smartphones have a small screen and a limited battery life, says Bolton.

Bolton says there is a large potential market for PNDs. Since the devices took off in 2007, only about 900 000 units have been sold and there are about 8.25 million cars on the roads.

In addition, says Bolton, PNDs are like PCs and need refreshing every three to five years, and that cycle is expected to kick in soon. He adds that other navigation tools are growth markets, such as those for fitness fanatics and 4x4 enthusiasts. Sales in these sub-sectors are offsetting the decline in PND units at Bolton's GPS Warehouse.

Sales of PNDs will pick up again as the slump was mostly due to the recent international economic crisis, which led to a local recession, explains Bolton. However, he does not see the sector returning to pre-recession levels.