How the 3G iPhone could kill GPS manufacturers.

Commentary about business and finance.
June 9 2008 7:00 PM

Recalculating ...

The 3G iPhone is coming. GPS manufacturers should be very, very scared.

On the XX Factor blog, Noreen Malone decries the New York Times' amazment that women want the new iPhone. Also in Slate, Tim Wu writes that we're headed for a duopoly between AT&T and Verizon.

Apple iPhone
The 3G iPhone

When Apple unveiled iTunes, it changed the recording industry by legitimizing and monetizing the process of downloading music. By coupling iTunes with the iPod, the company figured out a way to dictate the direction of the market for portable MP3 players. When it showcased the iPhone, it forced non-AT&T cellular carriers to scramble for touch-screen cell phone knockoffs. Now, Apple is bringing a faster, sleeker 3G iPhone to market—and it's the end of the portable GPS market as we know it.

For Apple, the move to GPS was a no-brainer. The original iPhone shipped with Google Maps as one of its built-in applications, and its EDGE network could already approximate your position by triangulating your signal against cell-phone towers. The denser the cell towers, the more easily the iPhone could spot you on a map. But that was just a tease for the growing number of people who've become accustomed to the GPS units in their cars.

Portable GPS devices have quickly gone from high-end curiosities to mass-market devices. In-car location trackers were the hot Christmas gift of 2007, and research firms estimated late last year that revenue would hit $50 billion in 2008 and $100 billion in five years. So far, the main benefactor has been Garmin, a GPS manufacturer that by most estimates commands more than 50 percent of the industry's American market share. The company posted record revenues in 2007.

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Thus far, Garmin has specialized in portable units that whisper sweet nothings into drivers' ears as they shuttle between business meetings and the kids' soccer games. But recently, the market has become saturated with competitors ranging from Magellan to TomTom (the latter of which is the leader abroad). Despite blockbuster sales numbers, Garmin's stock has taken a dive, dropping more than 50 percent since December 2007. With Wall Street sourpusses looking on, Garmin decided to go mobile. The Nuvifone, announced in January, promised seamless integration of GPS, a portable Web browser, and a phone.

Garmin's new gizmo sounded a lot more promising and innovative before Monday afternoon. The GPS iPhone launches on July 11 for $200; Garmin's Nuvifone is slated to go live sometime between July and September; we still don't know how much it will cost or who the phone carrier might be.

But Garmin has bigger concerns than the Nuvifone. Every new iPhone sold means one fewer person needs a GPS unit in his car. Considering that the 3G iPhone starts at $200 and integrates music, phone, gaming, the Web, and GPS into one unit, the thing is going to siphon serious business away from the old-line GPS manufacturers. Garmin's entry-level portable GPS models hover north of $100. Almost all of the rest retail for more than $200, which isn't looking like a great deal right about now.

Apple's new phone also has the potential to take GPS technology to a level that Garmin and its competitors have not. GPS will no longer be for driving directions alone; instead, it's going to be a way to provide location-based services. With applications like Loopt, iPhone users will be able to see if their friends are nearby. In a perfect world, the GPS iPhone might even do the impossible—make Twitter useful. Eventually, it's easy to imagine a scenario in which you walk into a bar and see how many of your Facebook friends are in the room.

Maybe the Nuvifone could pull that off, too. But it seems fair to guess that the Apple fanboys aren't going to wait to find out. (A spokeswoman for Garmin wouldn't reveal many details about the Nuvifone, asserting only that the iPhone is aimed at a different market. When pressed to describe what Garmin's market was looking for, she said a device with phone, Internet access, and GPS capability in one package. Last time we checked, that's what the iPhone does.)

Apple's new product isn't guaranteed to destroy the GPS industry. For one thing, we don't know whether it can speak driving directions aloud—the killer feature on mobile GPS devices. (Our bet is that it can't.) Moreover, nobody seems to have a grip on how the iPhone will toggle between giving driving directions and accepting incoming phone calls. The Nuvifone already has that straightened out—when a call comes in, the unit will mute its driving directions, and the driver will be able to talk via a headset while looking at the unit for directions. (Mothers Against Drunk Driving will likely soon need to be renamed Mothers Against Distracted Drivers.)

One would assume, though, that all of this functionality will eventually be programmed onto Apple's platform by an enterprising developer. From there, users could download it to the iPhone. If that's the case, Garmin should make sure it's the company offering that program before anybody else capitalizes on Apple's shortcomings. Owning at least that market share would make a nice consolation prize.

But wait. TomTom—Garmin's chief global competitor—has already done it. Hours after Steve Jobs unveiled the 3G iPhone, the company announced it has already created an application that essentially transforms the iPhone into a TomTom GPS—complete with the look and feel of TomTom's maps and directions. It seems Garmin has already missed its on-ramp.

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