UPDATE 3-Motorola Droid comes with navigation, big ad spend

* Droid to cost $199 for 2-year contract customers

* To go on sale on Nov. 6 at Verizon Wireless

* First to use Google's Android 2.0 software

* TomTom shares down 21 pct, Garmin down 16 pct (Adds executive and analyst comment, updates share prices)

By Sinead Carew

NEW YORK, Oct 28 (Reuters) - Motorola's (MOT.N) Droid phone will sport new software from Google Inc (GOOG.O) that threatens navigation devices by Garmin (GRMN.O) and TomTom (TOM2.AS) and could help win back market share lost to the iPhone.

One of the newest features of the Droid is Google Maps Navigation, which offers real-time, turn-by-turn walking or driving directions.

The news helped push TomTom shares down 21 percent as the navigation device maker also warned of more price declines. Garmin shares fell 16 percent. [ID:nLS458927]

The Droid will go on sale on Nov. 6 and cost $199 for people who commit to a two-year service contract, said Verizon Wireless, a venture of Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L).

Verizon has exclusive U.S. rights to the phone, the first to use Google's Android 2.0 software.

The leading U.S. mobile provider said it will promote the device with its biggest marketing campaign ever -- giving Motorola a good chance to improve its sales, analysts said.

Verizon Wireless Chief Marketing Officer John Stratton said the Droid would hold its own against iPhone even as he conceded that Apple (AAPL.O) had revolutionized the mobile industry.

"We have to demystify the notion that (iPhone's) untouchable," Stratton told reporters at the launch event in New York. "This product can stand up and compete."

Stratton said the Droid is the first in a range of Motorola Android phones from Verizon Wireless, as it looks to regain ground lost to AT&T Inc (T.N), the U.S. iPhone provider.

The Droid is a massive bet for Motorola, which after losing market share to rivals for more than two years has reorganized its entire mobile business around developing Android phones.

"In terms of the rejuvenation of mobile devices, this is an important next step," Motorola Chief Executive Sanjay Jha told Reuters. "We're ready to produce very large volumes."