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TomTom's SatNav "community" raises bar for rivals

AMSTERDAM (Reuters) - Satellite navigation device maker TomTom has jumped ahead of its rivals with a plan to mine information from drivers -- echoing the Web “community” approach that has worked for Wikipedia and YouTube.

A model displays the Eclipse AVN2210p, an auto in-dash navigation and entertainment system at the 2007 International CES (Consumer Electronics Show) in Las Vegas, Nevada, January 6, 2007. REUTERS/Rick Wilking (UNITED STATES)

Hoping to tap into a group of enthusiastic users and cement its leadership in a fast-growing market, TomTom will gather information about traffic flows and will tap its SatNav customers to discover inaccuracies in its digital maps.

The strategy, internally dubbed “Navigation 2.0”, is similar to the way that Web retailer Amazon.com gathers user reviews and tracks purchases, generating value above the money shoppers spend.

Its success rests on TomTom’s planned 1.8 billion euro (1.2 billion pound) acquisition of digital map maker Tele Atlas -- a move that will likely raise the bar for rival device makers such as Garmin, but also for companies such as Nokia who are indirect competitors in the navigation area.

“What people haven’t fully realised is that next to the Internet community, there is a mobile community,” Tele Atlas Chief Executive Alain De Taeye told Reuters, adding this included millions of drivers with navigation devices as well as users of mobile phones equipped with global positioning chips.

Already TomTom is getting 16,000 pieces of user feedback a month, but so far it has not been able to make the best use of this information because if did not own the underlying maps.

“If the (Tele Atlas) bid is successful, TomTom is the only way to play the personal navigation boom in Europe,” Petercam analyst Eric de Graaf said.

Upside for the stock could be substantial if TomTom’s strategy pays off. Its shares trade on 17 times this year’s forecast earnings, according to Reuters data, whereas rival Garmin trades on 29 times. European technology stocks as a whole trade on 19 times; Amazon trades on 82 times.

But analysts see a more modest share price upside even as investors have cheered TomTom’s move to buy Tele Atlas. The shares have risen more than 9 percent to 44.75 euros since the announcement despite a weaker market environment.

UBS for instance said the strategy boosted TomTom’s standalone valuation by 7 euros a share to 50 euros, while Tele Atlas added another 5 euros per share.

NOT ON THE MAP?

TomTom has become the world’s biggest maker of car navigation devices with easy-to-use devices that let users navigate from one point to another without the complexity that plagues many similar gadgets. It has sold more than 10 million of these routefinders.

“There are a lot of customers out there who either think it’s fun to participate or have a vested interest in participating, because their street name is not correct, or their house is not there (or) people running restaurants that are not on the map,” TomTom Chief Executive Harold Goddijn said.

Drivers can alert Tele Atlas to blocked roads, name changes or a different layout of an intersection faster than the company’s surveyors can, allowing it to constantly update its maps.

The companies will also ask users to grant them access to statistical information gathered by the navigation devices to get a picture of regular traffic flows, which can then help to optimise routing or more accurately forecast travel times.

“We need to take this business out of the stone age,” Goddijn said. “In five years from now, we need to be able to say we have 50 percent penetration.”

About 30 million cars, 14 percent of the cars on Europe’s roads, already have a navigation system.

TomTom’s move to buy Tele Atlas has also eased concerns over whether it can maintain its dominant market share in Europe and keep its double-digit profit margins.

UBS analyst David Kerstens said in a note he expected the new features to allow TomTom to keep a 40 percent market share in Europe over five years and grab a quarter of the U.S. market.

Should any competitor wish to emulate TomTom’s move, there is only one other digital map maker with a global scope to buy -- Navteq, whose shares have consequently gained about 10 percent.

“Map makers as an asset are going to be very scarce indeed in a few months,” said Felix Oberdorfer, an analyst with Dutch-Belgian banking group Fortis, noting that only a handful of rivals can replicate TomTom’s strategy because it requires a large installed base.

Kerstens argued chances of a counterbid for Tele Atlas were slim as other players such as Nokia or Google, who could afford to buy it, were not direct competitors of TomTom and could thus continue to buy maps from Tele Atlas under new ownership.

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