Navigation industry to thrive with software dollars

As more users move toward software-based navigation offerings, the navigation industry will see its revenue source swing from almost entirely dependent on hardware-based sales to a 50-50 split with software dollars by 2016, according to a research firm.

On Tuesday, ABI Research released a study saying that revenues for navigation devices traditionally came from hardware-based technologies such as factory-fitted navigation and unconnected personal navigation devices (PNDs). In fact, the report stated that almost 95 percent of the industry's revenue came from hardware offerings in 2009, while software-focused, handset-based navigation and connected PNDs' contributions were "negligible".

The industry is today experiencing an upheaval, though, the research firm added.

According to ABI Research senior analyst Patrick Connolly, the in-car navigation market has grown "relatively unabated" for years, with the exception of the recent global economic recession. "It was a niche within an established market that was large enough for everyone to succeed concurrently," he wrote in the study.

However, the market is becoming more competitive with penetration rate in some regions approaching 50 percent, he said. "[Because of this competition, there is a] clear transition away from pure hardware sales to software-based solutions and revenues," he noted.

Backing Connelly's observation, ABI had forecasted that by 2014, more than 60 percent of installed base will be software-based navigation products and services while off-desk location based services (LBS) will be primarily funded by advertising instead of direct fees. Furthermore, the navigation industry will eventually see a 50:50 split between hardware- and software-based revenues by 2016, it added.

The study went on to list four reasons for declining hardware revenues.

The first reason is because of falling average selling price of in-dash navigation devices. Secondly, connected PNDs will become commonplace as vendors such as TomTom and Garmin innovate and drive device adoption and new revenue streams. The emergence of mobile app stores and, with it, free navigation software will boost uptake and revenue of handset-based navigation, while lastly, location-based advertising will create a viable alternative to existing subscription-based services.

Referring to these developments, ABI Research's practice director Dominique Bonte surmised: "Finally, this market is evolving to support new revenue sources. Those that fail to move with the market will fall behind."

In a separate report, ABI also predicted that the global shipment of navigation devices will grow from 100 million in 2010 to 283 million by 2015. The projected shipment figure encompasses all form factors, including in-dash, portable and mobile navigation devices, it stated.