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Navteq Deal Pushes Nokia's Services Drive Into Overdrive

For Nokia, the Navteq deal marks its biggest step yet in transforming itself from a world-leading handset vendor into a provider of Internet-based services and applications.

Nokia's $8.1 billion purchase of mapping data and location-based services provider Navteq, announced earlier this week, is the largest acquisition to date for the world's No. 1 handset maker. It also could mark a milestone for the location-based services market, which has so far been limited to one-off consumer "Where can I find a pizza joint?" applications and asset-tracking systems for enterprises.

Able to pinpoint the precise real-time location of users and assets, such services have long been seen as offering great potential for business customers, but have so far failed to find a broad market beyond logistics, shipping, and field-service companies.

"There are certainly going to be bigger needs in enterprises," said Jack Gold, head of research firm J. Gold Associates, in an interview. "But it's not clear how they're going to make a lot of money doing that because the current enterprise LBS market is generally about tracking things -- shipments and so on. It's a very specialized, niche operation."

For Nokia, the Navteq deal marks its biggest step yet in transforming itself from a world-leading handset vendor into a provider of Internet-based services and applications over a broad range of Nokia-branded devices. In August, the Finnish cellphone giant launched Ovi, the umbrella name for its forthcoming Internet services. "Location-based services are one of the cornerstones of Nokia's Internet services strategy," said the company's CEO, Olli-Pekka Kallasvuo, in a statement announcing the Navteq purchase.

Nokia "can continue to make 1 billion [basic and cheap] phones every year and sell them to China," Gold said. "But if they want to sell a $750 N95 [Nokia's high-end smartphone, introduced earlier this year], they have to build an ecosystem, an environment, a reason people are going to want to pay that much for a phone."

Nokia is not alone in seeing big potential for navigation and location-based applications. Kansas City-based Garmin on Wednesday released a $99 software program that can turn a smartphone into a mapping- and directions-enabled device. Called Garmin Mobile XT, the application pairs a smartphone's built-in GPS with Garmin's software to create a full-featured navigation device for locations in North America and Europe.

Still, Wall Street was not impressed by the Navteq acquisition. Nokia's stock dropped 2% on the announcement and another 1.85% today.

"This is an expensive acquisition that we think is more about long-term control and inhibiting competition than about a financial investment in a growing asset," wrote Richard Windsor, senior mobile analyst for Nomura International, in a research note. "If Ovi is successful then this acquisition could contribute a lot of value to Nokia, but we struggle to believe that it will earn its keep in the short-term."

For enterprises like Parker Fuel, a heating-oil distributor based in Ellicot City, Md., location-based services have already proved their worth in tracking vehicles and, by extension, their drivers. Parker has on-board devices powered by a Navtrak Web-based application tracking its service and oil-delivery trucks.

"We've saved a ton of money on gas usage, as well as made sure that people are getting paid for the work they actually do now," said service manager Ralph Adams in an interview. "Navtrak has really become the drivers' time clocks -- it took a lot of the BS out of the process frankly."

For professional services firms like the Metropolitan Group, a Portland-based provider of creative services for non-profit agencies, the tangible benefits of location-based services haven't been proven enough to spark adoption. While some individual staff members have begun using such systems, "We don't use location based services as a company," said operations manager Jason Rambo in an e-mail.

The difficulty of use and the tendency of devices equipped with GPS to suck battery power have conspired to confine LBS applications to narrow niches and specialized devices. "I've found my least [technologically] capable staff can use Google maps on iPhone with no help," said Rambo. "But GPS-type services on phones, today, I have my doubts I can give it to anyone who is not comfortable with tech and have them use it effectively.

"Nokia could change this," he added. "I hope they do!"

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