MOBILE LOCATION-BASED SERVICES

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1 MOBILE LOCATION-BASED SERVICES SUMMARY Summary Executive summary Mobile location-based services (LBS) are gradually achieving mainstream market acceptance. Popular service categories include mapping and navigation, search and information, social networking and entertainment, tracking and location-based voice tariffs. Mapping and navigation services is the leading segment in terms of revenues and number of active users. Free navigation services have been available for several years in Europe, which created relatively little impact on the market until recently. Nokia and Google launched at the beginning of 2010 free applications that instantly resulted in significant pressure on the pricing for premium navigation services. White-label navigation developers are now working with mobile operators to create unique localised offerings and service bundles to be able to compete with these new free offerings. Search and information services are growing fast as more subscribers adopt mobile Internet services and handsets with improved capabilities. The leading social networking services are also experiencing rapidly growing uptake on the mobile web. Increasingly, these services add various forms of location support. However, the significant growth in usage and number of active LBS users in Europe has not yet resulted in substantial growth in revenues. Total LBS revenues in the EU 27+2 reached 220 million in 2009 and Berg Insight forecasts LBS revenues to grow to about 420 million in Mobile network operators seek new ways of maintaining revenue growth as mobile penetration is reaching saturation, competition intensifies and regulations drive call prices down. Increased focus on delivering value added services such as LBS, is one means of achieving this. Mobile users in Europe are gradually adopting mobile Internet services and applications. Uptake of data plans for mobile phones is growing fast in Europe, approaching 15 percent of the mobile subscriber base. Other enablers include improved coverage of highspeed 3G networks, as well as increasing penetration of 3G handsets and smartphones. Apple s highly successful launch of its App Store has influenced other handset vendors and mobile operators to introduce similar services, contributing to significant uptake of mobile applications including location-enhanced applications also among mainstream mobile users. STRATEGIC LBS RESEARCH SERIES 1

2 SUMMARY MOBILE LOCATION-BASED SERVICES EU E112 regulations that mandate caller location for emergency calls have driven operators to deploy positioning technology in their networks. Mobile operators launch commercial LBS and open their platforms to third party developers and location aggregators to leverage these investments. Some service providers, such as Google, compile their own databases of cell tower locations that can be used as free alternatives. Moreover, all leading handset vendors have now introduced GPS-enabled handsets in Europe and more than 100 models were available at the end of Shipments are growing rapidly as ever more low cost models feature GPS. The installed base of GPS handsets is approaching 15 percent of total handsets in Europe. An increasing number of services are partially or fully ad-funded and advertising is becoming the main source of revenues for a growing number of mobile developers and publishers. Adfunding is most likely to become the primary source of revenues also for many location-based services, especially in the consumer segment. However, the mobile advertising ecosystem is still fragmented and complex. Much of the activities carried out are still essentially on an experimental stage. Mobile ad revenues are still very small compared to premium mobile service revenues. Many actors in the mobile value chain show great interest in location targeted ads. Although location can be a very valuable targeting attribute for some brands and campaigns, many other attributes are available that can be more relevant. In addition, several issues such as user privacy and pricing of location data need to be resolved before location-based ad campaigns can leave the trial stage and contribute significantly to overall revenues. Local search and social networking services are likely to become predominantly ad-funded. Other consumer service categories can be expected to remain premium services. Many operator navigation services are for instance likely to remain predominantly funded by service fees and tracking services can be expected to rely solely on premium fees. More and more service providers are also introducing one-time fees or service bundles rather than monthly subscriptions. STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2

3 PERSONAL NAVIGATION DEVICES SUMMARY Summary Executive summary There are now well over 200 million turn-by-turn navigation systems in use worldwide, including about 40 million factory installed and aftermarket in-dash navigation systems, more than 120 million Personal Navigation Devices (PNDs) and an estimated 44 million navigationenabled mobile phones. PNDs still dominate the personal navigation market, especially in Europe and North America, but more and more handset owners are discovering navigation software and services for mobile phones. Historically, Europe has been the main market for PNDs, but North America has now caught up. Shipments in Europe declined to about 15.5 million units in 2009 while shipments in North America increased to 18 million units. In the rest of the world, shipments grew by one million to an estimated 6.5 million units in Especially in Europe and North America, where PND penetration is already high, the PND as a device category is facing increasing competition from handset-based navigation services and greater availability of low cost in-dash car navigation systems. Berg Insight believes that PND shipments in Europe and North America have peaked and will gradually decline to about 10 and 14 million units per annum respectively in New markets in other parts of the world will partly compensate for the decline in the mature markets. Worldwide shipments of PNDs are forecasted to peak at around 42 million devices annually in and gradually decline to 34 million units in It is very likely that several navigation enabled devices and services will co-exist for several years to come. Many consumers will use more than one device or service concurrently, with different devices and services tailored for specific purposes. Handsets are well suited for occasional users or for pedestrian navigation purposes. PNDs are better suited for use in cars by having screens and interfaces specialised for car navigation. Consumers also show a clear preference for large screens that can display realistic scenery. PNDs with 4.3- and 5-inch widescreens now outsell PNDs with 3.5-inch screens. STRATEGIC LBS RESEARCH SERIES 1

4 SUMMARY PERSONAL NAVIGATION DEVICES Several years of fast growth attracted numerous actors from multiple industries to the PND market. More than 100 brands have been available on the European and North American markets in the past. However, as a result of intensified competition and slowing sales growth, a number of players have already exited the PND market. Others, including MiTAC and United Navigation have driven market consolidation through acquisitions. At the same time, major device vendors and software developers including Garmin, TomTom and NavNGo increasingly focus on related products and services, including in-dash navigation systems and handset navigation solutions. New services and features are becoming more important as an increasing share of PND sales come from replacement devices for existing PND users. Many PND vendors are now developing online services for PNDs with cellular connectivity. Connected PNDs can access dynamic content such as local search, real-time traffic flow information and speed camera locations, as well as local fuel prices and parking space availability. These services can improve the value of PNDs in everyday situations in both familiar environments as well as on trips to new places. Besides leading vendors such as Garmin, TomTom and NAVIGON that offer a portfolio of connected devices in several price segments in multiple countries, several smaller vendors have also introduced connected PNDs in select markets. The content categories offered as part of connected services are roughly the same today as in However, the pricing has changed. During 2010, several vendors have reduced the cost of service plans by up to 50 percent. Services now typically cost 50 per year. Moreover, the free service trials bundled with new PNDs have been extended from 3 or 12 months to months. The cost of new connected PNDs is also declining. The cheapest connected PNDs introduced in 2010 typically cost percent less than similar models launched in STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2

5 MOBILE NAVIGATION SERVICES SUMMARY Summary Executive summary Handset-based navigation services are growing in popularity because of better availability of GPS handsets, improved performance, higher awareness and lower costs. Even though PNDs and in-car navigation systems often provide a better user experience than handsetbased navigation services, new handset models designed especially for navigation have closed the gap considerably. Besides car navigation, the main use case for handset-based navigation can well become pedestrian and multimodal navigation services. Outside the car, many users are likely to choose to carry only one device, which is highly likely to be the mobile phone. Numerous navigation enabled devices and services will co-exist for several years to come. Many consumers are also likely to use more than one device or service concurrently, with different devices and services tailored for specific purposes. There are now well over 200 million turn-by-turn navigation systems in use worldwide, including about 40 million factory installed and aftermarket in-dash navigation systems, more than 120 million Personal Navigation Devices (PNDs) and an estimated 44 million navigationenabled mobile phones. PNDs still dominate the personal navigation market, especially in Europe and North America, but more and more handset owners are discovering navigation software and services for mobile phones. Navigation services are primarily available as on-board applications with map data stored in the memory of the handset and off-board services that rely on maps stored on a server. Over time, many of these solutions will converge into hybrid services that store frequently used maps in the internal memory and leverage wireless connectivity to access dynamic content such as traffic flow information, fuel prices and weather. In the future, virtually all GPSenabled handsets can be expected to have mapping and navigation software as part of the standard feature set. STRATEGIC LBS RESEARCH SERIES 1

6 SUMMARY MOBILE NAVIGATION SERVICES The main distribution channels for handset navigation services include mobile network operators, handset vendors, on-device application stores and various forms of content providers. At the end of Q2-2010, about 65 percent of the global active user base subscribed to a service marketed by a mobile operator and 15 percent used a service bundled with a GPS handset. The arrival of app stores has created a new channel to reach a broad audience of handset users. More than 15 percent of active users of mobile navigation services have downloaded their application from an application store. Common propositions for off-board navigation services include daily, monthly and yearly subscriptions. On-board apps for smartphones are usually sold for a one-time fee entitling perpetual use. However, Google and Nokia s launch of free services have forced other actors to adjust their business models. During 2010, several operators have reduced prices for monthly and yearly subscriptions by 30 to 50 percent. Many operators are also introducing service bundles that include navigation with voice and data subscriptions. At the same time, service providers and operators try to differentiate their services by adding unique local content and features such as yellow pages, restaurant and event guides. Some operators have even started to offer basic navigation services to all subscribers for free without requiring purchase of service plans. The intent is to generate revenues from up-selling features, complementary services and content through in-app shops. By ensuring broad availability and high usage, operators can also monetise services through higher adoption of data plans and possibly advertising revenues in the future. The number of active navigation service users, i.e. those that have used a navigation service at least once per month, reached an estimated 44 million worldwide at the end of Q Berg Insight forecasts the number of active users to surpass 60 million in Europe and 50 million in North America respectively in In other parts of the world, handset-based navigation services are likely to become the main form of personal navigation solution already in the next few years and total active users is expected to reach 85 million at the end of STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2

7 GPS AND MOBILE HANDSETS SUMMARY Summary Executive summary Mobile phones are by far the most pervasive consumer electronics devices globally. Even though the global economic slowdown led to the sharpest decline in handset sales since 2001, shipments nevertheless remained above 1.1 billion units for the third year in a row. Mobile phones with GPS receivers have been available since the late 1990s. Technical development enabling GPS integration in mass-market handsets was driven by the FCC s E911 emergency call mandates requiring all US mobile operators to provide high-accuracy location of emergency callers. CDMA and iden operators chose to use GPS location technology for locating emergency callers that led to rapidly increasing penetration of GPS in iden and CDMA handsets in North America and other parts of the world where CDMA is widely deployed. Emergency call location regulation is being introduced in other regions as well. Canada has chosen to stipulate location accuracy requirements as in the US, while no such rules are yet in place in Japan or in Europe where Cell-ID-type location accuracy so far is enough for compliance. The number of GPS-enabled GSM/WCDMA handset models is growing fast. Disregarding handsets only available in Japan, as well as operator-specific variants of base-models, the total number of models that are available on the market has grown from 80 in 2008 to more than 180 at the end of Since 2008, all tier-1 vendors have started to ship GPS-enabled phones for markets worldwide. The attach rate for GPS is growing rapidly in GSM/WCDMA handsets, from less than 8 percent in 2008 to 15 percent in Sales of GPS-enabled GSM/WCDMA handsets grew to an estimated 150 million units in 2009, up from 78 million devices in Berg Insight forecasts that shipments of GPS-enabled GSM/WCDMA/LTE handsets will grow to 770 million units in 2014, representing an attach rate of 55 percent. Including handsets based on other air interface standards such as CDMA and TD-SCDMA, GPS-enabled handsets sales are estimated to reach about 960 million, or 60 percent of total handset shipments in STRATEGIC LBS RESEARCH SERIES 1

8 SUMMARY GPS AND MOBILE HANDSETS Handset vendors are increasingly focusing on improving the user experience through software and applications. Especially smartphones are receiving more attention from handset manufacturers, mobile network operators, application developers and last but not least users. Smartphones are devices that support installation of native third party applications. In the past, smartphones have been more costly than featurephones, but chipset vendors and handset manufacturers are now developing low cost smartphones with unsubsidised retail prices below 100 for launch in Smartphones costing about 50 can be available on the market in Encouraged by Apple s success, major handset vendors and several leading mobile operators have now launched on-device application stores that allow users to download applications directly to their handsets. Many of these applications have some kind of support for GPS location. GPS technology for handsets has matured, offering much better performance in terms of sensitivity, power consumption, size and price than was possible a few years ago. Support for other satellite systems such as GLONASS and Galileo will also be added over time. The first handsets with receivers for GPS and GLONASS are expected to become available in 2011 and mobile phones with Galileo compatible receivers can be expected in greater numbers in 2014 when the new system will become operational. The OMA SUPL A-GPS standard has enabled lower cost deployment of A-GPS services that ensure a better and more consistent user experience necessary for the consumer market. SUPL allows deployment of A-GPS services that reduce the time-to-first-fix, lowers power consumption and enhances the sensitivity of GPS receivers. New business models have also become possible, ranging from hosted services for operators, to services deployed by handset vendors for end-users that cannot get similar services from their network operator. Besides adding support for other satellite systems that ensures more visible satellites and incrementally better performance in urban canyons, handset vendors are also starting to adopt hybrid location technologies to improve indoor performance. These technologies combine GPS with other wireless and sensor-based technologies, including Wi-Fi positioning, accelerometers, gyroscopes or electronic compasses to gradually improve performance in challenging environments where GPS signals are extremely weak or unavailable. STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2

9 LBS PLATFORMS AND TECHNOLOGIES SUMMARY Summary Executive summary Mobile location-based services are applications and services that in some way utilise the geographic location of a handset. Adding location information can enhance an existing service or enable entirely new applications. Countless consumer and corporate services that make use of automatic location of handsets or other assets have been launched in Europe. Mobile location platforms enable mobile network operators to offer location-based services to end-users. Location platforms typically comprise several enabling servers and software extensions to network infrastructure components that together can calculate the position of a handset and mediate the data to a querying application. Many mobile operators also deploy location middleware that functions as a mediator between the location platform, applications and support systems and more importantly, provides centralised control of privacy settings for all applications. Location technologies can be divided into handset-based technologies, such as GPS, with intelligence in the handset, network-based technologies for instance Cell-ID, Enhanced Cell- ID and U-TDOA, with intelligence in the network and hybrid technologies, for instance A-GPS, with intelligence in the handset and the network. Handset-based and hybrid technologies often require additional hardware and software in the handset, while network-based technologies require deployment of hardware and software in the mobile network. Operators need to consider several technical and economical aspects when choosing what location technologies to deploy for emergency and commercial services. Each technology has different characteristics and ultimately, no single technology performs best in every aspect. The E911 mandate was a major driver behind the development of location platforms for the US market. In Europe, platform vendors instead focused on commercial services due to the lack of a clear mandate for emergency services. Many operators were interested in acquiring location platforms to deploy services and the rollout accelerated during 2000 and In the STRATEGIC LBS RESEARCH SERIES 1

10 SUMMARY LBS PLATFORMS AND TECHNOLOGIES first deployment phase, lasting from 2000 to 2003, operators invested in platforms and readymade location services. The results were in many cases limited uptake whereby many operators lost interest in LBS as a mass-market proposition. A new wave of increasing demand for location platforms followed after 2005 when the European Commission started to enforce the European E112 emergency caller location regulations. Today, the demand for new platforms has slowed again as most operators have installed at least basic location platforms that comply with current regulations. In the future, many operators can be expected to acquire system upgrades that will enable higher capacity and improved location accuracy. Demand is likely to come from stricter location accuracy requirements in future emergency call and lawful intercept mandates imposed on mobile operators as location technologies mature and costs decline. Moreover, along with increasing interest in services and applications for mobile phones in general, location services are now experiencing a comeback. Much of the interest comes from third party developers and service providers that want to add location to existing services and applications, leveraging the fact that operators are moving towards opening their platforms. Although A-GPS and the SUPL A-GPS standard receive much of the attention in conjunction with the growing number of GPS handsets being introduced, network-based location methods are also likely to experience an upswing. Emergency services, lawful intercept and many commercial services need to be able to locate any handset and therefore favour network-based methods. Moreover, A-GPS services also need complementary hybrid and fallback methods in environments where GPS cannot operate alone. Berg Insight forecasts total annual revenues in Europe for GMLC and SMLC mobile location platforms, including SUPL A-GPS servers and location middleware, to grow from about 18 million in 2009 to 35 million in These revenues comprise integration fees and licenses for new platform deployments as well as capacity and technology upgrades, maintenance and associated services. STRATEGIC LBS RESEARCH RESEARCH SERIES SERIES 2