Why three German car makers just bought a mapping company from Nokia

Getting HERE.
Getting HERE.
Image: Reuters/Michaela Rehle
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Last year, some 17 million cars rolled off production lines with navigation systems built into them. That’s about one in four of all cars sold worldwide and more than all the cars sold in the US in 2014. That number will only grow as vehicles become increasingly autonomous. For cars to be able to do things on their own, they need to know where they are and where they’re going. And for the maps to be more useful, they need to consume information as well as produce it.

Looked at that way, the announcement this morning that that Daimler, BMW, and Audi collectively spent €2.8 billion ($3.2 billion) to acquire HERE, Nokia’s mapping division, as a consortium starts to make some sense. All three companies already use Nokia’s mapping technology and have long been in talks to acquire HERE, beating off rival bidders including Uber and China’s Baidu, among others.

HERE is one of the world’s four major maps providers, along with Google, OpenStreetMap, and TomTom. It is also one that tech companies are increasingly looking at as an alternative to relying on Google. Those companies, including Facebook, Baidu, and Uber, will now license maps from the automakers, as will other manufacturers. These companies “see an independent mapping solution as critical in order to compete with Google for mobile advertising dollars,” according to IHS Automotive, a research firm.

But that is a side business. HERE is not a particularly attractive company from the point of view of financials. HERE roughly provided less than 10% of Nokia’s revenue last year. And it had stopped being a company that fit with Nokia’s increasing focus on network equipment. Nor will it contribute much by way of numbers to BMW, Daimler and Audi; HERE’s annualised net profit of about €100 million is a drop in the ocean compared to the combined €14 billion net profit the three automakers made last year.

Surveying the market in April, when a sale was already on the cards, ABI Research concluded that it’s “hard to make the point the map licensing is a very profitable business. Despite some major wins and revenues approaching $1 billion, the upkeep of such a database is incredibly expensive, as reflected in its profitability. So the days of profitable standalone mapping companies are probably over.”

Instead, the sale is about freeing up the German automakers from their reliance on outside firms for what is becoming an increasingly important aspect of the auto busiess: data.

“Our environment is constantly changing,” Rupert Stadler, Audi’s chairman, said in a statement. “That’s why the information in digital maps has to be continually updated so that maximum utility can be offered.” Already, cars fitted with telematics and cameras hoover up data about the physical world, information that is collected and analysed by the automakers.

In-house mapping technology means they can integrate it more effectively into the navigation systems in their cars. IHS Automotive reckons that “progress towards autonomous driving will require real-time availability and on-demand downloading of high definition maps quite different from navigable maps available in vehicles today.” In an age where companies such as Google are becoming automakers, it should come as no surprise that auto manufacturers are encroaching on tech firms’ territory, too.