Nokia Here Capitalizing on the Digital Car

With their joint purchase of Nokia's mapping division, Germany's Audi, BMW and Daimler hope to fend off competition from U.S. tech rivals, in the race to engineer crucial digital components, especially for self-driving cars.
You are Here – Nokia's navigation system in action.

The decision by three German automakers to team up and buy Nokia's mapping and location service Here for €2.8 billion, or $3.1 billion, underscores the growing importance of digital technology in vehicles.

If antitrust authorities, Nokia's shareholders and the auto trio of Daimler, BMW and Audi agree, the takeover could be completed by the first quarter of next year.

It is an unusual play of solidarity among the car makers, known to aggressively pursue their individual plans. Harald Krüger, the BMW chief executive, noted a need by German carmakers to play a pivital role in digitial technology, as cars increasingly rely on software.

Nokia, while trailing Google's map services globally, is a major supplier of mapping data to automakers.

The Finnish company's highly precise maps could become industry standards and lay the foundation for almost all digital data services in cars, supporters say.

The German carmakers also need the technology to become less dependent on other providers in the future.

The partners are acquiring Here in equal shares in a marriage of convenience intended to challenge major tech competitors such as Google and Apple, which are beginning to encroach on the carmakers' turf.

The maps are more than navigational aids; they can precisely define a car's position and deliver important information along the route. Advanced digital feature in vehicles, including autonomous driving, will require such advanced positioning systems.

Nokia Here already supplies its mapping data to General Motors and Fiat Chrysler.

It will be a thrilling race to see if predominant mapping materials will carry through and form a standard, or if there will be several parallel digital mapping systems. Stefan Bratzel, Director, Center of Automotive Management

The three German buyers said they will continue to supply data to the broader industry.

"We want to secure the independence of this core offering for all car manufacturers and automotive suppliers, as well as for customers from other industries,” said Daimler Chief Executive Dieter Zetsche.

Research and development costs at Here have run between €500 million ($548 million) and 600 million in recent years. The company, which employs 6,400 people in Finland and other locations including Berlin, has maps that now cover about 200 countries worldwide.

The German buyers shouldn't expect quick profits, experts warn. In the first six months of 2015, the mapping service had sales of €551 million and operating profit of just €46 million. In 2008, Nokia spent €5.7 billion to buy Here's predecessor, the U.S. navigation provider Navteq.

For the investment to pay off, Nokia needs to become the standard for mobile data, experts say, and that will require bringing more partners on board.

The auto industry has been collaborating for the past several years on standardizing map data for navigation systems. The data from Here has been a big part of this development.

In the event of a takeover by a company or group outside the industry, most of the work "would have been for nothing,” said Marcus Thielking from Telenav, a provider of personalized navigation.

If Here had fallen into the hands of one of the IT giants, the car manufacturers would likely have had to make concessions. So far, the German automakers have not granted the U.S. giants access to system critical data and components in cars.

With its high resolution maps, Google, which is Here's largest competitor, is rapidly building its own mapping business with takeovers such as specialists like Waze.

Uber and the China's Baidu reportedly vied to buy Here.

 

Nokia Here-01

 

Apple is also showing an interest in digital car data. The car is the “ultimate mobile device,” Apple executive Jeff Williams recently noted.  The company is reportedly working with a team of 1,000 employees on its own electric car.

The online car service Uber, in which Google, Microsoft and Goldman Sachs are involved, is investing heavily in autonomous driving. It also made a bid for Here.

For smaller carmakers, the options are becoming fewer.  “The change to another mapping provider brings large technical expenditures and high costs with it,” Mr. Thielking said.

A third party could also come into play: Navigation giant TomTom from the Netherlands is working on high-precision maps together with automotive supplier Bosch in an effort to develop a self-driving system with TomTom. Bosch expects to perfect the interplay between cars and mapping to make autonomous trips possible on Germany's autobahn by 2020.

So far, industry experts think Here still has a lead over TomTom.

“No company can handle the expense of creating these maps alone,” Rolf Bulander, the head of the automotive division at Bosch, told Handelsblatt. Bosch has waived off an exclusive collaboration with TomTom and emphasizes the advantage of an open system. “For Bosch, this means integrating the corresponding mapping material based on customer demands.”

With the purchase of Here, the open system battle has just begun, said industry expert Stefan Bratzel, director of the Center of Automotive Management in Bergisch-Gladbach, Germany.

“It will be a thrilling race to see if one predominant mapping system will prevail and create a standard, or if there will be several parallel digital mapping systems,” he said. With Here, the Germans, he added, have bought themselves a slight advantage in this race.

 

Video: Here's president about Nokia and a consortium of German carmakers.

Lukas Bay, Christof Kerkmann and Martin Buchenau reported from Düsseldorf and Stuttgart. To contact: [email protected], [email protected], [email protected].