TomTom and Garmin Lose Their Way

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While the two companies are roughly even with world market shares of 33%, Garmin had a slight edge, having sold some 90,000 more units than TomTom, he says.

Then there's competition from other players, including Magellan Navigation, and Taiwan's Mitac International, which manufactures PNDs under the Mio and Navman brands. Mitac drew attention during the 2006 holiday season by selling devices at dramatically reduced prices, forcing Garmin and TomTom to follow suit (BusinessWeek.com, 12/12/06). "The experience of navigation is becoming commoditized," Robinson says. "They're having a hard time finding a unique selling point."

One vendor that may break the PND mold is Dash Navigation, a Silicon Valley-based startup, Robinson says. The company's Dash Express device connects to wireless phone networks to download constantly updated traffic and weather information, and can also load live gas prices and display them on a map of nearby gas stations. Dash sells its devices through Amazon.com (AMZN), but eventually hopes to license the technology to other manufacturers. "They have really gotten way ahead of the curve," Robinson says of Dash. "They are where everyone else in the industry needs to be now."

Garmin Phone on the Way

Some navigation device makers are trying to cope through consolidation. TomTom shook up the industry last year when it made an unexpected $2.3 billion bid to acquire TeleAtlas, a Dutch maker of mapping software used in PND devices and one of the two companies serving the entire PND industry. TomTom ultimately won the bidding war that ensued with Garmin. The other mapping technology vendor, Navteq (NVT), is being acquired by Nokia (BusinessWeek.com, 11/16/07).

Controlling TeleAtlas, which licenses mapping data to scores of PND makers, will give TomTom a hedge against declining hardware revenue. The company's future may lie in wireless phones as well. "TomTom has got to leverage its strong brand and license it to phone manufacturers like Sony Ericsson and Samsung," Wood says. "Just as we have seen camera lens brands being used in mobile phones, TomTom should exploit its brand power and offer mobile-phone solutions powered by TomTom."

Garmin has its eye on phones, too. In January it unveiled the Nuvifone, a wireless phone with a large screen that contains a navigation system. Somewhat similar in appearance to Apple's (AAPL) iPhone, the Nuvifone is expected to ship in the third or fourth quarter of this year, possibly extending a salve to a troubled industry.

Hesseldahl is a reporter for BusinessWeek.com. Schenker is a BusinessWeek correspondent in Paris.