Nokia has demonstrated its commitment to becoming a serious player in the personal navigation business, announcing a USD 8.1 billion acqusition of Navteq, the mapping data supplier. Nokia already licenses Navteq’s mapping information for use in the Nokia Maps product, which it acquired from German developer Gate5 in August 2006. Under the terms of the acquisition Navteq will operate as an independent company within the Nokia group, with CEO Judson Green reporting directly to Nokia’s President and CEO Olli-Pekka Kallasvuo.

This is the largest acquisition Nokia has made to-date and leverages the Euro cash resources on its balance sheet to good effect, capitalising on the current weakness of the US dollar to make the acquisition relatively inexpensive in cash terms.

It is also a bold statement that Nokia is willing to build its vision of an integrated mobile services experience through acquisition. Nokia’s strategy announcements at the end of August made it clear that the company no longer sees itself as merely a handset manufacturer, but as an architect of the overall mobile user experience. This is likely to bring it into conflict with mobile network operators, many of which see content and services as their domain.

Purchasing a company which specialises in digital mapping, including gathering a wide range of information on local points of interest, is a smart move for Nokia. These kind of data will provide the essential contextual underpinning of an integrated mobile service strategy, enabling Nokia to deliver more relevant information based on a user’s location.

The acquisition will also help the company to commoditise the personal navigation business. It has already started this process by providing the basic version of its mapping product free of charge and pre-installed on some handsets. Currently the licensing cost for the Navteq maps used in this software is relatively low as the roll-out is confined to a small number of high-end handsets, but taking ownership of the data and therefore minimising future licensing costs will allow it to expand mapping to mass market mobile phones with relatively little financial impact.

This is a sure sign that Nokia intends to do to the personal navigation business what it has already done to the digital camera industry. We expect to see GPS-mapping becoming the next ‘must have’ feature on mobile handsets, just like camera phones and music players. And where Nokia leads, others will surely follow: look for a flurry of partnerships and acquisitions in this area by Motorola, Sony Ericsson, LG and Samsung.

TomTom, the market leader in standalone personal navigation devices, is likely to suffer the heaviest impact from this acquisition. It bought Tele Atlas, a rival supplier of mapping data, for USD 2.8 billion in July of this year. There are rumours the company is preparing to launch its own navigation-centric mobile phone, but we would not be surprised to see TomTom become an acquisition target for one of the larger mobile handset manufacturers over the next 6 months.

Nokia now faces the challenge of capitalising on this acquisition and demonstrating that personal navigation can be as effective from a mobile handset as from a standalone device. The company’s free mapping software has come in for criticism from customers over its confusing user experience and eccentric route mapping. Although Nokia recently released an update, it will take some time before it is able to offer a product with the simplicity and accuracy associated with TomTom’s products.

We believe the Finnish manufacturer will be particularly keen to ensure it maximises the unique advantages inherent in running mapping on a mobile phone: a wireless connection for downloading additional live data such as traffic and the ability to support the product with context-sensitive advertising. There are also opportunities for Nokia to integrate mapping closely with digital photos, social networking and financial services applications.