Navteq generated $582 million in revenues in 2006 and is a major player in the quickly growing navigation area. With location-based services becoming popular in mobile communications devices, Nokia is betting the industry is poised for even more growth.

"Location-based services are one of the cornerstones of Nokia's Internet services strategy. The acquisition of Navteq is another step toward Nokia becoming a leading player in this space," Nokia President and CEO Olli-Pekka Kallasvuo said in a statement. Joining forces with Navteq will help Nokia develop context and geographical information services more quickly, he added.

Digital Convergence

With the Navteq acquisition, Nokia picks up a team with navigation industry expertise, a strong customer base, and a map data and technology platform that has broad geographical coverage.

Beyond its position as a provider of digital map information for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions, Navteq owns Traffic.com. Traffic.com is a Web and interactive service that provides traffic information and content to consumers.

The Navteq acquisition is in line with Nokia's efforts to expand its entertainment, community, and location services with its Ovi brand. Ovi, meaning "door" in Finnish, lets consumers access their existing social network and other content. Ovi also acts as gateway to Nokia services.

The first version of Ovi.com is scheduled to go live in English during the fourth quarter of 2007, and additional features and languages are expected to go live during the first half of 2008. The Navteq acquisition bolsters Ovi, which also includes a music store to rival Apple's iTunes.

A Preemptive Strike?

Whether Nokia can make the Navteq acquisition work financially is an open question, said Avi Greengart, a mobile industry analyst at Current Analysis. But from a strategic perspective, he said, it makes sense. Nokia is trying to transform itself from a straight hardware vendor to one that provides connected services, he explained, and the Navteq acquisition gives the company strategic leverage in a critical control point: mapping software.

"If the rumors are true and Google is getting into the mobile phone space, Google would be doing that to apply services and advertising to mobility ," Greengart said. "Similarly, a lot has been made about Apple's play with the iPhone, and justifiably so. Apple keeps enhancing iTunes. You can now buy from iTunes over Wi-Fi."

Greengart's point is this: Nontraditional phone vendors are tackling the market with connected services. Nokia, he said, might be moving preemptively in this direction -- and the company has the cash to do it. "The bottom line," he concluded, "is Nokia has more resources than their hardware-only competitors and they are thinking more broadly."