TomTom on track to re-invent the core

TomTom, the maps and navigation business, seems to be making progress in re-inventing its core business. Revenues grew +6% to €1.07billion in 2015, the first growth since 2009. TomTom's original core business of satellite navigation devices (sat navs) for cars was disrupted by the arrival of smartphones with free built-in satellite navigation. This led to a dramatic decline in revenues, profit and share price from 2011 onwards. However, the company does appear to be bouncing back. "Written off as an also-ran, it has navigated its way through the lean years, when losses and debt threatened its existence, and has put its maps in position for the future," as reported in The Times here

Here are some of the key points from the TomTom story.

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1. Renovate before you need to

Core renovation means pro-actively upgrading and improving the core when the business is doing well, rather than waiting for it to start declining. To borrow a phrase from a French rugby coach, "To stay number one, train like you're number two". However, companies are often too slow to renovate their core. And this can be fatal in the face of disruptive change, as shown by once successful companies like Kodak, Blockbuster and Clinton Cards going bust.

The storm of change may take a while to show its full force, leading to what I call "marketing inertia". As change starts to happen a company's sales may still tick along nicely, causing the company to stick with the same way of doing business. TomTom enjoyed revenue growth as recently as 2010. But then the storm hit. Smartphone sales exploded, and TomTom's business imploded. Revenue almost halved between 2008 and 2014, from €1.67 to €0.95 billion. 

The company is finally back in growth, but is yet to return to the same levels of profitability, as the chart below shows.

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2. Re-define your market

A crucial step in re-inventing the core is to re-define your market, based on consumer benefits not products. In the case of TomTom, they re-defined their market as "navigation and mapping services" rather than "satnavs". This helps identify threats and opportunities beyond the current products, such as smartphones. A new market definition also helps inspire and guide re-invention of the core. TomTom now has four key business areas, with growth in the newer areas finally offsetting the decline in the original sat nav business.

  • Consumer, including the original sat nav business, in addition to wearable technology like sports watches
  • Licensing, such as the partnership with Apple for iPhone mapping, and more recently with Uber
  • Telematics for managing fleets of lorries
  • Automotive, supplying mapping to car manufacturers

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3. Invest for the future 

Now TomTom has stabilised its business, it can start to focus on the future. As CEO Harold Goddijn said in The Times article, “We are going to accelerate and go faster and faster. We have got rid of the idea we are playing for extra time.” One particular area of opportunity is providing mapping for driverless cars, called “the mother of all disruptions”, by Goddijn. The company spent €268 million on R&D in 2015, up 9% vs 2014, with 3,500 people working in R&D. This reflects significant investment in advanced content and software for the automotive industry.

4. Keep it real

I believe one reason for companies like Kodak, Blockbuster and Clinton Cards failed to re-invent their core business was not being close enough to the market and customers. The risk is to be too inwardly focused, worrying about your own business and asset base. So, its good to see that CEO Goddijn tries to "keep it real" and have an outward focus, saying an FT article (subscription needed): "I'm trying to stay in touch as much as I can with the basics. When I'm travelling abroad, I test all my applications for local conditions to see how we have adapted to them".

In conclusion, TomTom shows the need to constantly renovate your core, ideally when disruptive change is stating, not when it hits in full force. The challenge is to define your market based on benefits, not products, as inspiration for core renovation. The renovation then needs executing at speed, so sales of the new core offering can off-set the decline in the old business model.