Who Would’ve Thought GPS Would Be So Valuable?

by JT McGee

As a kid I always wanted a handheld GPS device. It was a want likely influenced by one of the myriad of travel and exploration shows I watched on TV.

Back then, handheld GPS devices were something like $400 on the low-end, and they were still sold in the outdoors section at any big box retailer. I imagine they’ve made the move to the automotive section now – or maybe electronics?

I just thought it was cool that at any time I could see exactly where I was on the world – even if I was stuck in the middle of suburbia. Of course, the advertisements showed a GPS overhead view with mountains and nearby lakes.

Predicting GPS Explosion

Over time, GPS went from a product for adventuring to daily driving. Companies like TomTom and Garmin battled to put a GPS in every car. We own a TomTom purchased on Black Friday – best investment ever.

The product is great, and so is the business. It was obvious that everyone would eventually have a GPS, either in the dash of their car, or added by suction cup to their windshield. It was the opportunity of a lifetime. GPS envy is real…sit in a car with GPS on a long trip and you’ll buy your own the second you return home.

The funny thing about technology is that it is so wildly unpredictable. For investors, the windshield with tech doesn’t become clear until the technology car is veering off the road into a 100-year old tree 20 feet in circumference.

Here’s a 3-year chart of GPS-maker Garmin:

From 2004 to 2007, GPS use skyrocketed. Garmin had the lead; the company had 50 percent market share in the US in 2007.

What could go wrong?

Smart Phones

There isn’t a single person who, in 2004, thought smart phones would be as smart or as pervasive as they are now. No one would have said in 2004 that the market leaders in smart phones would be the recent IPO Google, or lagging tech player Apple.

I don’t think anyone thought then that GPS would be a virtual standard on nearly-free cell phones.

Here’s the full view to date on Garmin:

Things didn’t work out exactly as planned. Again, the future for GPS only became clear once the stock peaked. Once forward earnings were priced into the stock in 2007, the future for forward earnings came crashing down.

GPS Was Obvious; The Winner Wasn’t

If there is any investing mistake to avoid, it’s that thinking a sector can play out in a single company. There isn’t a single soul on this planet who could not see the value in GPS. Everyone knew in 2005-2006 that everyone would own a GPS.

But no one had the slightest idea of who would win. It is so, so, so hard to pick winners in technology. The obvious choice in 2005 or 2006 was Garmin. Then the tech changed, and so did user preference for multiple devices. And Garmin lost. Its actual performance never once kept up with expected future performance. And now its a minority player in a space where consumers pay virtually nothing to get GPS capabilities and where Garmin charges $60-150 for its product.

GPS is just one of the many examples that keep me out of technology companies. It’s so darn hard to predict, and there simply isn’t any history for testing your logical investment decision.

As Apple and Google go to war in mapping and GPS, it’s always good to look back to see how these kinds of battles previously ended. Tech is war; it’s bloody – and I won’t put my money on it for anything.

{ 2 comments… read them below or add one }

PK June 18, 2012 at 10:19

To quote the late Steve Jobs: “It’s a feature, not a product.” Now, he said that about Dropbox… but it applies equally here.

I’m waiting for radar detectors to get molded into phones – just mount it up on your dash and see the speed traps before they see you!


JT June 18, 2012 at 13:34

I remember reading an article about DropBox founders meeting with Jobs. Heh, he tore them a new one (and totally missed the ball.)

Do you really think that’ll happen re: radar detectors? It’s actually a pretty good idea, though I don’t know how how the technical side of it could work out.


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