28.10.2012 13:01

Shares in TomTom jump 13 per cent to a three-week high on speculation the Dutch maker of personal navigation devices may be taken private by its founders with the help of iPhone maker Apple, which could then buy TomTom's maps database.

The thing to understand is TomTom isn't just about the digital map. The map itself is, of course, useful. It's a database containing vector-based information about roads locations as well bunch of other datapoints (e.g. one-way systems, available turns at junctions, traffic frequency at different times of day etc.). The basic database for the US + Western Europe is a few gigabytes in size and would fit nicely on a microSD card.

But the value goes deeper than that. After all if it Apple already licence this map data. But TomTom owns much more than that.

As important as the map is the network of relationships behind it. What most people don't realise is that the majority of digital mapping isn't done with cars - its done by getting the underlying GIS data from thousands of government agencies, utility companies and transportation companies and integrating it together. The hard bit about building a map isn't actually driving the roads - its about getting that data. It is noticeable that Google built out its US map much more quickly, because it could start with a core set of federal data rather than having to go to multiple providers. In contrast its build-out in Europe has been much slower as its been dealing with a much more fragmented market and much tougher regulator landscape. TomTom of course has had all these relationships for years, and this represents significant hidden value.

As important as the relations is the people. Again although TomTom has seen swingeing job cuts of late it still employs hundreds of experienced mapping experts. These guys don't simply grow on trees; to assemble a comparable outfit from scratch would take years. This represents a significant asset.

Finally there are is a raft of software and services which TomTom has built on top of Tele Atlas. In particular the database of Points of Information (PoIs - everything from service stations to restaurants and hotels), its Mapshare portal for crowdsourcing map updates, the routing algorithms to map out a journey and HD Traffic , its live traffic offering.

Note that TomTom has (still significant) satnav hardware business. That's not to say its go zero value, but it has zero value to Apple.

So why should Apple buy TomTom.? But let's be clear - Apple wouldn't buy TomTom just to help fix the current iOS Maps. The jewel in TomTom's crown isn't its map database. Its the people and the processes it has build up over the years. Although Apple are pushing hard to hire mapping experts, there simply aren't that many people out there with the necessary expertise. In contrast TomTom has hundreds of mapping experts and a stable, mature mapping organisation.

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