Setting a New Course

Although Garmin's PND business accounts for roughly two thirds of revenue, it also sells specialty devices for boaters, airplane pilots and fitness buffs. Engineers in those divisions spend part of their time dreaming up new uses for GPS. Example: in the late 1990s, a group of engineers who were hard-core runners began carrying handheld GPS units during workouts to track performance. Over time, they developed watch-sized models that track runners' location, speed, heartbeat and other data; today these devices compete against offerings from Nike and Polar. Similarly, Garmin PR exec Ted Gartner, an avid bird hunter, helped conceive the Astro, a device to track the location of hunting dogs, while sitting around a Minnesota camp fire with some buddies.

Garmin says its multiple product lines don't just boost profits, but also make it easier to create new features. For instance, for years its marine GPS units have had a MAN OVERBOARD button, which a skipper can hit if poor Gilligan falls in the drink, to document the precise location from which to organize a search and rescue. Engineers in the fitness division exploited that location-marking function to create a RETURN TO START feature, which directs lost runners back to the place they began a workout. For its automotive line, engineers utilized the same idea to create a DUDE WHERE'S MY CAR? button, which allows a user to mark the location of a car in a mall parking lot.

These features sound useful, but for a populace already toting cell phones and iPods, one question looms: Do we really want to carry another gadget? Today fewer than one percent of America's 240 million cell phones utilize GPS, according to Frost & Sullivan. But as more wireless companies promote GPS (usually for $9.99 a month), more subscribers may sign on. Some of these phones will utilize Garmin components or software, but that's a less profitable business, and over time the migration of GPS into phones could imperil Garmin's core products. Rauckman, the CFO, has heard this fear for years. Having one device that does everything "is great in theory, not in practice," he says.

Garmin executives like to analogize to digital cameras. Even though cell phones take pictures, many Americans still want a higher-quality digital camera. The same will be true with GPS, Garmin believes. Bonnie Cha, a senior editor at the product-review site CNET, has experimented with both PNDs and GPS-enabled phones. Her verdict: the small size of cell-phone screens makes them hard to use for maps or directions while driving. "There's still a need for a stand-alone GPS device," she says. Says Jocelyn Vigreux, U.S. president of TomTom: "It's not an either/or—these technologies are complementary."

To fight against commoditization, GPS companies have also begun loading devices with new features. Some, like MP3 or video players, strike users as superfluous. But device makers and consumers seem excited by high-end models ($600 and up) that have begun offering traffic and weather data, along with more in-depth information on restaurants, hotels and gas stations. "The companies are trying to turn PNDs from a product that you use opportunistically"—when you're navigating an unfamiliar area—to "a car-based information portal you use every day," says Ross Rubin, director of industry analysis at NPD Group.

It's a risky strategy. PND makers find themselves facing the type of challenge confronting TiVo. That company has loaded its TV-recording devices with new features, but it's still struggled as more cable boxes offer the program-recording that most users see as TiVo's primary benefit. Similarly, if all consumers want is a voice telling them how to get from point A to point B, many may choose cheaper options than Garmin. The company's executives, however, say that by continually upgrading their devices, they'll be able to defend their premium position, the same way Apple's iPod far outsells lesser-known, less-expensive MP3 players. It's reinforced this message using advertising taglines like "Grab a Garmin" and "Give a Garmin," which try to cast its name, like Kleenex, as a generic term for the entire product category.