Kelso's Corner

Reprinted from the Financial Times. By Richard Waters in San Francisco. Published: May 21 2008.

When European regulators last week cleared the €2.9bn ($4.5bn, £2.3bn) purchase of TeleAtlas, a digital mapping company, by TomTom, the maker of navigation devices, they were giving a nudge along to one of the hottest business fads on the internet.

Approval for that deal makes it almost certain that a bigger transaction will also get the nod: Nokia’s proposed $8.1bn purchase of Navteq, the largest acquisition undertaken by the mobile handset maker.

Navteq’s database of maps covers more than 70 countries. Yet as a source for the next world-changing online idea, digital maps might appear a distinctly unpromising place to start. These basic graphical representations of the world seem a rather humdrum commodity, hardly a key to unlocking the riches of the internet.

That is not how it appears to Nokia. Anssi Vanjoki, a senior executive of the Finnish company, recently summed up the reason for its acquisition: “We can locate our experiences, our history, on the map. It’s a very concrete expression of a context.” Displayed on the bigger, higher-resolution screens that are becoming more common on mobile handsets, maps can become “a user interface to many things”.

This is turning into a prevailing view in the internet industry – partly because mapping does not stop at simple two-dimensional representations. Mike Liebhold, a veteran technologist who is now a fellow at Silicon Valley’s Institute for the Future, calls it a “3D data arms race”, with some of the biggest technology companies rushing to amass vast libraries of information describing the world in painstaking detail.

Erik Jorgensen, a senior executive in Microsoft’s online operations, says the software company is building a “digital representation of the globe to a high degree of accuracy” that will bring about “a change in how you think about the internet”. He adds: “We’re very much betting on a paradigm shift. We believe it will be a way that people can socialise, shop and share information.”

The bet, in short, is that the map is about to become the interface to many of the things people do on the internet – and that the company that controls this interface could one day own something as prevalent and powerful as Google’s simple search box. This proposition takes on added power when applied to the mobile world. Displayed on location-aware handsets, digital maps can be used to order information around the user. The information that matters most is information about things that are closest.

That explains why a car navigation company and a maker of mobile phones are leading the charge. A collision with established internet powers such as Google, which has itself identified the mobile internet as its next big money-making opportunity, is inevitable.

Reordering the internet around this new geographic interface is a project that has been under way for some time. It starts with what engineers at Google call the “base canvas” – a detailed digital representation of the physical world on to which other information can be “hung”. Thanks to the plunging costs of technologies such as digital imaging and geolocation equipment, the world is being mapped, measured, plotted and photographed in almost unimaginable detail.

At one end of the spectrum are people like Steve Coast, a British amateur who is hoping to create a communal map of the world as comprehensive as Wikipedia, the online encyclopedia. Volunteers who contribute to Mr Coast’s OpenStreetMap.org literally redraw the map. “You buy a GPS [global positioning system] unit and cycle around the roads,” he says. “It drops a data point every second, like Hansel and Gretel dropping breadcrumbs.” Collecting those data points and joining the dots is the first step in sketching a map of the road network.

At the other extreme are the likes of Google, which is approaching the task with its usual unbounded ambition. “Our goal is to make a kind of mirror world, a replica world,” declares John Hanke, head of its Google Earth unit. Many of these data are being gathered through painstaking methods and put into private databases. For instance, Navteq and TeleAtlas each use their own fleets of vehicles to collect a mass of street-level information useful to motorists but not shown on official maps – covering everything from speed limits and one-way streets to big construction projects.

These are not the only trucks and vans crawling the kerbsides of cities to suck up information. Google is there too. “Every five feet or so, we’re capturing a 360-degree image that is many megapixels,” says Mr Hanke. Those pictures add a detailed street-level view. Microsoft, not to be outdone, has taken to the air. It has gone as far as designing and building specialised cameras, flying them around to collect three-dimensional images using a technology called Lidar, a variant of radar.

This is about more than mapping and photographing the planet. It also involves modelling it, collecting enough geographic and spatial data points to be able to render a detailed digital version. With a service called Sketch-up, for instance, Google lets users draw their own digital models of real-world buildings and add them to its 3D “warehouse”.

These are expensive undertakings and are based on an untested proposition: that the resulting digital representations will form the new backdrop for a whole range of money-making online activities. Also, with several companies all racing to create what are essentially the same basic geo-spatial frameworks, the costs have been multiplied across a number of rivals.

Yet it is not hard to see how these companies justify the costs to themselves: gross profit margins on internet search are above 80 per cent and, for any company that can generate scale, these development costs are likely to pale by comparison. In addition, as the acquisitions of TeleAtlas and Navteq show, companies that have created parts of what could become the web’s next compelling interface already command high values.

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