• by Laurie Sullivan  @lauriesullivan, October 2, 2007

Nokia took a giant leap into securing a foothold in services Monday by agreeing to acquire digital-mapping company Navteq for $8.1 billion.

The move not only bolsters Nokia's position to compete better with navigation device manufacturer TomTom, which agreed to acquire rival TeleAtlas in July, but puts the Finnish handset maker in a prime position to tie location-based services with mobile advertising and marketing.

Last month, Nokia made a move to purchase marketing company Enpocket, adding technology to place advertisements through text massages. Navteq gives Nokia a stronger hold in the mobile ad space and the means to link location-based services to mobile ads, wrapping an interesting offering both to brands and consumers in a neatly tied bow, according to analysts.

The deal gives Nokia "enormous potential" to offer targeted search, mobile advertising and coupons on mobile handsets and navigation systems," says Paul Sagawa, senior analyst at equity firm Sanford C. Bernstein in New York.

Location-based services will become the next big thing for mobile handsets. For the most part, mobile phones can now handle global positioning system technology without completely putting a drain on battery life. "It's not that you can navigate turn-by-turn directions as you walk around the city, it's tying the mapping knowledge of what's around you to find the closest ATM or gas station," Sagawa says.

Analysts believe that Nokia's push into services could keep it one step ahead of the competition. "Not many companies are still making 35% margins in the PC hardware business," says John du Pre Gauntt, senior analyst for wireless at eMarketer. "Part of Nokia's strategy, a riff off what IBM did, will see them get deeper into the services business where they make the revenue from the handsets and the profits from services like advertising."

Nokia made a move into mobile advertising and marketing earlier this year when it introduced Nokia Ad Service--a platform connecting advertisers and media publishers with consumers through mobile phones--and Nokia Connector, which enables advertisers to target consumers with specific ads.

In an earlier agreement with Navteq, Nokia embedded the technology in the Nokia 6110 smart-phone and the Nokia N95 multimedia phone.

Still, there are challenges. It's no longer about serving up the ads. Companies solved that problem. It's about using the intelligence in the IT network to ensure the correct ads appear on the mobile phone or navigation system when the consumer seems most receptive.

"In theory it's easy, but really difficult to do," du Pre Gauntt says. "You first have to identify people who are interested in the product, Tropicana orange juice, for example."

Today, wireless carriers like AT&T, Verizon, T-Mobile and Sprint Nextel are doing little around location-based ad services. In time, Mike Wolf, director of digital media at ABI Research, expects technology providers like Nokia to become the catalyst for opt-in advertising and coupon services--not just on handsets, but portable navigation systems, too.

There are other opportunities, as well. In Europe and North America most major car manufacturers, such as BMW, Mercedes Benz and General Motors, use Navteq in one or more of their products. "In the first six months in 2007, we estimate that more than 75% of the in-dash navigation systems sold in Western Europe and North America use Navteq maps," says Judson Green, president/CEO at Navteq, during a call with analysts.

The Chicago-based Navteq also supports Panasonic, Seimens, OnStar, Sirius Satellite Radio, Mapquest, Yahoo, Ask, Google, Microsoft, Sony, Magellan, Hewlett-Packard, Oracle and UPS.

Navteq has 3,000 employees. In 2006, the company earned $110 million on sales of $582 million, and has been profitable every quarter since going public three years ago.