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Gold in Them Navteq Hills

August 9

From the time we first learned that Navteq supplies the trip time data behind MapQuest, we’ve been a fan. Its model features labor-intensive data collection (picture college students driving around for hours zealously clocking routes) combined with massive data management capability.

This combination is sweet for several reasons. The labor intensity, perhaps counter-intuitively, is a major competitive advantage: the first guy to roll out a collection infrastructure with critical mass erects a formidable wall against second-comers. Who wants to spend all that money replicating the mechanism before you know whether market demand justifies your “me too” product? And there’s no way to automate collection or make it cheaper, at least on the horizon: for now it takes a lot of people.

Second, the data is perishable, obsoleting rapidly, thereby hooking the customer with a perpetual addiction. And perhaps a distant third advantage of the model is its requirement for sophisticated data storage, analysis and rapid distribution. This last barrier to competitive entry is both one of technical skill and capital, though – delightfully – once the storage and distribution machine is in place, the variable costs are practically nil. In fact, the model as a whole is a monument to the joys of leveraging fixed costs

In Navteq’s case, the model delivers a final major benefit peculiar to our times: rapidly rising revenue as the Internet generates more and more demand for Navteq’s product. As Google, Yahoo and Microsoft race to market with geographic search capabilities, Navteq data are running through its tollbooth in rising torrents.

Back in the days when Rand McNally was struggling mightily with a disappearing printed map business, who knew that the Internet, smashing this old model, was simultaneously germinating an even more attractive successor? Schrumpter’s “creative destruction” in action.

Navteq’s success is reminiscent of the early success of another Chicago company, Certified Collateral or CCC. Back around 1985, the company pioneered the combination of lots of manually collected data with rapid data obsolescence. Except in this case, the data were car prices painstakingly gathered from used car lots, and the market was car insurance companies looking to put a fair market price on their customer’s totaled cars. With CCC’s data, the carrier could offer the insured two options: take the cash or we’ll deliver the used car CCC found as a replacement.

CCC’s still around, generating a strong profit after all these years albeit with sales capped in its niche and with a fair amount of stumbling around in the new Internet world. But it’s never attracted a worthy competitor due to the impervious model. So we think the future is Navteq’s to lose.

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