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Sunday, November 13, 2011

How quickly products come and go

Ten years ago I bought my first GPS. I enjoyed it immensely and have had one ever since.

As a technology, many people can be credited for the success of GPS. In terms of a consumer product, however, the GPS is largely the result of one firm: Garmin. Its two founders became billionaires, and Garmin stock became a favorite of Wall Street upon IPO in 2000. Not only did Garmin turn a profit on the sale of receivers, they also made huge profits from subsequent sales of updated maps. It was a wonderful business model.

Recent years, however, have been tough for Garmin. Unit prices of consumer GPSs have fallen, in part because of aggressive competition by TomTom. Car manufacturers began including GPSs in their vehicles. But the real damage to Garmin came from governmental decisions to require GPS chips in smartphones, so that the 9-1-1 response centers could tell exactly where a caller was located. (I'll not mention the privacy implications of this.) By linking GPS functionality to online maps, smartphone designers turned the "lemons" of mandated increases in manufacturing cost into the "lemonade" of increased product value. 

A GPS application in a smartphone is not as convenient to use or as functional as a standalone GPS -- particularly when driving a car -- but for many people, it is good enough.

Consequently the value of Garmin stock peaked in September 2007. The company isn't going broke; aviators, boaters, hikers, and other people need specialized GPS products. I doubt that Garmin will recover its mojo, though. They had their proverbial 15 minutes of fame.

Palm PDAs, Walkmans, CB radios... innovation is a two-edged sword. The consumer electronics market can be rough on companies, their investors, and their employees.