Nokia Maps New Ad Focus

JUNE 23, 2011    THE WALL STREET JOURNAL

By CHRISTOPHER LAWTON

Nokia Corp. is preparing a new weapon in the fight for its survival: mobile advertising.

The struggling Finnish handset maker wants to use a new partnership with Microsoft Corp. to make its flagging Navteq map unit a force in mobile advertising, a fast-growing market that is expected to more than double in size this year to $3.3 billion.

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CEO Stephen Elop, left, in February announcing Nokia would make smartphones using Windows.

Nokia paid $8.1 billion for Chicago-based Navteq in 2007, hoping to create a foothold in the then-booming market for navigation services. But the deal backfired after Google Inc. and others introduced similar services online for free.

Now Nokia is betting that its Microsoft link can help make Navteq a success. On Wednesday, it said it would combine its mobile-location and commerce-services business with Navteq into one unit.

"We will provide next generation social-location applications and commerce to differentiate Nokia," said Nokia Chief Executive Stephen Elop, in a statement.

While still a nascent field, companies see big dollars in mobile advertising, but like any advertising business, scale is required to compete. To better compete against Apple Inc. and Google in the competitive world of smartphones, Mr. Elop announced in February that Nokia would make smartphones using Microsoft's Windows Phone software.

As part of the Microsoft deal, Nokia will also get a cut of mobile advertising revenue. The ads could be connected to specific searches made by users. If a customer searches for a pizza parlor on a smartphone, for example, an ad for a nearby Italian restaurant might appear. The companies hope that combining Microsoft's Windows smartphones and other properties with Nokia's and Navteq's will create a large enough ad business to challenge Google and other leading industry players.

"We think we have distinct advantages through our parent company's distribution and through this new Microsoft partnership," Christopher Rothey, vice president of advertising for Navteq, said in a recent interview. "We are looking for ways to place more location-based advertising, and Microsoft is a significant opportunity in that regard."

It is unclear exactly how Nokia will participate in advertising revenue generated from its partnership with Microsoft. A Nokia spokesman said the two companies are still in "the planning stages in terms of how we bring together the assets, which assets are brought together and the actual details on revenue sharing."

Nokia has long struggled to justify the price it paid for Navteq, particularly after Google shocked the market in 2009 by offering free turn-by-turn navigation on smartphones. Nokia matched Google last year.Google is tough competition in mobile advertising, since acquiring AdMob, a mobile advertising firm, in 2009 for $750 million. Nokia's mapping unit, which grew sales 23% to €232 million ($335 million) in the first quarter, represents 2% of Nokia's total revenue and operates at a loss.

Since 2009 Navteq has spearheaded a location-based mobile advertising service called LocationPoint, which delivers advertising via icons on Navteq's maps, mobile applications and other methods. Navteq has already struck several deals to expand its network, including inking Samsung Electronics Co. and Research in Motion Ltd., maker of Blackberry, as publishers, where it can serve ads. It has also signed Poynt Corp. and Telmap Ltd., which make smartphone applications that connect users to local businesses. Navteq also launched its LocationPoint service in South Africa and China. Nokia says these efforts will continue under its new business unit.

The key to mobile advertising, Mr. Rothey said, is to know what's around people, citing that Navteq has collected globally roughly 57 million points of interest such as restaurants, stores, gas stations. With that information, the company can serve a coupon or another type of ad to a person's phone for a store nearby, for example. With one button users can map a route to the business, call it or save the location, and the company then tracks such information for its advertising customers.

The challenge, analysts say, is that advertisers aren't interested, unless companies present them with a sizable, but also local audience within a short distance of the business. That means the more phones they can serve ads to, the more money they make.

Navteq's advertising network can reach over 150 million consumers globally. Mr. Rothey cites not just Microsoft smartphones, but also its Xbox franchise and its other online properties as potential areas where location-based ads could be placed.

There are indications that the company is making progress in mobile advertising. Nokia's mobile advertising click-through rates, a measure of success, are higher than the industry average. According to Inneractive, a mobile ad analytics firm, the click through rate on Nokia handsets was 3.32% compared to an average of 1.88% in May.

Write to Christopher Lawton at christopher.lawton@wsj.com