TomTom makes a U-turn where necessary
TomTom hasn’t been afraid of changing direction. Its business initiatives continue to be driven by a culture of flexible entrepreneurialism.
Although it’s best known for satellite navigation technology, TomTom began life as a completely different sort of business. Moreover, the company’s future success may come from products that the majority of the public don’t currently associate with the brand. In short, this is a company that has already evolved significantly – and continues to adapt to its changing environment.
“We’ve been in so many businesses over the years,” recalls Peter-Frans Pauwels, co-founder of TomTom. “As opportunities have emerged we’ve always been pragmatic and taken advantage of them if they made sense for the company. Although some acquisitions, for example, might have looked expensive or surprising at the time; with hindsight it is clear that they opened new doors for TomTom that were valuable.”
TomTom’s story started in 1991 and by 1996 it was a creator of apps (a word not then invented) including games, dictionaries and travel guides for personal digital assistants. It rapidly realised that much of its revenue came from mapping and when President Clinton’s administration opened up the GPS system in 2000, TomTom leapt at the opportunity. Initially it developed software for the Windows Pocket PC before entering the hardware market itself.
With a product that exploited faster processing power and cheaper memory, TomTom carefully refined its offering through multiple versions before making a breakthrough. “In 2004, we successfully democratised navigation,” says Pauwels. “Our goal was straightforward: to create a product that was accessible, affordable and easy-to-use. We wanted people to be able to drive home from the shop using a TomTom without having to read the instructions.”
The formula worked perfectly: revenues and profits soared, and in 2005 TomTom went public. But while it basked in its success, the company foresaw potential threats to its business model. “We recognised that standalone satellite navigation would be an intermediate step,” says Pauwels. “We knew that in time it would be built into cars. So we used the IPO proceeds to explore diversification possibilities.”
The diversification decisions made at that time still shape TomTom today. In 2005, the company acquired a business that subsequently made TomTom Europe’s number one telematics company, logging the movements of 750,000 company and lease vehicles.
TomTom also hired a team from Siemens to acquire knowledge to enable it to deal directly with the auto industry as satellite navigation began to be integrated into cars: TomTom is now one of just three providers of map data to the global auto industry.
Another diversification initiative, traffic information, was born out of a realisation of how people used their satnavs. “Once the initial novelty wore off, it became clear that many people only drove short distances and therefore seldom used their device,” explains Taco Titulaer, TomTom’s CFO. “However, we realised that even if people didn’t need satnav on a regular basis they would be interested in traffic conditions on their route.” TomTom hired a team that had created an algorithm that used mobile phone information from Vodafone to detect – and therefore avoid – traffic jams; later, once it had achieved a critical mass of traffic-enabled satnavs, TomTom was able to use its own data.
TomTom is now the number one traffic information supplier globally, supplying data to Uber, Apple and many of the world’s largest automakers (including those that have their own mapping technology). It also makes its raw mapping data available to technology and other companies, powering Apple maps, for example.
The company’s search for alternative markets intensified in the much tougher trading and financial environment after 2008. “[It was a] a truly horrible year,” says Pauwels. “Consumer spending collapsed and retailers stopped ordering stock as the financial crisis hit. At the same time the iPhone was released and Google entered the mapping market with a free product.” The events of 2008 had some serious financial repercussions – TomTom had to renegotiate over €1 billion of debt and conduct a rights issue.
TomTom made a subsequent foray into wearables, which reports suggest could be curtailed following disappointing sales. Fortunately, earlier diversification initiatives have provided TomTom with the stability required to weather such setbacks. Consumer revenues, which represent around 40% of group revenues, continue to be dominated by standalone satellite navigation devices. “We know the satellite navigation business will eventually disappear,” says Titulaer. “We have planned for that: traffic and mapping software is now 30% of revenues and is growing at 20% a year.” The remaining revenue comes from telematics, which continues to grow steadily.
According to Titulaer, the change in organisational structure required by the company after 2008 mirrored the evolution of its mindset that accompanied its earlier spectacular growth in the mid-2000s.
“Going from 100 to 5,000 employees required us to put in place a more robust structure in terms of products and management,” he says. “Similarly, the broadening of our product portfolio prompted us to reorganise. Now, market and product opportunities are targeted by the relevant business units, which are served by various technology groups. So, for example, our core navigational capabilities go into both the consumer product and software we develop for tech or auto players. This change required us to focus on developing products that work both individually and collectively, which is a good discipline.”
TomTom is now both a B2C and a B2B company. While its B2B technology and data sales do not directly leverage the strength of TomTom’s brand, Pauwels is adamant that its consumer brand heritage is important to the company’s future in all markets. “Obviously marketing differs depending on the segment, but TomTom’s consumer market presence and broad recognition is still valuable,” he says.
The same, but different
TomTom has been through multiple business models and targeted a wider range of opportunities than most companies with a 26-year track record. Yet, according to Pauwels, its ethos has remained constant throughout. “All four founders are still with the company and have a significant stake. That is important because while we are subject to the rhythms of the market as a listed company, our stability means we can look farther out than some other companies and execute decisions for the long term. At heart, we are still all about entrepreneurialism.”
These values permeate the entire business. “Although our size means that we have clear managerial structures in place, TomTom is much less hierarchical than other companies,” says Titulaer. “We’re not interested in ticking boxes or strict reporting lines – people talk to whoever is necessary to solve problems. Our culture is about getting things done: it’s an in-company joke that we are light-touch when it comes to support – i.e. do it yourself! – because we find it gets in the way of the entrepreneurial spirit. Nobody tells the business how to run the business.”
Pauwels echoes these sentiments. “We have no hard rules about how people work – we’re interested in individuals taking responsibility. Young people who come into the company can progress rapidly if they are willing to take responsibility.” TomTom’s open culture and flexible approach has delivered numerous technological advances over the years. “Most recently, our Road DNA technology for autonomous driving, which is critical to the future, was developed by employees working overtime on their weekends,” he says. In January, the company bolstered its autonomous driving capabilities with the acquisition of Autonomos, a Berlin-based autonomous driving start-up – following a similar path to its entry into the telematics market in 2007.
“It’s not the strongest that survive but the most adaptable.”
It is TomTom’s openness to new ideas that continues to motivate Pauwels. “Every day I get to work with great people in a stimulating environment,” he says. “TomTom continues to be at the forefront of technology. There are constant new challenges and opportunities – it’s super cool.” Titulaer agrees that the vigorous competition faced by TomTom is a major motivation: “Playing with the big boys – while still being a company based in Amsterdam – is exciting. We do things a little differently to everyone else and the fact that we’re still thriving shows that Darwin was right: it’s not the strongest that survive but the most adaptable.”
Support when it’s needed
“In 2008, when we had to restructure our debt, we needed strong partners – and ING was one,” recalls CFO Taco Titulaer. “It was a scary time because no-one knew what would happen – in our business, the financial system or the broader economy. But the benefits of our frequent and multi-level contact with ING – between CEOs, CFOs, treasury, M&A and many different areas of the business – paid off. We found that it created a broad relationship that ensured ING understood our strategic ambitions and our story rather than just looking at the numbers.”
TomTom became debt-free in 2013 and now has just a revolving credit facility to provide working capital. But it continues to value the closeness of its relationship with ING. “We know that if we find a suitable acquisition, for example, bridging finance will be there because ING already understands what we’re aiming to achieve,” says Titulaer. That closeness comes from being candid about challenges, he adds. “When I talk to our ING relationship manager I am open and honest about our problems and the day-to-day reality of the business. I expect the same degree of transparency in return because it helps me to understand where problems might emerge from.”