The Real Reasons Major Car Makers Bought Nokia's HERE

The fear of becoming too heavily reliant on U.S. tech giants Apple and Google accelerated the decision of Germany's biggest carmakers to buy Nokia's HERE mapping unit, analysts has disclosed. BMW, Audi and Daimler announced they were to acquire HERE for 2.8 billion euros ($3.1 billion) in August. This so-called high-definition mapping will form the basis for driverless cars as the auto industry moves towards increasingly autonomous features in vehicles. This increasing dependence on digital mapping by the automotive industry was highlighted by the recent bidding war that broke out for a division of Nokia that most people have never heard of called HERE. The deal is expected to go through in the first quarter of 2016, the Finnish company announced.

Among the amazing technologies available for vehicles these days – from connected navigation that can help find everything from the cheapest fuel to films playing nearby to e-horizon features that can anticipate hills ahead and adjust fuel consumption accordingly – mapping software is the enabler behind most of these innovations. It’s also crucial to the future of self-driving cars.

Nokia initially shopped HERE around to Apple, Google and Uber, causing concern among automakers that the company’s detailed digital maps could fall into the hands of these tech giants who are engaged in their own mapping-software arms race and possibly gearing up to compete with the auto industry by developing self-driving cars. While Uber and the Chinese tech company Baidu were at one point putting a deal together to acquire HERE, it was then reported that Audi, BMW and Mercedes-Benz parent Daimler have concluded the buying of the Nokia mapping division. And according to a source quoted by the Wall Street Journal, the German automakers are also planning to invite Ford, Fiat Chrysler, General Motors, Toyota, Renault and Peugot Citroën to invest in Here and “run the service as an open platform for everyone.”

While this sharing of proprietary technology may seem counter-intuitive in the hyper-competitive auto industry, as more cars become connected and send info on their whereabouts to the cloud, more mapping data can be amassed. And the auto industry can better fend off threats from the likes of Apple and Google by embedding mapping software in millions of vehicles and collecting data from the technology. “That’s why we need more car companies involved,” said Floris van de Klashorst, head of HERE’s connected driving business. “The more cars providing information the better the map.”

Google and Apple's own mapping software is a potential rival to HERE. Analysts said that if the consortium of carmakers didn't buy Nokia's system, they would either have to develop their own in a costly process, or use the technology from Silicon Valley's tech giants, an option they wanted to avoid.

"One of their big potential competitors in this is of course Google and they probably wouldn't want to be dependent on what might be a potential competitor for their maps," Martin Garner, senior vice-president at CCS Insight, told CNBC over the phone. "They are wary of Google. So since there was an option to have maps from a non-Google company, they were interested. The maps are so important to the future that it made sense to them to buy HERE."

The benefits:

HERE had operating profit of 46 million euros for the first half of 2015, according to Nokia. The three German auto companies will take an equal stake in the venture. It also employs about 6,000 workers in 200 offices — whether the consortium will restructure HERE isn’t immediately clear. At the time of publishing, Nokia didn’t respond to request for comment.

Nokia is shedding HERE as it prepares to merge with Alcatel-Lucent. Nokia bought the French telecommunications company for $16.6 billion earlier last year, and the deal is expected to go through by the first half of this year.

But here is not just for car maps. Other services such as mobile apps and websites that require mapping services employ the technology. The German automakers intend to keep the service "as an open, independent and value creating platform for cloud-based maps and other mobility service", according to a statement.

By doing so, analysts said that Google's competitors will have still have an alternative rather than to rely on the search giant for its maps.

"Mobile companies—many with consumer-facing mobile clients including Facebook, Amazon, Microsoft, Baidu and Samsung—see an independent mapping solution as critical in order to compete with Google for mobile advertising dollars," the analysts maintain. The demand for mapping systems is only going to increase, particularly in the automotive industry. Data provided by the maps will allow cars to become autonomous through route mapping and knowing where traffic jams are, for example. There's a forecast that there'll be 11.8 million new autonomous vehicle sales in 2035 and with the consortium now in control of HERE, that trend could quickly become a reality.

Still, the acquisition of HERE may not allow BMW, Audi and Daimler to be completely independent from Google and Apple. While the consortium is in control of the mapping technology, they do not have their own advanced in-car operating systems (OS). Google currently has Android Auto and Apple has Carplay, both operating systems designed specifically for cars to allow people to make calls and access music, for example. Analysts said that it is likely BMW, Audi and Daimler may still support these OS's in their cars.

"This only gives them the maps, it doesn't give them an in-car operating system and that is a separate discussion," Garner said. "This doesn't answer all the questions about autonomous driving."