Google’s announcement may have set off a chain reaction—a supply chain reaction, that is—by ending the need to pay monthly subscription fees to service providers. Like anything Google does, the move will have a major impact on the business models of other companies. “It eats away at some of the existing business out there and makes life difficult for some members of the value chain,” says Brian Droessler, director of Connectivity Group North America for Continental Automotive Systems.

Analysts “have been saying for some time that navigation is such a mainstream application that someone will give it away,” adds Dave McNamara, president of McNamara Technology Solutions. “That’s by no means a new concept.” In fact, Google’s is not even the first free navigation service. “Bouygues in France and Locationet [http://www.locationet.com/] in Europe and the US already offer this for more than a year,” says Dominique Bonte, director of ABI Research. The difference: Google’s enormous market clout and its ability to fund a free application. Google’s Android software stack for mobile devices includes an operating system, middleware and key applications.

The open architecture approach has third party developers scrambling to create new apps, with over 10,000 applications developed so far. The Android 2.0 version will include Google Maps Navigation (Beta). With this app connected to the Internet, users can access the most recent map and business data and search in plain English, by voice and along the route—with traffic, satellite and street view options.

In a white paper available to its telematics service subscribers, Phil Magney, vice president of automotive research at iSuppli, analyzed the impact of the Google announcement on seven different players. The analysis addresses the off-board navigation service providers, personal navigation device (PND) makers, wireless carriers, automotive OEMs, automotive telematics service providers, and automotive hardware providers as well as Google.

Free Maps Navigation definitely makes life more difficult for navigation service providers, but it also moves PNDs towards commodity status. “It further undermines the value of a standalone PND,” says Magney. “The availability of free phone-based navigation is clearly going to make it much harder for them to monetize these new services,” adds ABI’s Bonte.At the very least, there will be accelerated price erosion on handset-based navigation—which is why Garmin and TomTom both lost 20% of their value basically overnight.

But ‘free’ may mean different things to different players. “Whether it’s free or not depends on whether you are the supplier or the OEM or the consumer,” says Continental’s Droessler.

“I think the main message is, consumers are expecting that feature in their vehicle purchase and are not willing to pay for a $2,000 navigation option.” In addition to supplying the hardware for GM’s OnStar and Ford’s Sync, Continental has developed an embedded vehicle platform for telematics called AutoLinQ, currently in the demonstration mode. “This Google announcement can go a long way to offer that experience, and it can be an area that AutoLinQ can help bring into the car,” says Droessler. Cell phone suppliers will benefit from free turn-by-turn navigation applications. “For the navigation market as a whole, this will finally make navigation a mass market service—as soon as it becomes available on all smartphone platforms and as a Java version on feature phones,” observes ABI’s Bonte. Initially available in the United States, the free Google Maps Navigation is expected to go global.

Whether customers get what they pay for with ‘free’ navigation remains to be seen. Mark Fitzgerald, senior automotive analyst at market research firm Strategy Analytics, says the success of a free navigation system depends on its operation: “The question is, how well will it work?” Fitzgerald notes that previous cell phone-based solutions did not work as well as a PND. “But I think that gap is going to close and close very quickly,” he adds.

On November 6 Verizon will roll out the free turn-by-turn navigation service on the newest Motorola DROID phones equipped with Android 2.0 OS. US users can then determine if the performance meets their needs. Reviews from blogs and other sources will soon follow. The iPhone is formidable. However, the DROID—with its Android operating system, free Google Maps Navigation, a 5-megapixel camera with a flash and digital zoom, a touch screen and a slide-out keyboard—should offer some serious competition.

Randy Frank is a contributing editor at Telematics Update. Click here to let us know your thoughts on the above exclusive report, as we would like to continue this trend in order to give our readers high-level and engaging content.