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Feature Investing in Geo-Technology: A Business Perspective - Part 1 by Jeff Thurston Background Many GIS users are aware of the benefits of GIS from a technology and operational perspective. They use geo-technologies to analyze and represent spatial information in a multitude of ways and for varying purposes. Collectively the market for geo-technology products has grown as new solutions and other technologies have been developed. This growth continues, offering investment opportunities. There already exists an abundance of literature about GIS theory, standards and operation. To a lesser extent, issues related to return on investment, economics and stock market dividends are discussed. These issues are harder to pin point. There is a reason for that. They vary by region, they vary by application and they vary by the method used to determine their value. It seems that two factors need to be considered when evaluating investment opportunities - thus return. Firstly, have the technologies affected the business process positively? This may mean they have revealed information or created new processes that have resulted in enhanced financial returns to the organization. Secondly, potential for return is directly related to the marketplace - outlook and trends. In this article I assume you have 1 monetary unit in your pocket looking for a place in the geo-spatial industry to place it. To invest this unit requires an understanding of both business process and market future as they relate to the geo-spatial industry. While I won''t tell you which companies to invest in, this article will hopefully provide the clues and considerations and directions about where you might spend your dollar, euro, franc, pound, yen or other currency in the geo-spatial industry. Next month in Part 2 we will look closer at government trends and investment. Identifying the Market The geo-technology market is very broad. It includes GIS, GPS, LIDAR, remote sensing, surveying, photogrammetry and location based servicing. Additionally other functions can be grouped into this mix. This includes plotting, Internet map services, mobile hardware products, third party add-ons and software, interfacing technologies like instrumentation, spatial related books and educational materials and reproduction services. Applications can be found, ranging from arts and entertainment through to zoology. In recent position papers of the Infrastructure for Spatial Information in Europe (INSPIRE), several international markets were investigated. The purpose of the document was to ascertain the sizes of individual geo-spatial market segments with a view to understanding growth and business opportunity. Some interesting observations were found.
The market in Canada (Table 1) clearly indicates the surveying, GIS and GPS markets are sizable. However, the greatest annual growth is not expected in the surveying market, though the value of that market is the largest. Of total market spending, about $393 CAN million for agriculture, about $18 million for forestry, $36 million for the environment, $81 million for geology, and $161 million for cartography (which includes land use mapping and some other thematic mapping). Canada is a resource-based country with a low population (about 30 million) therefore the market is highly related to resource applications like agriculture, environmental and oil & gas (Table-2). Distances are vast, thus transportation applications and technologies abound. Remote sensing applications and technologies are useful in Canada for land evaluation and mapping extent. Investing in Geo-Technology: A Business Perspective - Part 1 Continued…
Geo-technology manufacturers in Canada export almost all of their products - locating international markets. A strong third party geo-spatial industry thrives in Canada due to the maturity of the market, known resource applications and high level of fibre optic telecommunications thereby supporting location-based technology. Large numbers of individuals with geo-science training are located in the country. Since Provinces in Canada largely govern their own territory, spatial data / service markets vary across the country supported by differing policies and provincial budgets. Spatial information initiatives have penetrated the consumer market allowing for products designed for use by individuals as well as organizations. In the U.K. a study was completed for the British Government to determine the geo-spatial market by segment (Table 3). The Ordinance Survey (OS), a branch of the national government is the largest geo-spatial data user and generator in the UK. For the last year Ordinance Survey generated revenues of about 100 M GBP - 231 CAD or about 152 million Euro / USD. This represents about a 23% increase for OS operating revenues over a one-year period. Ordinance Survey staff have been equipped with mobile geo-technologies and almost 9 million hard-copy maps per year are sold through OS. The OS market is quite different than the Canadian market for spatial technologies. While the Canadian market is primarily resource based, the British market is oriented around consumer services extending from a larger population with higher density. This means location-based service''s, utility, government services and transportation related applications and technologies are primary users of geo-technologies. These are coordinated with a national drive toward e-Government in the UK. The OS also maintains ''measurements of performance'' for related spatial services. That implies quality and continuing use and application of geo-technologies for UK citizens. Fully 90% of the country now has access to broadband connections should they choose. The OS, like Canada has determined their role is to create infrastructure thereby allowing third party development of ''value-added'' products.
Industry Markets The US market is the largest market for geo-spatial technologies and services. Several well known companies have recently reported financial gains. These include Environmental Research Institute (ESRI) where, Jack Dangermond indicates a 23% increase in products and services over the previous year and indicates the market is growing in the neighbourhood of 15-20% per year. While ESRI is a privately held company, those are notable figures reflecting on the strength of the geo-technology market internationally. At Intergraph Corporation, the makers of GeoMedia products, a recent lawsuit with Intel has been settled to the tune of $300M USD in Intergraph''s favour. At the same time Intergraph is enhancing its GeoMedia line with location based technologies and imaging technologies. MapInfo Corporation, makers of MapInfo GIS, reports a yearly gain of 3%. Trimble Corporation, makers of global positioning equipment, had advances of 19% in the engineering and construction sector. Garmin, another GPS equipment manufacturer reports record earnings ending 2002 first quarter up 18% over the preceding year. At the same time, Novatel, another GPS manufacturer reports a 4% increase over last year and a 37% and 13% increase in special applications and aeronautics /defence. This company is now developing GPS systems for Leica GeoSystems who report a 23% increase in revenues over the preceding year. ISTAR, a company focusing on satellite images indicates 100% growth from 1999-2000 and Autodesk had net revenues from sales of GIS products increased to $116.4 million in fiscal 2002 from $97.5 million in fiscal 2001 - a 16% increase. TeleAtlas, a provider of GIS services and mapping products had revenue increases of 19%. PlanGraphics Corp. had annual revenue for fiscal year ended September 30, 2001 was $7.6 million up 26% over the prior year. A recent report by The Strategis Group suggests revenues for value-added location-based services could reach nearly $4 billion per annum by 2004. Have you ever wondered about the personal data-assistant market? Datatech, Inc. indicates overall global shipments of handheld computers in 2001 totaled 13.1 million units, an 18 percent increase from 2000. Of that amount Palm, Inc controls almost 60% of the market, but it is the Compaq PDA that is posting a gain of almost 200% in sales. In Europe Palm PDA''s are most commonly found. Remember, many location-based services utilize a PDA - Palm, Compaq, Sony, Hewlett-Packard, Clie, Handspring and Handra are all in this market. It is Compaq / Hewlett-Packard that leads in the Pocket PC market, for those considering a non-PDA alternative. The US geo-spatial industry is without doubt the largest. From applications to research and from the desktop to wireless, there are numerous major manufacturers and companies offering software, hardware and support services. This market is well developed with a very broad capacity for innovation. GIS sales in the U.S. approached $1 B USD last year while GPS products and services are expected to be almost $7 B by 2007. The remote sensing industry while seemingly stalled around $150-200 M USD annually can expect higher growth rates for reasons listed below. This is a hot market to watch because users have been slow to gravitate to new imaging due to price and lack of applications. Prices are dropping and subsequently developers are creating new applications. Process and Geo-Technology Agricultural and Environmental - Business is increasingly appreciating the fact that geo-technologies have a role in the business process, especially the agricultural industries. Their business process can be defined as all those processes, which enable an organization to develop, operate and generate products that increase producer output. The agricultural and forestry communities were the quickest industries out of the geo-spatial chute as far back as 15 years ago. They harnessed GIS, remote sensing and GPS for the development of land inventory. This later led to transportation / vehicle related applications, most notably precision farming and the coupling of geo-technology to heavy equipment. This market is well versed in geo-technology, several applications designed for these industries have been written and are available through major GIS providers and third party solution providers. These areas are highly affected by commodity pricing. Farm producers evaluate geo-technology as an ''input cost'' similar to seed, fertilizer and operational costs. They are often calculated on a per acre/hectare basis. In terms of process, the agricultural and forest industries use geo-technology to manage land base, understand input costs and returns and conduct their operations with a view to increased production. In short, economic return is tightly coupled to the technology but also the rate of adaptation. Benefits of geo-technology include land management, operational efficiency (spatial) in terms of other inputs, acquiring information for environmental reasons and policies. This provides potential for modeling potential future rates of return dependent upon input variables and their projected costs - all against weather and future commodity pricing. The information needed to do this is acquired from small, medium and large-scale datasets. Technologies that link spatial data sets to economic analysis and modeling tools offer advantages. Real-time (near real-time) spatial technologies are prominent in this area. We have seen a general leveling market in this area recently. In some cases companies have switched from agro-environmental focus. That is about to change. The advent of high-resolution images, modeling linked to GIS and improved telecommunications with lowering prices are about to swing the market back in favor of the agro-environmental area. Why? Because many trans-boundary and large regional projects are slowly developing from governments and other organizations - policy will be looking for implementation. A social responsibility will require increasingly larger scale and higher quality datasets across larger areas. Another trend is the increase of geo-technology by individual users in addition to organizations. This will create another wave of applications and data capture. Consumer Related - Consumer applications for geo-technology have exploded in recent years. Location-allocation models are a major driving force in this marketplace. This market is concerned with who the customers are, where they are, what they are doing and when they are doing it. You can call it Customer Services, Customer Resource Management, Consumer Analysis or whatever you wish but it is focused on getting customers to business. This requires a very large amount of geo-spatial data collection. The information must be kept up to date. It attempts to more accurately identify consumer characteristics in relation to location. Therefore applications related to servicing, building new stores, marketing and pattern analysis (i.e. spending) are found here. This is potentially the largest market for geo-spatial products. It strives to define individuals - their preferences and habits -- meaning it is very large-scale, thus generating huge amounts of data. Would you invest 1 monetary unit in a consumer application if you did not know, within reason the consumers were in the region - likely not? It is also the hardest market to acquire useful data for, particularly in areas of high population growth and changing demographics. Tied to this market are location based technologies (LBS) and tracking. Consumers can interact with spatial data servers, marketing and advertisement efforts and exchange new information within the business process. How an organization relates to the individual and reverse, using these geo-technologies, opens many opportunities for changing the business process. The premise of the consumer market is to understand consumer''s behavior in a spatial manner. Closely linked to this of course are available census and other demographic information - both of which governments and industry strive to acquire. The spatial information needed is small, medium and large-scale. There is also a significant requirement for specialized solutions and trained personel - meaning there is significant opportunity for third party growth and new applications. Those technologies and applications that pinpoint consumer''s behavior more accurately are valuable. E-Government / E-business - Several governments and organizations internationally are jumping on the ''e-government'' bandwagon. Through the use of the Internet and other online resources, they are attempting to provide their services more effectively, quickly and more openly. The goal is to increase access while at the same time reduce distribution and servicing costs previously offered through traditional face-to-face channels. Almost 50% of North American consumers with Internet access use online services and shop regularly. In Europe the number is considerably smaller though poised for very high growth. I would suggest 30-50% growth per year in Europe and half that amount in North America over the next few years. Why? People will adapt to business applications through expanded experience of e-government initiatives. As they find government information they will learn about the Internet and become more confident in using business applications. Engineering / Defense - a look at the industry market gains from geo-spatial companies suggests this area currently has the highest rates of return. Many products are being designed following the 911 crisis in the US. Policy is supporting that. At the same time construction and engineering users including urban planners, transportation and other local, regional and national agencies utilize geo-technologies in their business process. As the trend to large-scale data takes hold there will be much need for purchasing new equipment to capture, analyze and distribute large datasets. The advancement of OpenGIS standards is bringing about interoperability that will greatly impact inter-organization processes. Companies that develop their own geo-spatial hardware and software will likely see an increase in sales as growth expands from current abysmal performance. Summary The geo-spatial industry is a bright light. Numerous companies are indicating growth rates in excess of 7-8% a year and the industry is generally achieving growth rates of 15-20%. A closer look at government strategies locally and globally as well as trends for geo-spatial applications suggests another wave of geo-spatial activity is about to appear internationally. Areas such agriculture /environmental, consumer, defense and e-government will be most prominent with many opportunities for investment. The demand will be for large-scale data of higher quality requiring investment in GIS, GPS and imaging technologies. These elements will lead to increased need for third party solutions and innovative new approaches. Additional Reading and Resources
Are ROI Metrics For Technology Valid? Optimize: Strategy and Execution for Business Technology Executives. July 2002.
McKee, L. 2002. "Geoprocessing, Government and Civilization" OpenGIS Consortium (OGC). Christensen, H. 2002. Why Innovations Score -- or Stumble. Business Week Online. (On the Internet: http://www.businessweek.com/technology/content/jun2002/tc20020618_1175.htm)
Cottman, C. 2002. "Geodata Interoperability: What Does it Mean for Business Geographics ? OpenGIS Consortium (OGC).
Dasgupta, S., Lall, S. and Wheeler, D. 2002. Policy Reform, Economic Growth and the Digital Divide: An Econometric Analysis. Development Research Group. World Bank.
Geographic Information of Environmental Policy. 6th Environmental Action Program. European Commission. INSPIRE. Infrastructure for Spatial Information in Europe. Working Papers and Background. (On the Internet: http://www.ec-gis.org/inspire/reports.html)
Ordinance Survey - UK. Quinquennial Review. 2001. Jeff Thurston holds a MSc. in Geographic Information Systems and is European Director, Integral GIS, Inc. based in Berlin, Germany. His work includes advising corporations on trends and new technology applications in geo-technology. He writes internationally for numerous publications and is completing a book entitled Integrated Geo-technology to be published in 2003 by Wiley Publishing. jeff@integralgis.com |
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