14-Garmin Tail Wags the Dog

A company that knows its business can still talk itself out of it. In April 2008 Garmin was one of the leaders in personal navigation, and cell phone makers were turning GPS into one more Function on the handset. Garmin’s answer was to become a handset maker. That is Goodyear deciding to build automobiles. Tires are a modest part of a car, and the two industries share almost no channels. Garmin would face established competitors with billions of dollars in sales, in a market already turning competitively ugly. A company that leaves the business it knows for one where it has nothing unique to offer is not defending itself. It is gambling its franchise. Here is how the gamble came out.

Posted April 2008

Garmin is having big trouble these days. As one of the leaders in the personal-navigational device business, Garmin is besieged by much larger competitors from an adjacent industry. In particular, the cell phone handset makers are doing the same thing to GPS functions that they did to the PDA market a few years ago. They are turning GPS into one of the functions on smart phones. In 2007, 18% of mobile phones already had the GPS function embedded in them. That percentage may double within a couple of years.

But Garmin has come with an answer to this challenge: it plans to enter the cell phone hand-set market itself. This is equivalent to Goodyear entering the automobile industry. Were Goodyear to do that, it would fly in the face of the facts that the tires are a modest part of the total cost of the automobile and that there is virtually no overlap in the channels of distribution in the two industries. What would Goodyear bring to the automobile industry?

You must ask the same question of Garmin. It is leaving a market of a few billion dollars to enter a market where competitors are established with sales several times that size, and a market that is turning competitively ugly itself. Motorola bears witness to that.

How likely is success for Garmin in the cell phone industry? How well do you think Goodyear would do in automobiles?

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Update 10/26

As predicted, this initiative failed. Garmin could not compete with entrenched competitors. Garmin teamed up with Taiwan’s Asus in February 2009 to create co-branded phones. The nuvifone G60 was released in the U.S. in October 2009 on AT&T. The device was powered by a proprietary version of Linux. The Garmin-Asus combination didn’t succeed with U.S. consumers. Better-known phones were available. The G60 went on sale on AT&T less than four months after Apple released the iPhone 3GS, which AT&T then sold exclusively in the U.S., and it offered no advantage over it. In October 2010 Garmin announced that it would stop making nüvifones, and the Garmin-Asus alliance ended. Motorola, which the original post cited as proof that the handset market was turning ugly, bore that out. Google paid about $12.5 billion for Motorola Mobility in 2012 and sold its handset business to Lenovo in 2014 for $2.91 billion.

Garmin defined its business badly. Garmin was in the GPS business, selling GPS hardware and software to customers seeking those products and competing against other companies offering the same types of products. It sought to enter an entirely different market, the smart phone business selling sophisticated smart phones and their software to customers seeking smart phone products and competing against companies that had established businesses concentrating on the smart phone market. The smart phone competitors were Next Leaders. Garmin was entering an entirely new business as a complete unknown in that business. See HERE for the definition of a business. A company that would enter a new business should consider its competitive stance compared to all three aspects of the business: customers, products and competition. Garmin could not succeed because its products had no value uniqueness (i.e., a Function, Reliability, Convenience or Price advantage) with which to win share nor was there much share available from the failures of incumbent smart phone competitors.

It was also highly unlikely that they could have achieved a low-cost position in a tough market. See why HERE. The mobile phone market decimated Garmin’s GPS retail business as well as its GPS automobile business. The automobile GPS business went from nearly 70% of the company’s revenues in 2009 to about 9% in 2025, although Garmin now reports its automotive business on a different basis.

So what did Garmin do? They moved to the high end (Performance Leader) of the market, and successfully. They developed specialized Functions designed for outdoor and fitness use where phones had difficulty competing. Along with these new Functions they improved their Reliability by designing products that proved to be capable and durable in harsh environments and weather. Function and Reliability are what let a Performance Leader charge more than the Standard Leader. In 2025, Garmin was a record-setting Performance Leader across several large segments. Revenue reached $7.25 billion, up 15% from 2024 and nearly two and a half times the $2.95 billion of 2009. Operating income reached $1.88 billion, a 25.9% operating margin. Fitness was the largest segment at $2.36 billion, followed by Outdoor at $2.05 billion, Marine at $1.18 billion and Aviation at $987 million. These are niches in customer need, not in size. Garmin guides to about $7.9 billion of revenue in 2026.

In StrategyStreet terms, Garmin failed in the automobile GPS business due to no Function distinction and disadvantages in Convenience, Price and Cost. Its buyer had to pay for a device to use in the car. As the company pivoted to other niche markets, it won on Function and Reliability.

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Quick Hits

Four patterns from the StrategyStreet system this story confirms.

1. A company that enters a new business with no uniqueness, and no incumbent failures to feed on, will not win share. Garmin’s customers, products and competitors in navigation had little in common with those of the smart phone business, where established Next Leaders already served buyers well. Its phones offered no advantage in Function, Reliability, Convenience or Price, and Garmin stopped making them in 2010.
2. A company losing its mass market might rebuild on Function and Reliability where the leader is weak. Garmin built specialized Functions for outdoor and fitness use and improved Reliability for harsh environments, where phones had difficulty competing. Those benefits supported prices above the standard, and revenue grew from $2.95 billion in 2009 to $7.25 billion in 2025. They won where the substitute was weak, not where it is strongest.
3. When a rival product is good enough on Function and Reliability, customers decide on Convenience and Price. Garmin’s automobile GPS buyer had to pay for a separate device, while the smart phone buyer already carried a phone with GPS built in. Automotive was nearly 70% of Garmin’s revenue in 2009 and about 9% in 2025, though Garmin now reports it on a different basis. That is the Customer Buying Hierarchy at work.
4. Returns come from where a company can win, not from the size of the market it enters. Smart phones were a multibillion dollar market, yet Google paid about $12.5 billion for Motorola Mobility, which proved to be a weak player, and sold its handset business for $2.91 billion. Garmin, with little chance at a low-cost position in that market, earned $1.88 billion in operating income in 2025, a 25.9% margin, in markets phones could not take from it.

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