Mapping is the killer mobile app. Whether you have location-based services (LBS) or not, the chances are that you are using mobile mapping software on your smartphone and starting to take it for granted that it will just be there for you when you need it. So it is no surprise that there has been some interesting M&A activity in this space.

Ever since TomTom (biggest maker of navigation systems) offered $2.5B for TeleAtlas, it was expected that the larger Navteq will also end up finding a new home. What was perhaps unexpected that the top bidder, to the tune of more than $8B, is Nokia.

Navteq and TeleAtlas are the top providers of street-level information, which is the key to enabling mapping and navigation applications. These are businesses where the barriers to entry are quite high–getting the initial set of street-level data requires a ton of data crunching & surveying. From that perspective, the two companies’ core value proposition is well-protected.

TeleAtlas is the main supplier to TomTom, so this is a classic vertical integration move. Unit volumes for TomTom devices are growing very quickly and margins should improve with the acquisition.

The Nokia move is perhaps more interesting. While being slammed for not getting consumer experience & design, Nokia phones increasingly pack a lot of power and strong links to the Internet. It is no secret that the company is trying to move to more of a software services model. So is the Navteq acquisition more of a vertical integration play or a diversification move along the lines of this strategy?

With the two big street mapping players now part of larger and even slower-moving companies, there may be an opportunity to disrupt this market in the next five years. The key question is one of bootstrap costs to get to a critical mass of good-enough data. I expect the solution will include three aspects:

• User-generated content. See OpenStreetMap, for example.
• New Location Mashing Technologies (LMTs–I’m inventing a new term here because I don’t know what to call these). I see these coming in two forms: (1) from the world of unstructured information to the world of latitudes and longitudes, e.g., MetaCarta, and (2) between more traditional geolocation databases, which some in notoriously many different formats.
• Business models that use Navteq and TeleAtlas data (perhaps via their consumer rendition of Google Maps, etc.) as a crutch to fall back to when the data isn’t good enough.

At Polaris Venture Partners we have been very interested in this space and would enjoy talking with entrepreneurs who want to think creatively opportunities to build big businesses here.