Mobile navigation systems have been one of the most profitable purveyors of mobile content, with subscribers paying an average of $5 to $10 for mobile GPS access. But Google announced today that it will be launching a free turn-by-turn mobile navigation system next week. And the news ought to have navigation companies worried about their future.

Google’s system will launch next week on Motorola’s Droid phone and will eventually roll out to other phones, including the iPhone. Can GPS companies compete with free?

The search giant has a history of launching free services supported by advertising, and subsequent iterations of Google’s mapping program will likely have advertising. But Google is also able to cut costs on a service like this because it is simply less costly for Google, which already has the mapping data to support a directional service. Other companies have to fund comprehensive mapping tools themselves, but Google has much of the infortmation from other products. The company is ending a licensing agreement with map provider Tele Atlas, which charges a fee for each person that accesses its data. It seems that Google now has enough information to go it alone.

Mobile mapping services like Google’s have been cutting into the profit margin of companies like Garmin and TomTom, but the GPS devices have been priced according to the notion that people are willing to pay for their functionality and reliability. As Google amps up its product that advantage is drifting away. (And quickly. Garmin’s stock dropped 11% on Google’s news today.)

Google’s new product will have street and satellite views and search-driven voice controls. Also, users who don’t have a street address or name can give Google identifying information they do have and the service will give them address suggestions.

According to Forrester Research, 21% of American adults own a personal navigation device, and
that market is expected to continue growing at 33% a year for
the next five years. But Forrester also says that by 2013, phone-based navigation systems will dominate the market.

And navigational companies have been fighting back in the mobile space. In 2008, Garmin announced it would create its own mobile device. That product, the Garmin Nuviphone G60 from AT&T,
is more expensive than an iPhone at $299.99 (with rebates). And features like traffic updates, weather, movie times and gas
prices require an extra $5.99 a month subscription.

Navigational software companies have also learned to work with mobile devices, but the price point has remained high. Garmin has a mobile product (including Google Map
connectivity) that comes “as low as $99.99,” while TomTom recently developed an
iPhone app and related car mount at the same price point. Research in Motion’s Gokivo iPhone app costs $4.99 plus a $10 monthly subscription, coming out around $120 a year.

Mobile navigation companies may quickly have to change their business models if they want to compete with Google, but even that will be difficult. Google can fund its entry into the market with advertising down the line, and it is miles ahead of any small company when it comes to that.

For now, navigational companies are hoping that reliability and accessability will beat off free products from Google and other mobile competitors. Steve Andler, vice president of marketing at the wireless navigation
company Networks In Motion, tells Forbes that the mobile market is
different from the Internet, where
“everything’s free and always in beta. People are willing to pay a
premium to have something work all the time on their phones.”

But are they willing to pay a $99 premium? Unlikely. And as Google perfects its service, the utility of that arguement will continue to dwindle.

Image: Google