- Image via Wikipedia
One of the more interesting themes of the online world has been its role as a disruptive technology for incumbent businesses. As bookstore chains, music providers, video companies, and newspapers have all experienced, their businesses can be disrupted when a competitor changes the rules of the game so severely that the only possible choice is to gut yourself. Bookstore chains suddenly had a competitor with an endless catalog they couldn’t match. Music providers had song-by-song purchasing and digital delivery. And newspapers, which specialized in presenting yesterday’s news for a price, couldn’t compete with the Internet relaying today’s news today at no cost.
In a fascinating post by Bill Gurley on abovethecrowd.com, Google’s aspirations in the mapping, GPS, smartphone, and OS areas are analyzed. Taken together, the moves Google is making add up to disruption for mapping, smartphone, software, and advertising — all nearly simultaneously.
How will Google accomplish this astounding feat?
- End reliance on third-party turn-by-turn GPS mapping companies by deploying vehicles to recreate the maps and thereby own them. CHECK.
- Create an open-source smartphone operating system that providers prefer, and which eliminates expensive royalties to third-party mapping companies. CHECK.
- Create an advertising model based on geo-location to supplement a hugely successful advertising model based on search terms. UNDERWAY.
- Create revenue-shares with smartphone providers so that they actually make money off the phones from advertising in addition to subscriber fees for connectivity and data services. UNDERWAY.
- Deploy the same revenue-share model for a computer operating system (Google Chrome) for netbooks first, other computers later. LIKELY PLANNED.
So while Chris Anderson has been waxing philosophic about “free” as a “radical price,” Google has been busy creating a disruptive approach based on “less than free.” They are reaching “free” with their turn-by-turn mapping data, then plan to insinuate their technologies into devices using a disruptive model that rewards providers and manufacturers with revenue sharing.
The likely effects of this could be huge. For consumer, it could mean lower prices for technology since onerous GPS charges would be negated and device sales and usage would drive profitability, incentivizing manufacturers to cut prices to ensure adoption.
This is how disruption occurs. To match Google, Apple or Nokia or Palm would have to deploy their own cars across the world to generate turn-by-turn data. And that’s just to match the “free” portion of Google’s plan. To match the “less than free” portion, they’d each have to create a version of AdSense. And by the time they could do any of this, the game would likely be over.
Catching Google will be too expensive and time-consuming. Yet what Google’s competitors will chasing is a value currently described as “less than free.”
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Nov 4, 2009 at 11:43 am
I think the lesson here is that if you do business in the digital realm, there will always be someone who is willing to give your product away for free in order to sell something else (or sometimes to just give it away for free). This is something you must take into account in your business plan, that at some point you’ll be competing against “free”, and your product needs to have compelling reasons for customers to continue to buy it.
Google is probably the leader in this activity (Craigslist is another powerhouse). Google’s business model is to drive the price of everything on earth to zero, with one exception, that being text ads placed next to all those free things. Companies that sell things like operating systems, office suites, GPS navigation systems, newspapers, phone service, books, etc., all now have Google giving away their products in order to sell ads. If the GPS industry is to survive, they’ll need to come up with something their product can do, or a level of quality that’s well beyond what Google is offering.
iTunes is an interesting example here. They are willing to essentially give away music (well, at least sell it at little to no profit for themselves) in order to sell iPods. So while they’re on the bandwagon of this business model, they’re also competing against it, because their chief competition is free illegal downloads. In some ways, they’re losing that fight, as many, many more songs are downloaded illegally than are purchased. But iTunes provides a quality experience, and a quality product, and that matters to enough people that are willing to pay rather than using the lower quality alternatives to make the venture profitable.
That’s another lesson here–someone’s going to disrupt your business and take away a chunk of your customers, because for many, free and “good enough” will suffice. Can you remain profitable with a smaller number of customers who are willing to pay for quality?
Nov 10, 2009 at 11:20 am
I think the main lesson to take away from this is that if you make too much money from an asset that you control, there will inevitably be other businesses and business models that try to remove your income stream. If Navteq and TeleAtlas had not been so greedy, Google would not have gone into their business, and we’d all be happy with $10 turn-by-turn iPhone navigation apps.
Nov 10, 2009 at 2:36 pm
The only greed I see here that’s relevant is Google’s. I do agree that GPS companies have overpriced their products, but let’s say that all along they offered them at a very fair, or even very generous price, a great value to the customer. They’d be in the exact same position as they are now. Google is interested in selling ads, not in selling GPS systems. They’re not competing by undercutting the GPS companies’ high prices, they’re not even in the same market. They’re driving the value of the GPS companies’ product to zero in order to sell a different product (ads). It doesn’t matter what the pricing model of the GPS companies is, as long as it is higher than free. No one is going to pay even a very fair price for an identical product to one that’s available for free.
Nov 10, 2009 at 3:02 pm
You’re confusing cost and price here. Google wanted to buy unrestricted map data, and judged that their cost would be less if they did it themselves. By looking at their revenue rather than their costs, Navteq and TeleAtlas took themselves out of the market.
I guess you could take the point of view that in their lust for the GPS navigation market, Navteq and TeleAtlas failed to realize they were actually in the mapping business.
Nov 10, 2009 at 3:29 pm
I’m sorry, I was focusing more on the GPS consumer industry, the companies that make and sell devices (and apps) that are bought directly by consumers for navigation. They’re the ones being directly driven out of business by this new move, Google’s release of a free version of their product.
That’s a different thing from companies selling map data to other companies for re-use in applications. But if those companies had sold unrestricted map data to Google at a low price, then wouldn’t they now be in the same position, as Google’s free apps are going to drive all of their other customers out of business?