Is Google Going Better Than Free On Navigation? Will That Set Off Antitrust Alarms?
from the should-it? dept
A few friends have passed along Bill Gurley’s excellent (as usual) analysis of how Google is disrupting the navigation market by ditching the two big players in the space (Tele Atlas and Navteq), going it alone and also (the big news) offering its navigation info for free. Gurley points out that the truly disruptive part is that Google is actually offering mobile operators a deal that is better than free, in that they get to share in some of the ad revenue associated with anyone using the services. The point is pretty clear: those who are relying on the old business model of getting paid for navigation info are likely in serious trouble.
Of course, there are some perception issues. Plenty of companies who have tried a “we’ll pay you” approach to marketing often find that it actually breeds some level of mistrust, as partners/users start wondering why, and if there’s some sort of nasty catch. Google, of course, has a pretty good reputation, and ought to be able to overcome that issue. However, it does make me wonder if this will set off the Justice Department (and Google’s enemies) on some silly witchhunt, claiming that this is somehow “predatory pricing.” That, of course, is ridiculous if you actually think it through. The only real problem with predatory pricing is if it’s used purposely to drive others out of business to then jack up prices. But Google’s idea is to just give it more opportunity to make ad revenue. It’s not predatory, it’s just smart from a business sense. However, with so much scrutiny on Google these days, you could certainly see this backfiring.
Filed Under: better than free, business models, free, navigation
Companies: google, navteq, tele atlas
Comments on “Is Google Going Better Than Free On Navigation? Will That Set Off Antitrust Alarms?”
Bye Bye $100 map updates
How did it make any sense at all to price annual map updates at nearly the cost of the nav hardware itself? What a waste of material resources by failing to encourage users to re-use their current units.
Also, I love that Google saved this announcement for approximately two days after TomTom announced its absurd iPhone navigation kit + software prices.
$200 (hardware linked and instantly outdated) or free (device independent and constantly updated/corrected)… hmm… real tough choice there.
Google Risks More Every Day
Google keeps pushing, and this is a great example where they are attempting to take over a market by dumping money into it, and dumping services at less than cost.
Some will say that Google is just leveraging their existing map business, but that is part of the problem. The cost of maintaining Google maps (not insignificant) is a big part of the problem. While GPS companies sell maps, Google is giving it away for free because the cost is already covered elsewhere.
As a stand alone business paying a reasonable rate for the map services they use, GoogleGPS likely could not operate with the structure they are looking at. At that point, it is really easy to see how this could be seen as trying to buy a market.
Re: Google Risks More Every Day
Um, lots of problems there:
1) Your “as a standalone business…” reasoning has never been applied in an antitrust or anti-dumping case. Might as well say that Walmart couldn’t sell at the prices they do if they were a corner grocery. Sure. But so what?
2) You claim they’re dumping services at less than cost. Can you document that? What’s their cost? How much do they make from ads on maps? What’s the NPV of future ad revenues? It’s a huge claim to make and notably unsupported by any actual, you know, facts.
3) There’s nothing wrong, ethically or legally, with “trying to buy a market.” New entrants do it all the time. Look at MSI’s netbook pricing and how successful that’s been. Or McDonalds’ gourmet coffee pricing.
On the whole, you seem to be heading towards an outcome fairness argument; that because the existing GPS players have a different business model and different resources, it’s not fair for Google to compete using its own business model and resources. It’s just not that strong of an argument to me.
Re: Google Risks More Every Day
Fairly recently, a new satellite was launched into orbit that would dramatically increase the quality of satellite imagery. I think it was last week.
If memory serves me right, the actual rocket had a satellite imagery company (GeoEye, maybe?) along with Google, and a Microsoft logo (Maybe Bing?) along with a few other tech companies painted on the side. The point is, it seemed like a collaborative, industry effort.
I don’t know for sure, but it seems that each company (not just Google) invested either cash or human capital to ensure success of the project.
Are you saying some companies will be unable to compete because they either chose not to collaborate or couldn’t invest in R&D to bring a product to are a disadvantage? Whose fault is that?
One more catch
Google has always had to deal with people trying to game the system.
It might turn out to be more expensive than Google thinks.
The only real problem with predatory pricing is if it’s used purposely to drive others out of business to then jack up prices.
What’s wrong with that? It’s a perfect example of the free market at work.
Re: Re:
Idiot, jacking up prices is bad for the consumer. The goal of a free market is to create the best possible marketplace.
Re: Re: Re:
The goal of a free market is a free market. Not the best possible market place.
Re: Re: Re:
The supposed “goal” of the free market and what it actually accomplishes are two very different things.
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Nope, the goal of the free market is to give maximum amount of money to the smartest shill on the block.
And you should use its real name: capitalist market.
Re: Re:
.What’s wrong with that? It’s a perfect example of the free market at work.
it’s anti-competitive. competition is one of the cornerstones of a free market.
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Giving a better product for a better price is not anti competitive.
Anti competitive behavior is like when Microsoft used to tell vendors not to sell computers with other operating systems if they are to sell it with Microsoft operating systems. Anti competitive is like when intellectual property laws last as long as they do. Anti competitive is like when the cableco/telco lobby the government for a monopoly on the infrastructure. Or when big corporations use the FCC to allow a small amount of entities a lot of control over the airwaves. That’s anti – competitive.
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Or taxi cab medallions that use the government to limit how many taxi cab drivers there could be. That’s also anti competitive. Google isn’t doing anything anti competitive.
Sigh...
Thinking like this is why a large portion of America is unemployed. Yeah, it’ll never sink in to your heads and i’m wasting my keystrokes… but, just thought i’d point it out.
Re: Sigh...
It’s impossible to follow a thought that has no real thought to it. If you cannot explain your position, then your position has no worth.
Re: Sigh...
A large portion of america is unemployed because they didnt keep their skills up to date with a changing marketplace.
“We are unemployed because we are too redneck to use computers” isnt a valid argument.
Re: Re: Sigh...
What skill set would you need to avoid being outsourced?
What skill set would you need to avoid being employed by a poorly run business?
What skill set would you need to avoid eight years of bush?
Blaming the victim is fun parlor games, but non productive,
it’s not clear where the anti-competitive practice is.
andriod is far from a monopoly in the device OS space.
the search business on mobile as a whole is nascent. no monopoly there.
google isn’t making a consumer mapping device nor selling map data
teleatlas / navteq have a duopoly in the map data business itself.
pretty damn ballsy for google to decide to map n. america by themselves. Though once you have the data infrastructure and do the back of envelope calculation of miles/day, google mapmobiles required, it pencils out to a tractable problem whose solution costs far less than the $8.4B nokia paid for their dataset & mapping organization.
This will raise the barrier to entry in the mapping market. But it will also give consumers a better deal on Google’s maps. Whether you think this is a good idea or not probably depends on whether you think, in the long term, the cost of the raised barrier to entry is greater or less than the benefit of having a good deal on maps.
The U.S. courts have never figured out a good way to determine which is better, so they tend to err on the side of “good deal on maps until proven otherwise by an overwhelming amount of evidence.”
One dangerous issue here with any Internet service is that of network effects: a player that can underprice competitors out of business and build a network effect at the same time raises the barrier to entry very high indeed. While there doesn’t seem to be an obvious network effect issue with maps, it’s something to look out for. Google doesn’t need network effects for maps to be profitable: their enormous, highly-automated infrastructure means that users have to click on very few ads for Google to make money on a serving a large number of maps.
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“This will raise the barrier to entry in the mapping market.”
How does it raise the barrier to entry.
Raising the barrier is like when the cable company asks for regulatory laws that disallow competition.
But what Google is doing is not raising the barrier. If Google starts charging too much then anyone can just as easily enter the market just as before.
Now if Google started lobbying the government for laws that favored it then that would be raising the barrier. But gaining a monopoly through offering a superior product at a superior price is totally acceptable.
Durp-e-durp
The free market doesn’t HAVE any goals. It’s completely blind to its overall structure and nearsighted to what its future holds. It doesn’t care how healthy it is either, because in the long run it assumes everything evens out. Which is also why its horrendously nearsighted in the first place. There’s no need to consider the future when it’s bear and bull as far as the eye can see.
The only elements attempting to generate a “best possible” and “worst possible” marketplace are governments. That’s why they exist: to fuck with, ruin, and repair the economy in an endless tail-chasing ratrace.
I appreciate that Google at least *tries* to take the long view, even though the long view too often looks so disingenuous.
You Scratch My Back
As long as Google continues to push money into Democrat Party coffers and do favors as required I don’t think Google has anything to worry about from the Department of Justice.
Re: You Scratch My Back
you’re pathetic
Don't kill garmin yet
I hope they don’t kill Garmin yet, I like their topographical GPS devices. Google can’t kill them until they at least have a good topo device themselves. And no, cell phones aren’t good topo devices. They need to be ruggedized, waterproof, etc.
Re: Don't kill garmin yet
So you’re saying that Garmin offers value that you’d be willing to pay more for? Sounds like they’ll be fine if there are other like-minded individuals out there.
Re: Don't kill garmin yet
I think this is very likely to hurt the GPS app market, but I think it is very UNlikely to hurt standalone GPS sales much. Several years ago, analysts were claiming that standalone, consumer-level digital cameras would be obsolete because everyone would have a camera in their phone. Guess what? Now, nearly every phone has a camera, and retail electronics departments still have 50+ models of consumer-level digital cameras on display at any given time.
While tech magazines and “gurus” love to claim that device convergence is the way of the future, market demand has proven otherwise. While people like having a camera on their phone for convenience, few use it as a replacement for an actual camera.
GPS is even more differentiated. Cell phone GPS, so far, requires a cell signal to receive mapping data. So, when you’re lost in the middle of South Dakota with no cell signal, your phone GPS is worthless. The standalone GPS on your dash, however, with preloaded maps for the whole country, will take you merrily on your way. Plus, you have the complication of needing to navigate and receive a call at the same time. It just does not make a lot of sense to converge those devices. I think, if anything, the Google product will introduce more users to GPS, who will then decide to upgrade to a standalone.
As far as outdoor topo devices, a phone will never match the power and GPS sensitivity of those devices. That would be like predicting that phones will replace digital SLR cameras.
Re: Re: Don't kill garmin yet
There is one difference between GPS phones and Camera Phones. A Droid like form factor phone will have superior characteristics to a stand alone GPS. Internet access opens up a lot. From always to to date maps to an infinite POI list to really real time traffic and weather alerts etc. Then add to that Google street view Cell phone cameras suck. There will always be ways be a market for stand alone cameras because its “impossible” to have a “good” camera in a really thin form factor. But cell camera are getting to the just good enough stage for us ho just want to upload to facebook. 🙂
Google is onto something.
A better business model...
Google has an unique business model: A win-win. Hard to pull off but best long term pay off. The old business model of win-lose typically means someone must always win and someone must always lose.
With Google’s win-win approach they win ad revenue, the carrier shares in the ad revenue, the advertiser reaches more and more people. Google may not initially make more money but the long term payoff it greater – loyalty, customer happiness, way better PR, trust, etc. Everything you need and want to build a business and the hardest things to get when do the win-lose practice. Going into business relationship with Google and their win-win mentality means when they win you also win – there are no losers!
“However, with so much scrutiny on Google these days, you could certainly see this backfiring.”
Yes, because the only corporations that the government cares to scrutinize are those that actually offer a decent product for a decent price.
The rest of the corporations rip customers off and they use some of the additional cash from their monopoly rents towards campaign contributions (and perhaps bribes) to get the government to do what they want.
“Plenty of companies who have tried a “we’ll pay you” approach to marketing often find that it actually breeds some level of mistrust, as partners/users start wondering why, and if there’s some sort of nasty catch. Google, of course, has a pretty good reputation, and ought to be able to overcome that issue.”
Well, perhaps it’s because the SUBSTANTIAL majority of large corporations have had a LONG history of doing everything in their power to rip off consumers. If more of them would behave more like Google and start having some regard for morality perhaps then people would not automatically assume they can’t be trusted. But of course the trustworthy corporation that provides a decent product for a decent price gets scrutinized by all the dishonest corporations that want to do nothing but exploit the public. They have no regards for morality and so they would no doubt try to influence the government into acting against Google.