Competition Doesn't Stop at Free

from the good-for-yahoo dept

Good news for consumers as Yahoo announces (via Rob Pegoraro) that it's dropping those annoying ads it appended to Yahoo Mail customers' outgoing emails. The move brings it into parity with GMail, with Hotmail and AOL now looking like laggards. This illustrates a point I made last week: competition doesn't end when the price of a product gets pushed down to zero. Some websites seem to think they're doing their customers such a big favor by giving a service away for free that they're entitled to bombard their customers with annoying ads. But smarter companies have figured out that when they can no longer compete on price, they start competing along other dimensions, like convenience, speed, and features. Paring down the number and intrusiveness of ads is just another way that companies increase the value of their offerings to consumers. Indeed, we've argued before that one of Google's key strengths has been its willingness to change its products in ways that improve the customer experience even if doing so reduces their short-term revenues. That has paid off in the long run for Google with an enhanced brand image and strong customer loyalty. Yahoo seems to be learning that lesson and realizing that it's in its long-run interest to improve its users' experience even in ways that might hurt its bottom line in the short run.

Filed Under: business models, competition, economics, free
Companies: google, yahoo

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  1. identicon
    Sachin, 23 May 2008 @ 2:35am

    Yes you are very right about how Google won customer loyalty and I hope that we don't get to see those ads immediately after logging into Yahoo Mail

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