Google Redefines Disruption: The “Less Than Free” Business Model

Posted on October 29, 2009. Filed under: Internet, Uncategorized, Venture Capital, Web/Tech | Tags: , , , , , , , , |

[Follow Me on Twitter]

I like to think of myself as an aficionado of business disruption. After all, as a venture capitalist it is imperative to understand ways in which a smaller private company can gain the upper hand on a large incumbent. One of the most successful ways to do this is to change the rules of the game in such a way that the incumbent would need to abandon or destroy its core business in order to lay chase to your strategy. This thinking, which was eloquently chronicled in Clay Christiansen’s The Innovator’s Delimma, is the key premise behind recently successful business movements like SAAS (Software as a Service), open source software, and the much-discussed Freemium Internet model.  And while each of these disruptions are impressive in their own right, when I read this week that Google was including free turn-by-turn navigation directions with each and every Android mobile OS, I had an immediate feeling that I was witnessing a disruptive play of a magnitude heretofore unseen.

google_maps_logoGoogle has long had an interest in maps. Early in its history, the company added “Maps” as one of the coveted tab alternatives offered at the top of the screen above its famed search box. At that time, Google did what many others did to enter the mapping business – they licensed data from the two duopolists that ruled the mapping business – Tele Atlas and NavTeq. Over the years, as these two companies gained more and more power, and larger and larger market capitalizations, Google’s ambitions were growing too. Google wanted to spread its maps across the web, and to allow others to build on top of its mapping API.  The duopolists, recognizing a fox in the henhouse, were apprehensive to allow such activity.

Logo NAVTEQIn the summer of 2007, excitement regarding the criticality of map data (specifically turn-by-turn navigation data) reached a fever pitch.  On July 23, 2007, TomTom, the leading portable GPS device maker, agreed to buy Tele Atlas for US$2.7 billion. Shortly thereafter, on October 1, Nokia agreed to buy NavTeq for a cool US$8.1 billion. Meanwhile Google was still evolving its strategy and no longer wanted to be limited by the terms of its two contracts. As such, they informed Tele Atlas and NavTeq that they wanted to modify their license terms to allow more liberty with respect to syndication and proliferation. NavTeq balked, and in September of 2008 Google quietly dropped NavTeq, moving to just one partner for its core mapping data. Tele Atlas eventually agreed to the term modifications, but perhaps they should have sensed something bigger at play.

teleatlasRumors abound about just how many cars Google has on the roads building it own turn-by-turn mapping data as well as its unique “Google Streetview” database. Whatever it is, it must be huge. This October 13th, just over one year after dropping NavTeq, the other shoe dropped as well. Google disconnected from Tele Atlas and began to offer maps that were free and clear of either license. These maps are based on a combination of their own data as well as freely available data. Two weeks after this, Google announces free turn-by-turn directions for all Android phones. This couldn’t have been a great day for the deal teams that worked on the respective Tele Atlas and NavTeq acquisitions.

To understand just how disruptive this is to the GPS data market, you must first understand that “turn-by-turn” data was the lynchpin that held the duopoly together. Anyone could get map data (there are many free sources), but turn-by-turn data was remarkably expensive to build and maintain. As a result, no one could really duplicate it. The duopolists had price leverage and demanded remarkably high royalties, and the GPS device makers (TomTom, Garmin, Nokia) were forced to be price takers. You can see evidence of this price umbrella in the uniquely high $99.99 price point TomTom now charges for its iPhone application. When TomTom bought Tele Atlas, the die was cast.  Eat or be eaten. If you didn’t control your own data, how could you compete in the GPS market?  This is what prompted the Nokia-NavTeq deal.

garmin_stockGoogle’s free navigation feature announcement dealt a crushing blow to the GPS stocks. Garmin fell 16%. TomTom fell 21%. Imagine trying to maintain high royalty rates against this strategic move by Google. Android is not only a phone OS, it’s a CE OS. If Ford or BMW want to build an in-dash Android GPS, guess what? Google will give it to them for free. As we noted in our take on the free business model, “if a disruptive competitor can offer a product or service similar to yours for ‘free,’ and if they can make enough money to keep the lights on, then you likely have a problem.” It would be one thing if this were merely a mean-spirited play by Google to put an end to the GPS data duopoly. But it is not. There are multiple facets to this remarkably disruptive move.

While it is obvious that this maneuver creates a problem for the multi-billion dollar GPS market, it also poses real challenges for the leading smart phone players – RIM’s Blackberry and Apple’s iPhone. Without access to their own mapping data, these vendors now face an interesting dilemma. Do you risk flying naked without free navigation or do you suck it up and swallow the above average royalty fee for each and every handset? Neither option is stellar. This problem isn’t nearly as daunting as the one now faced by the Windows Mobile and Symbian teams.  As software providers, they are lucky to get a per unit royalty equal to that extracted by the GPS data guys. If they are now forced to integrate this data merely to keep their product competitive, their gross margin just went negative. Ouch!

This is not just incredible defense. Google is apt to believe that the geographic taxonomy is a wonderful skeleton for a geo-based ad network.  If your maps are distributed everywhere on the Internet and in every mobile device, you control that framework. Cash starved startups, building interesting and innovative mobile apps, will undoubtedly build on Google’s map API.  It’s rich, it is easy to use, and quite frankly the price is right. In the future, if you want to advertise your local business to people with an interest in your local market, chances are you will look to Google for that access.

Introducing the “Less Than Free” Business Model

android logoGoogle’s brilliance doesn’t stop there. It is hard not to have been surprised by the rapid rise in recent buzz surrounding the Google Android Smartphone OS. When I asked a mobile industry veteran why carriers were so willing to dance with Google, a company they once feared, he suggested that Google was the “lesser of two evils.” With Blackberry and iPhone grabbing more and more subs, the carriers were losing control of the customer UI, which undoubtedly represents power and future monetization opportunities. With Android, carriers could re-claim their customer “deck.” Additionally, because Google has created an open source version of Android, carriers believe they have an “out” if they part ways with Google in the future.

I then asked my friend, “so why would they ever use the Google (non open source) license version.”  (EDIT: One of the commenters below pointed out that all Android is open source, and the Google apps pack, including the GPS, is licensed on top.  Doesn’t change the argument, but wanted the correct data included here.)  Here was the big punch line – because Google will give you ad splits on search if you use that version!  That’s right; Google will pay you to use their mobile OS. I like to call this the “less than free” business model. This is a remarkable card to play. Because of its dominance in search, Google has ad rates that blow away the competition. To compete at an equally “less than free” price point, Symbian or windows mobile would need to subsidize. Double ouch!!

lessthanfree“Less than free” may not stop with the mobile phone. Google’s CEO Eric Schmidt has been quite outspoken about his support for the Google Chrome OS. And there is no reason to believe that the “less than free” business model will not be used here as well. If Sony or HP or Dell builds a netbook based on Chrome OS, they will make money on every search each user initiates. Google, eager to protect its search share and market volume, will gladly pay the ad splits. Microsoft, who was already forced to lower Windows netbook pricing to fend off Linux, will be dancing with a business model inversion of epic proportion – from “you pay me” to “I pay you.”  It’s really hard to build a compensation package for your sales team on those economics.

Naysayers of these assertions will likely have the same retort – quality is key. They will argue that Google’s turn-by-turn apps are inferior to their well honed market leading products. With regard to Android, Google will lack the user interface or embedded software expertise necessary and will deliver a subpar product.  Plus, because the Android OS will be so splintered, QA testing will be difficult and incompatibility issues will abound. In the short run, these issues will exist.

Despite these challenges, it would be a dangerous strategy for any of the many threatened players in these markets to hang on to this “quality” rationalization for very long. First, Google’s products will get better over time. The sheer volume of the Android phones in the market will give them new data feeds to complement their own mapping effort. Also, they can create UGC hooks for users to embellish their own maps (like in Google Earth), offering themselves further differentiation.  With regard to Android, version 3 will be better than version 2 will be better than version 1.  Microsoft knows this game well.

Another perhaps even more important factor is that when a product is completely free, consumer expectations are low and consumer patience is high. Customers seem to really like free as a price point. I suspect they will love “less than free.”

[Follow Me on Twitter]

Make a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

403 Responses to “Google Redefines Disruption: The “Less Than Free” Business Model”

RSS Feed for abovethecrowd.com Comments RSS Feed

[…] Back in 2007,  Tele Atlas and Navteq, the two big map data sources, were being acquired by Google’s competitors. I met John Hanke, head of Google Maps at the time, in late 2007. I asked him what Google was going to do about the fact that two key data providers were going to belong to TomTom and Nokia. He said they had a plan but didn’t offer any details. Apparently that plan was for Google to go head-to-head with the data providers and collect its own maps and navigation data set. In October 2009, Google announced free turn-by-turn navigation for Android. (VC Bill Gurley has a great post on why the transition was necessary and how disruptive the model is.) […]

[…] Back in 2007,  Tele Atlas and Navteq, the two big map data sources, were being acquired by Google’s competitors. I met John Hanke, head of Google Maps at the time, in late 2007. I asked him what Google was going to do about the fact that two key data providers were going to belong to TomTom and Nokia. He said they had a plan but didn’t offer any details. Apparently that plan was for Google to go head-to-head with the data providers and collect its own maps and navigation data set. In October 2009, Google announced free turn-by-turn navigation for Android. (VC Bill Gurley has a great post on why the transition was necessary and how disruptive the model is.) […]

[…] Back in 2007,  Tele Atlas and Navteq, the two big map data sources, were being acquired by Google’s competitors. I met John Hanke, head of Google Maps at the time, in late 2007. I asked him what Google was going to do about the fact that two key data providers were going to belong to TomTom and Nokia. He said they had a plan but didn’t offer any details. Apparently that plan was for Google to go head-to-head with the data providers and collect its own maps and navigation data set. In October 2009, Google announced free turn-by-turn navigation for Android. (VC Bill Gurley has a great post on why the transition was necessary and how disruptive the model is.) […]

[…] Back in 2007,  Tele Atlas and Navteq, the two big map data sources, were being acquired by Google’s competitors. I met John Hanke, head of Google Maps at the time, in late 2007. I asked him what Google was going to do about the fact that two key data providers were going to belong to TomTom and Nokia. He said they had a plan but didn’t offer any details. Apparently that plan was for Google to go head-to-head with the data providers and collect its own maps and navigation data set. In October 2009, Google announced free turn-by-turn navigation for Android. (VC Bill Gurley has a great post on why the transition was necessary and how disruptive the model is.) […]

[…] did a good exploration of the underlying advantage that Google is pushing back in his “Less Than Free” blog in 2009 and many others have commented on it since.  It’s worth […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model A 2009 post from VC Bill Gurley on why Google switched from Navteq and Tele Atlas to generating its own maps. Apple faces a similar bind in relying on archrival Google for maps in iOS. With each search, it provided valuable data to Google. Although iOS maps aren’t great now, I expect that Apple will keep improving them. […]

Very prescient…in light of what we see in ios6

[…] 1. “Google Redefines Disruption,” Bill Gurley […]

[…] has to be in the Android ecosystem.  Google’s strategy of giving away the OS and its better than free value proposition to hardware OEMs, which Peter Fenton discusses in this great post….  If there’s any weakness in the Android ecosystem, its that the profitability of the […]

[…] Gurly wrote up a great piece on Google’s disruption in the navigation market. It is a great read to understand the impact Google’s new navigation […]

[…] iPhone. Bill Glurley, a venture capitalist with Benchmark Capital, makes the argument clearly in a blog post: “Without access to their own mapping data, these vendors now face an interesting dilemma. Do […]

[…] People are also slow to adopt new online payment methods, which is why it is so crucial that the App Store doesn’t require one; users simply have to continue using the same system they have already embraced for purchasing digital music online for nearly a decade. The iTunes Store has been the No. 1 music retailer since 2008, so it has had plenty of time to win the trust of a large number of users. Google, on the other hand, traditionally hasn’t asked its users to pay a dime for pretty much anything. […]

[…] People are also slow to adopt new online payment methods, which is why it’s so crucial that the App Store doesn’t require one; users simply have to continue using the same system they’ve already embraced for purchasing digital music online for nearly a decade. The iTunes Store has been the number one music retailer since 2008, so it’s had plenty of time to win the trust of a large number of users. Google, on the other hand, traditionally hasn’t asked its users to pay a dime for pretty much anything. […]

[…] interesting and provocative post — by Bill Gurley of AboveTheCrowd.com: “Google Redefines Disruption: The ‘Less […]

So If I understand correctly, Google makes makes a compelling ubiquitous product if I’m always connected and online?

Isn’t this what drives all of google initiatives e.g. Wave – if you’re permanently online, google offers more than you need: so that it can maintain high audiences for it’s ads…

Thanks goodness all thoses mobile carriers have bandwidth aplenty!

What happens if data charges increase or as posted above I roam?

Anyone willing to pay my data charges?

[…] paid carriers a revenue share (in addition to giving it away) […]

[…] violate patents, deal in patents to spread their ecosystem, aggressively bundle & advertise, engage in price dumping, and behave in other anti-competitive ways to put their “incorrect facts” in front of […]

[…] paid carriers a revenue share (in addition to giving it away) […]

[…] territory. This is part of why Google has Android – Google disrupts other businesses by being cheaper than free. What all of those have in common is that for them to succeed on a strategic level for Google, […]

[…] violate patents, deal in patents to spread their ecosystem, aggressively bundle & advertise, engage in price dumping, and behave in other anti-competitive ways to put their “incorrect facts” in front of […]

[…] this juggernaut. I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] violate patents, deal in patents to spread their ecosystem, aggressively bundle & advertise, engage in price dumping, and behave in other anti-competitive ways to put their “incorrect facts” in front of […]

Google is focus now on their business rather than giving the convenient way on their users.

[…] licensees to get them to adopt Android, a so called “less than free” model that was regarded as potentially “disruptive” in […]

[…] предлагает похожие продукты бесплатно или по более выгодным ценам.Для производителей мобильных телефонов […]

[…] paid carriers a revenue share (in addition to giving it away) […]

[…] paid carriers a revenue share (in addition to giving it away) […]

[…] violate patents, deal in patents to spread their ecosystem, aggressively bundle & advertise, engage in price dumping, and behave in other anti-competitive ways to put their „incorrect facts“ in front of […]

[…] violate patents, deal in patents to spread their ecosystem, aggressively bundle & advertise, engage in price dumping, and behave in other anti-competitive ways to put their “incorrect facts” in front of […]

[…] paid carriers a revenue share (in addition to giving it away) […]

[…] violate patents, deal in patents to spread their ecosystem, aggressively bundle & advertise, engage in price dumping, and behave in other anti-competitive ways to put their “incorrect facts” in front of […]

[…] went to TomTom for $2.7bn). But now Google could offer this service, not only for free, but as Bill Gurley points out, by including Google's contextual advertising service, possibly on a "Don't pay us, we'll pay you, […]

violate patents, deal in patents to spread their ecosystem, aggressively bundle & advertise, engage in price dumping, and behave in other anti-competitive ways to put their “incorrect facts” in front of yes i believe in this suggestion.

[…] paid carriers a revenue share (in addition to giving it away) […]

[…] code, violate patents, deal in patents to spread their ecosystem, aggressively bundle advertise, engage in price dumping, and behave in other anti-competitive ways to put their “incorrect facts” in front of […]

[…] violate patents, deal in patents to spread their ecosystem, aggressively bundle & advertise, engage in price dumping, and behave in other anti-competitive ways to put their “incorrect facts” in front of […]

[…] carrier pays a share of income (in addition to give) […]

[…] Internet has and will continue to drive marginal costs toward zero. Above the Crowd describes how the effects of free have driven down prices to consumers across the […]

With tons of changes that is happening with Google, how do you think their business model right now? They keep on evolving and FB is fighting back to them.

[…] this juggernaut. I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

Thank you for this outstanding article.

[…] is gaining ground and becoming more popular with network operators, due largely to Google’s less-than-free model for licensing its OS and applications. Further product line differentiation, and the availability […]

[…] than it appears superficially. Apple and Microsoft are indeed tangling directly with Google’s “less than free” model that Bill Gurley has written about with these patent […]

Great post!

In your other article: “The Freight Train That Is Android” you are saying that google is “building moat” to ensure that everybody use their search engine and no other one. This explains their motivation for the “less than free” business: it creates a strong “moat”.

I read in the comments below that google will soon propose a “TV box” (like a tivo or something). I guess their idea is to include inside the “TV box” a small “google search” button and many “google ads banners”.

If you compare the “TV box” with a “turn-by-turn” navigation system (like TomTom,Garmin,etc.), you will see that both systems are depending on “external data” to operate. The navigation system requires maps to operate. the “TV Box” requires movies to operate. To ensure its supremacy, Google already developped maps for all the world for their free “google map application”. I wonder if google will, one day, create “exclusive movies” for their “TV Box”, to still ensure even more their supremacy. Maybe, one day, we will see movies “made by google”. If that happens, I think will be in real trouble because movies=”mass education” for the world. Google’s domination will be unstoppable. This will be the end of democracy as we see it.

It’s quite frightening to think about the future with Google in it!

Thanks for your article!
Frank

Fantastic site – keep it up!

[…] to “take any layer that lives between themselves and the consumer and make it free (or even less than free).” This is incredibly important to handset vendors and carriers who have an incentive to use […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] Google’s “Less Than Free” Business Model Tagged with: Andrew Wade  […]

[…] to “take any layer that lives between themselves and the consumer and make it free (or even less than free).” This is incredibly important to handset vendors and carriers who have an incentive to use […]

[…] Google Redefines Disruption: The “Less Than Free” Business enterprise ModelPosted on October 29, 2009. Filed underneath: Net, Venture Capital, Web/Tech | Tags: Android, Business enterprise Model, Disruption, Google, GPS, World wide web, Mobile, Navigation, TomTom | […]

[…] this juggernaut. I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] of this juggernaut. I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] of this juggernaut. we have created about this in a past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, a some-more we see, a some-more we consternation if we too competence have […]

[…] of this juggernaut. I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] Nick 03.26.11 This article (and this older one) reminded me of why, six or seven years ago, I gradually began to stop taking into serious […]

[…] of this juggernaut. I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] the CR-48 and ChromeOS are incredibly disruptive… (a good thing…) Google Redefines Disruption: The Reply With […]

[…] of this juggernaut. I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] makes long term aftereffects on the industries it enters because it offers products for free or less than free. As a matter of fact, cell phone manufacturers and wireless phone carriers do receive financial […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] Google Redefines Disruption: The “Less Than Free” Business ModelPosted on October 29, 2009. Filed under: World-wide-web, Venture Capital, Web/Tech | Tags: Android, Enterprise Model, Disruption, Google, GPS, Internet, Mobile, Navigation, TomTom | […]

[…] Google Redefines Disruption: The “Less Than Free” Organization ModelPosted on October 29, 2009. Filed underneath: World-wide-web, Venture Capital, Web/Tech | Tags: Android, Home business Model, Disruption, Google, GPS, World-wide-web, Mobile, Navigation, TomTom | […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] creates its moats, ravages the industries it enters because it offers it products for free or less than free. Carriers and cell phone manufacturers actually have an economic incentive to use Android. Google is […]

[…] this juggernaut. I have written about this in the past in Android or iPhone? Wrong Question, and Google Redefines Disruption: The “Less Than Free” Business Model. But even so, the more I see, the more I wonder if I too may have underestimated the unprecedented […]

[…] went to TomTom for $2.7bn). But now Google could offer this service, not only for free, but as Bill Gurley points out, by including Google’s contextual advertising service, possibly on a “Don’t pay […]

[…] “Less Than Free”, la verdadera dimensión de la amenaza que supone Google para muchas empresas. […]

Do you mind if I quote a few of your articles as long as I provide credit and sources back to your blog? My blog is in the very same area of interest as yours and my visitors would genuinely benefit from some of the information you provide here. Please let me know if this okay with you. Thanks!

[…] Google traditionally gets ahead through ‘partnerships’ with other companies that almost inevitably lead to it controlling their marketplace […]

[…] to index their news, it would deeply erode into Google’s margins, thus threatening its “less than free” model. Decision Engine Bing is posing itself as a “decision engine”. It integrates […]

Crafty play by Google. But we’re still yet to see a major drop in the price of GPS navigation devices.

Ever seen the movie Idiocracy? They illustrate a world where ads take up more space than the actual thing you’re trying to watch… ads everywhere. Unfortunately, Google is building a business around that exact model. Only the wealthy will be able to avoid the ads.

[…] 原作者:来源Google Redefines Disruption: The “Less Than Free” Business Model译者一林I like to think of myself as an aficionado of business disruption. After all, as a venture capitalist it is imperative to understand ways in which a smaller private company can gain the upper hand on a large incumbent. One of the most successful ways to do this is to change the rules of the game in such a way that the incumbent would need to abandon or destroy its core business in order to lay chase to your strategy. This thinking, which was eloquently chronicled in Clay Christiansen’s The Innovator’s Delimma, is the key premise behind recently successful business movements like SAAS (Software as a Service), open source software, and the much-discussed Freemium Internet model.  And while each of these disruptions are impressive in their own right, when I read this week that Google was including free turn-by-turn navigation directions with each and every Android mobile OS, I had an immediate feeling that I was witnessing a disruptive play of a magnitude heretofore unseen. […]

[…] 原作者:来源Google Redefines Disruption: The “Less Than Free” Business Model译者一林 I like to think of myself as an aficionado of business disruption. After all, as a venture capitalist it is imperative to understand ways in which a smaller private company can gain the upper hand on a large incumbent. One of the most successful ways to do this is to change the rules of the game in such a way that the incumbent would need to abandon or destroy its core business in order to lay chase to your strategy. This thinking, which was eloquently chronicled in Clay Christiansen’s The Innovator’s Delimma, is the key premise behind recently successful business movements like SAAS (Software as a Service), open source software, and the much-discussed Freemium Internet model.  And while each of these disruptions are impressive in their own right, when I read this week that Google was including free turn-by-turn navigation directions with each and every Android mobile OS, I had an immediate feeling that I was witnessing a disruptive play of a magnitude heretofore unseen. […]

[…] Bill Gurley. Inversor de Capital Riesgo en Benchmark Capital […]

I read out whole this post this very informative about the google………

Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com inspires me, i just want to say thanks for the inspiration, Hier Hotel

’m not saying Google will just disappear in one day but it can be the best in everything. Sooner or later someone will come over with something better. Is just impossible to be #1 in all those things they are investing in.

broader reach to sell more ads. More importantly, as Bill Gurley points out, Android offers a “less than free” business model to carriers that want to license

I just want to say thanks for this interesting thread about Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com! Regards, Alexa Beratung

[…] fail, Google TV is going to be JUST fine. Why? Because it’s F-R-E-E, free!! (or, eventually, less than free. The $99 (or less) Google TV box WILL come out. Google will keep improving the software stack, […]

Hello , Free and less-than-free pricing. Google Re-defines Disruption: The Less-Than-Free Business Model.

This is a great question, and I had often wondered if competition would lead to this. the most obvious example is what Bing is doing related to e-commerce.

Hello im Marcs an Open Source evangelist, I guess I prefer free above less then free. Google ” world dominance in the information industry” is far more threatening to future generations then Al Qaida is… What if Google falls in the wrong hands in twenty years time? Will scenarios sketched in SciFi movies become reality?

Great post. I feel like I am watching the great Telecom struggles from the 1900s, when huge companies like AT&T ruled the wires … wait…something is wrong here.

I have found your blog druing the search for “Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com”, here i have found the information i need, so thanks for your help and keep on the good work, Sabine Wellness

Everything which is growing too big is going to an extinction sooner or latter. Is a kind of universal law.

I’m not saying Google will just disappear in one day but it can be the best in everything. Sooner or later someone will come over with something better. Is just impossible to be #1 in all those things they are investing in. Just impossible.

[…] – Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com “Less than free” may not stop with the mobile phone. Google’s CEO Eric Schmidt has been quite […]

I read out whole this post this very informative about the google………

Excellent post Bill! Great narration!

Excellent news, I look forward to more of the HTML5 form stuff and especially its incorporation into JavaScript UI libraries. Except… how will web developers eat if they can’t charge for “Enter search term here” form enhancements 😉

Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com inspires me, i just want to say thanks for the inspiration, Hier Hotel

that’s really a fantastic post ! added to my favourite blogs list.. I have been reading your blog last couple of weeks and enjoy every bit. Thanks.

Got to love google

[…] further – device manufacturers are actually paid to adopt the OS. VC Bill Gurley explains Google’s offer to mobile device manufacturers: “….That’s right; Google will pay you to use their mobile OS. I like to call this […]

If only I had a penny for each time I came here.. Superb article!

[…] interesting and provocative post — by Bill Gurley of AboveTheCrowd.com: ”Google Redefines Disruption: The […]

Fantastic post and brillant Google strategy. Apple is on the high margin side of the business. The only competition is symbian or MSFT. Symbian and winmo 6 are vastly inferior. The only contender will be winmo 7 will release fall 2010 but MSFT is already doing two mistakes, winmo 7 is not free and they give less control on customer UI side than Android. On the challenge side, Google hired Matias Duarte the web OS UI designer. Like you said the UI and turn by turn will improve. And for the moment Google iterate fast but Andy Rubin already announced that the Android release rate will slow down when the OS is mature. It will be easier for handset maker and carriers to catch up and reducing fragmentation.

[…] enters new markets by offering services for free others have charged for. The people love it. The other companies go out of business. Now guess what, when that happens, Google can dictate prices in the future. Google can’t […]

[…] Google disruptive innovation and strategic moves Possibly related posts: (automatically generated)What to do first if your company’s being acquired?Preparing for the recovery (a must read)Previous Post « being a VC and Entrepreneur – At the same time. (BusinessWeek) […]

that’s really a fantastic post ! added to my favourite blogs list.. I have been reading your blog last couple of weeks and enjoy every bit. Thanks.

A very interesting and easy to read article – the best I’ve come across via Techmeme for a long time. Thanks.

[…] Google maksaa, jos käytät heidän palvelujaan […]

[…] si acaso algún producto que cueste más de $1.00 dolar. Lo cual le ha servido de gran éxito, éste modelo de negocio lo llaman un modelo de negocio gratuito o “Less Than Free Business […]

[…] Free and less-than-free pricing.   Google Re-defines Disruption: The Less-Than-Free Business Model. […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model […]

[…..]Another perhaps even more important factor is that when a product is completely free, consumer expectations are low and consumer patience is high. Customers seem to really like free as a price point. I suspect they will love “less than free.[…..”]

Google is simply the cutting edge made by the real thinkers who want it all not just a slice, we all should always want it all not just pay the rent thats why from day one for me on the internet with my biz it was with google although I do live and die by google it has been a best bet so far so my ads on their free local mapping system bring it on baby.

Felt so hopeless looking for answers to my qsuetions…until now.

[…] Make no doubt about it: Google has no scruples in this area and will go as far as to offer the companies which business they’re destroying an ad-split. […]

[…] Make no doubt about it: Google has no scruples in this area and will go as far as to offer the companies which business they’re destroying an ad-split. […]

[…] interesting and provocative post — by Bill Gurley of AboveTheCrowd.com: ”Google Redefines Disruption: The […]

[…] Secret Sauce? Google’s Advertising Rev-Share Deals With Carriers Exactly as forecast by Bill Gurley, this is the “Less Than Free” model in action and it is likely to be a real winner. […]

[…] showdown era By Brian Hayes an aficionado of business disruption: After all, as a venture capitalist it is imperative to understand ways in which a smaller private […]

[…] showdown era By Brian Hayes an aficionado of business disruption: After all, as a venture capitalist it is imperative to understand ways in which a smaller private […]

[…] in Business Internet, Uncategorized Customers seem to really like free as a price point. I suspect they will love “less than free.” via abovethecrowd.com […]

[…] broader reach to sell more ads. More importantly, as Bill Gurley points out, Android offers a “less than free” business model to carriers that want to license Android. Carriers that license Android split ad […]

[…] tienen que pagar licencia y además ganan dinero por comisión en las búsquedas de los usuarios (abovethecrowd tiene un excelente artículo sobre esta estrategia). En el otro lado tenemos los sistemas […]

[…] tienen que pagar licencia y además ganan dinero por comisión en las búsquedas de los usuarios (abovethecrowd tiene un excelente artículo sobre esta estrategia). En el otro lado tenemos los sistemas […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model […]

[…] Gurley has a nice piece on why Android is here to stay and why the SPs are having a hard time keeping (and wanting to keep) […]

[…] power without being called a monopoly. Cell phone providers get the Android operating system for less than free. Ecommerce players get a new commerce site search option. Content players get an enhanced Friend […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model Bill Gurley, AbovetheCrowd.com | 10/29/09 […]

[…] AT&T paying through the nose to have it. It was touched on in Bill Gurley’s excellent post on Goggle’s less than free business model. But there he stopped at the OS and it would only affect Symbian and WindowsMobile, now we have the […]

[…] second was suggested on the blog a few days back – Google is thought to incentivize device manufacturers with a share of mobile ad revenues as it does with […]

[…] to index their news, it would deeply erode into Google’s margins, thus threatening its “less than free” model. Decision Engine Bing is posing itself as a “decision engine”. It integrates well […]

[…] As more Android phones sell, they’ll reduce the margins of all of the other maps players by giving away GPS-like maps and directions on your handset. They’ll do all of this in order to move more […]

I can’t wait to see what else Google comes up with. I wish they would find a way to replace the cable company!

I’m a bit surprised that there aren’t bigger groups of vocal dissenters. Seems like Google is big enough, carries enough power, and can be disruptive to established industries (as your post clearly indicates)that this would strike fear into many groups to encourage them to hold “anti-google” rallys. I think competitors’ only defense may be a good offense. They should start spreading uncertainty and doubt about Google’s supposed “free” services.

[…] Less than free 17 12 2009 thanks to Jerry M for this link to Bill Gurley’s article on freeconomics… […]

[…] is a remarkable company, let’s start with that.  They’ve flipped the business model in numerous ways, because they can.  But what’s happening in the mobile space is becoming a […]

[…] Quickenden sent me a link to a fascinating analysis of Google’s “cheaper than free” strategy, sharing its advertising revenue with companies (including telcos) building […]

[…] produzierten Suchergebnisse denke, wir mir ganz schwindlig und mir fällt ein Kommentar zu einem Blogeintrag von Bill Gurley ein: For the moment Google is a gentle giant. This altruism may not last forever […]

[…] power without being called a monopoly. Cell phone providers get the Android operating system for less than free. Ecommerce players get a new commerce site search option. Content players get an enhanced Friend […]

[…] at Wal-Mart and I have to say I love most of Google’s products. Google has what some call a less than free model which worries many of their competitors. However if Google just puts out competition and not […]

[…] c’est que ce coup plante le décor de la future compétition entre Google et Apple (L’analyse de Bill Gurley est une lecture indispensable). Apple contrôle l’accès au dispositif dominant du web […]

[…] SEO News December 2nd, 2009This is one of the more interesting takes I’ve seen on Google’s Business Model going forward. Bookmark It Hide SitesLeave a Reply Name (required) Mail (will not […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model (Bill Gurley) Spooky … […]

I would not count out Microsoft. They have been mapping cities years before Google started and doing so in greater detail. However,they have not used the data to any degree yet.

[…] Google Redefines Disruption: The “Less Than Free” Business Model A post by Benchmark VC Bill Gurley and expanded on here by Tim O’Reilly are must-reads for those interested in market disruption, the ‘free’ economy, and standards.  Look at what’s happened in the market for providers of turn-by-turn navigation data.  Nokia paid $8 billion for the #1 firm NavTeq, then GPS-firm TomTom paid $3.7 billion for #2 data provider TeleAtlas. What’d Google do?  Grow it’s own equivilent service to give away free to their partners.  Google even kicked things up a notch by offering Street View.   As Gurley points out, “if a disruptive competitor can offer a product or service similar to yours for ‘free,’ and if they can make enough money to keep the lights on, then you likely have a problem.”  Well with $22 billion in cash, Google can do a lot more than keep the lights on.  “Google’s free navigation feature announcement dealt a crushing blow to the GPS stocks. Garmin fell 16%. TomTom fell 21%.”  Now who controls the dominant standard for future apps?  If you’re a startup with a burn rate, will you pay Nokia or TomTom or use Google’s freebie? […]

따따꿍의 생각…

Google Redefines Disruption: The “Less Than Free” Business Model…

[…] capitalist Bill Gurley has a great post on what Google’s business model which he terms “Less Than Free”.  Personally, I […]

[…] you read the best article on the wireless landscape in years, by Bill Gurley, he espouses a notion of Less Than Free and it’s powerful. When you look at the Droid you […]

[…] a flurry of blog postings. One of the more interesting posts speculated about the target of Google’s “less than free” business model. Gurley reasoned plausibly that the target is the local ad revenue […]

[…] some friends use it, and it is pretty darn good — good enough to cause long term migraine for others in the dedicated GPS business. (Related Post: With Maps Navigation, Google fires another shot at […]

[…] use of mapping technology in mobile phones. It’s smart on a number of levels and you should read the whole thing. Something I hadn’t thought about, however, was how Google’s ad technology can fund sales by […]

[…] ja päätöksen vaikutus näkyi myös heti Garminin ja TomTomin pörssikurssissa. Bill Gurley käy ansiokkaasti läpi päätöksen historiaa ja  vaikutuksia eri toimijoihin blogauksessaan ja kehittää samalla uuden (?) […]

Economic systems warrant digs and critiques — that is what leads to dialogue. Socialism gets its share of digs. Capitalism is fair game as well. Both have flaws.

The emerging free availability of “services” online does not mean that every for-profit entity is doomed, instead, we may just see a reasonable shift from private to public good in some areas.

The reason I suggest this is that consumers who were hit hard by personal debt are going to seek ways to save money because they have not seen real wage growth in more than a decade and have run out of credit. They will find the best price, or the “less than free” price when given options. That is what a free market is suppose to be; a series of options. If a free option works, that’s great. Our markets have become too comfortable enjoying scarcity.

We’ve built scarcity into our society to make money in a variety of ways and that might not be the best thing for everyone. Think of the free legal clinic — is that such a bad concept? It does not need to replace high-priced law firms, but those without means have a place to go for help. If you cannot make big money doing something, find grant money and make a modest living doing that. Serve an under-served population.

Concentration of wealth among the very few is not really in anyone’s best interest and will lead to revolution if the masses finally get tired of absorbing the “externalities” (see this link http://www.youtube.com/watch?v=aCGTD5Bn1m0 ) of government and corporate sectors. Sharing some costs equally or sharing the “free” equally might kill off some business models, but there are others yet to be created that will replace them.

No matter what folks think of my post, I really have enjoyed all the comments. This is great to see.

[…] of posts recently dealing with different facets of this particular takeover: the oncoming war, google’s war-winning strategy (+counter-point). The Chrome OS spells the onset of Google really taking the war to the big guys […]

[…] Google’s (GOOG) introduction of free turn-by-turn navigation is a bit of a smart move too: this article makes a fascinating read about the Google business model […]

[…] Google’s (GOOG) introduction of free turn-by-turn navigation is a bit of a smart move too: this article makes a fascinating read about the Google business model […]

[…] surtout, les camps sont maintenant bien établis entre Apple et Google (ne ratez pas l’analyse de Bill Gurley à ce sujet). Apple domine l’accès au Web mobile avec son appareil, Google contrôle l’accès […]

[…] Less Than Free — Begins by talking about Google giving away turn-by-turn directions on Android, and then analyses Google’s “less than free” business model: Additionally, because Google has created an open source version of Android, carriers believe they have an “out” if they part ways with Google in the future. I then asked my friend, “so why would they ever use the Google (non open source) license version.” Here was the big punch line – because Google will give you ad splits on search if you use that version! That’s right; Google will pay you to use their mobile OS. I like to call this the “less than free” business model. This is a remarkable card to play. Because of its dominance in search, Google has ad rates that blow away the competition. To compete at an equally “less than free” price point, Symbian or windows mobile would need to subsidize. Double ouch!! This and more in today’s Four Short Links. Go to Source Comments (0) […]

[…] One aspect of its assault on Windows and Windows Mobile that Google has been pushing is the idea of sharing its ad revenues with hardware licensees when they agree to its terms for bundling Google’s ad-supported apps, enabling it to offer its core operating system software for “less than free.” […]

[…] surtout, les camps sont maintenant bien établis entre Apple et Google (ne ratez pas l’analyse de Bill Gurley à ce sujet). Apple domine l’accès au Web mobile avec son appareil, Google contrôle l’accès […]

[…] power without being called a monopoly. Cell phone providers get the Android operating system for less than free. Ecommerce players get a new commerce site search option. Content players get an enhanced Friend […]

And yet here it is, a Microsoft stream. You’d think Apple would have stood firm against Microsoft at least as aggressively as it has against Adobe, if not more so. How did this happen? We asked Microsoft User Experience Platform Manager Brian Goldfarb last week at PDC 2009, and the answer was a huge surprise…followed by

[…] Bill Gurley analisa o assunto. Entre as táticas mais comuns,  aplicativos, anúncios personalizados e moedas e presentes virtuais. […]

Good Looking……….!

I don’t see the ‘disruptive’ aspect as clearly as the author makes it out to be. Google’s fundamental strategy here is no different than any other company that has come before it in technology, retail, or any other brick and mortar business. Undercut competitors by making your price lower than others. In this case, Google has deep pockets and can afford to set its price to zero. In fact, Google can afford to buy market share by offering to pay vendors to use its platform. All this in the hopes that Google will capture the mobile platform market for its ultimate revenue generating ads business. The uncertainty lies in the fact that the mobile platform has not been proven to generate ad revenue. So while Google with its billions to spend attacking maps and mobile platform businesses, Google may ultimately destroy an existing revenue model without a new one to replace it with. When you have more money than your competitors, you can drive them out of business for sure, but that’s not quite the same as saying you have a disruptive business model. No one can stay in business if there’s no revenue.

[…] power without being called a monopoly. Cell phone providers get the Android operating system for less than free. Ecommerce players get a new commerce site search option. Content players get an enhanced Friend […]

[…] Money no longer matters when the price is less than free. […]

[…] often get an ‘aha’ moment, but Gurley nails his concept of “less than free” and what Google’s trying to do in maps right now: Here was the big punch line – because […]

What do you mean by “free and clear of either license”? For me that should mean something like CC-by-SA, does Google use it? Can I get the dataset for the whole world and use it as I please? If no, that’s no better than navteq/teleatlas.
The only free and libre map data is OpenStreetMap, actually even Google can’t compete with that unless it uses similar license terms and allows data exchange in both ways.

Here we go again.

Microsoft bought $150 million in Apple stock over a decade ago and sold it at a profit years later. No, Microsoft does not own a piece of Apple, although they use Apple as their R&D labs.

Second, Apple had several Billion dollars in cash in the bank when Microsoft bought that stock. Microsoft didn’t “save” Apple with that stock sale. $150 million was a drop in the bucket. Apple had enough cash where they could have stopped selling anything and still stayed open for several years.

The bigger story everyone forgets is that Microsoft agreed to continue making Office for Mac which, at the time, was a measure of any platform’s viability. The entire transaction was settlement for Microsoft using technologies from Apple without a license. Microsoft got away cheap and Apple was allowed to develop to where it is today.

“Adobe’s only hope Android.” made me think “Help me Adobe-Won-Kenobi, you’re my only hope”

I don’t know, are you paid by Adobe to counter-shill? You’re being deliberately thick about a Silverlight MEDIA PLUGIN for IIS.

I really don’t care HOW they do as long as they keep plugins out of MY IPHONE. I’m sorry that the fact that they brand it ‘Silverlight’ makes your brain fart. Everyone else gets it.

Sounds like professional jealously to me that some buggy plugin vendor zigged and got it wrong while MSFT *zagged* and got it right. Your name wouldn’t be Dowdell would it?

Looks like a somewhat similar disruption to LexisNexus & Westlaw here (http://arnoldit.com/wordpress/2009/11/18/google-squeezes-lexisnexis-and-westlaw-hard/). While the data is already “public,” the paid gardens of LN & WL are being upended by Google.

Regarding the psychological import of “free”, I read of an experiment recently in which participants were given a choice of a Hershey’s Chocolate Kiss for 1 cent or a Lindt Chocolate Truffle for 15 cents. I don’t recall the exact numbers, but participants choose the Lindt truffle by what would be considered a large landslide in a political election. When the price the price of each was subsequently reduced by 1 cent–preserving the 14 cent value difference–participants preferred the now free Hershey’s Kiss in roughly the same proportion as they had previously preferred the Lindt truffle over the 1 cent Kiss. Google has tapped into a powerful underlying psychological dynamic …

Of course, nothing is actually free in the end, but the costs are opaque enough to make things appear free.

[…] Google Rede­fines Dis­rup­tion: The “Less Than Free” Busi­ness Model « abovethecrowd.com. Share and […]

Google’s competitors have another option – Use the data from OpenStreetMap.org and add their own turn by turn software. Tele Atlas and NavTeq will be the only ones left out in the cold.

The “less than free” model is a natural extension of Google’s search technology, which though impressive, has been imitated. Google’s _real_ strength is it’s ad business, which makes money giving something for free. The map paradigm is the same – making money giving something for free.

“I suspect they will love “less than free.””

Except that’s rubbish. The end user is not getting a dime.

I was referring to the carriers, but it is a bit of a mixed analogy. Fair point. Bing is paying them.

[…] power without being called a monopoly. Cell phone providers get the Android operating system for less than free. Ecommerce players get a new commerce site search option. Content players get an enhanced Friend […]

[…] A look at Google’s plans to mess with the mobile OS and Turn-by-Turn navigation market […]

[…] The “Less than Free” Business Model Google Redefines Disruption: The Less Than Free Business Model […]

Technically, it is not “less than free” for the consumer yet. They are paying the mobile carriers the part below zero not the consumer. Eric Schmidt has talked about “less than free” for the consumer in the past. Do you think Google can afford to pay for my phone, computer and internet access if they get enough revenue from the market.

Bill, You are the numbers guy. What is the total global ad market? $200B? How much revenue can Google get from that? If they decide to pay the 6B users who are targetted by these ads, what does that come to? A phone one year? A computer the next?

This is a great question, and I had often wondered if competition would lead to this. the most obvious example is what Bing is doing related to e-commerce.

One huge challenge is spam/fraud. if google wanted to “reward” its loyal users, how would you define loyal in a way that didn’t invite fraud?

This is the free map equal to the phone directories that are free.

So far these nav systems have not had to compete with this. It is highly destructive to there market. Cut bottem lines to the bone.

Remember this does not just apply to phones it also applies to bottom end netbooks.

[…] power without being called a monopoly. Cell phone providers get the Android operating system for less than free. Ecommerce players get a new commerce site search option. Content players get an enhanced Friend […]

garmin actually has an android device coming out, so I wouldn’t act like they were caught with their paints down on this one.

[…] to the computer and software business, consider what Bill Gurley calls Google’s “less than free” offerings: Google’s free navigation feature announcement dealt a crushing blow to the GPS […]

As an Open Source evangelist, I guess I prefer free above less then free. Google ” world dominance in the information industry” is far more threatening to future generations then Al Qaida is… What if Google falls in the wrong hands in twenty years time? Will scenarios sketched in SciFi movies become reality? Will my children live in a world that is as democratic as ours?

Those are the questions one needs to ask when accepting less then free. It might just be you are selling your soul to the devil…

Your comment calling Google “more threatening than Al Qaida” is just out of place.

Actually, I think he’s spot on and while naming names may not be “appropriate” I’m not sure how you make the point strong enough without naming names.

[…] Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com (tags: free google) […]

[…] interesting and provocative post — by Bill Gurley of AboveTheCrowd.com: “Google Redefines Disruption: The ‘Less […]

Wow this is one of the best articles I’ve read in a long time!

[…] such as toothpaste. Even if today’s premium navigation data becomes a commodity by virtue of the “less-the-free” data offered by Google, the data must still be delivered via a service and application that people […]

What a great writeup. I completely agree! The day after the announcement I wrote a related piece on Google’s potential to disrupt the nav market — http://bit.ly/2nQixI

cheers,
ceo

previous comment directed at the original post.

So let’s review the bidding. Google provides services on their systems; all your data on all apps is on their systems; moreover, your data is stored on thier systems; dataa tied to all aspects of your life; they already knows where you visit, both physically and virtually;
and now they’ve provided you with a tantalizing incentive to take their phone and close the loop — take all of the above into real-time-location based with you and your ecosystem.
Didn’t anyone else read “1984”?

[…] interesting and provocative post — by Bill Gurley of AboveTheCrowd.com: “Google Redefines Disruption: The ‘Less […]

[…] the Crowd’s Bill Gurley writes a great article explaining that these companies must catch up, or get wiped […]

The indirect strategy is by far the most effective and always has been.

[…] via Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com. […]

Forget outdoor highway billboards, Gnet will be inside your car. If google starts showing ads in my car dashboard there will be serious driving distractions.

[…] power without being called a monopoly. Cell phone providers get the Android operating system for less than free. Ecommerce players get a new commerce site search option. Content players get an enhanced Friend […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model (abovethecrowd.com) SHARETHIS.addEntry({ title: "Must read innovation stories of the week: How to innovate everyday", url: "http://game-changer.net/2009/11/07/must-read-innovation-stories-of-the-week-how-to-innovate-everyday/" }); Must reads of the week […]

[…] can use free to undermine your competitors, but Google is going them one better — they are paying companies to use their products. It’s “less than free”. Google’s strategy is to get as many people online […]

[…] nearest park). Second, as internet access costs drop to nothing—and they will, facilitated by Google’s better-than-free operating system plans that will encourage companies to give away mo…—people have more money to spend on digital content. There are many other factors, of course, but […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model […]

There is a small company providing a free turn by turn navigation app. where the map data comes from the users community!
They are called waze.com and run on most 3G gps enabled smart phones (windows mobile, symbian, iphone, android). They also offer real time traffic information etc.
Of course they are not a major player but since their model is community based, they might be the wikipedia of maps which even google won’t be able to beat!

[…] power without being called a monopoly. Cell phone providers get the Android operating system for less than free. Ecommerce players get a new commerce site search option. Content players get an enhanced Friend […]

These are the assumptions:
• Google will invent faster than competition so that common people will continue to be happy with their “Good enough” OS and leave iPhone… Hmmm water is free, yet people pay for drinks…
• Privacy will not be issues to common people – Google will now sell the locations of individuals to businesses… Instead of call from mortgage company, we have to face mortgage vendors in the subway stations and Starbucks..
• Privacy will not be an issue to the businesses – Google will now have access to every key stroke in a Google phone including the emails and scripted versions of voice mails of employees potentially containing key business information. Google can sell those to businesses including competitors.
• There is no value of partner echo system. Goggle can easily swing the echo system Apple, Nokia and Microsoft’s by their revenue share model.
• There is no value of the platform. Google can sell their platform to the developers faster than their competition by revenue sharing alone.

Brilliant analysis. Ofcourse, Google is the daddy of all businesses. Despite competition it towers over everybody else, above the crowd so to say. 🙂

[…] Gurly wrote up a great piece on Google’s disruption in the navigation market. It is a great read to understand the impact Google’s new navigation […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.c… – I then asked my friend, “so why would they ever use the Google (non open source) license version.” (EDIT: One of the commenters below pointed out that all Android is open source, and the Google apps pack, including the GPS, is licensed on top. Doesn’t change the argument, but wanted the correct data included here.) Here was the big punch line – because Google will give you ad splits on search if you use that version! That’s right; Google will pay you to use their mobile OS. I like to call this the “less than free” business model. This is a remarkable card to play. Because of its dominance in search, Google has ad rates that blow away the competition. To compete at an equally “less than free” price point, Symbian or windows mobile would need to subsidize. Double ouch!! […]

You would think a venture capitalist would know something about Industry Structure and regulation from an economist’s or lawmaker’s perspective.

Leveraging one natural monopoly (possibly search & add markets) horizontally into other industries to control even more markets looks awfully good and unbeatable, until the FTC or DOJ steps in…

Just ask Microsoft, IBM, Xerox…

[…] of disruption: the “less than free” business model. Benchmark Capital’s Bill Gurley considers himself an aficionado of business disruption. Think game-changing movements like […]

I thought less than free meant end user makes $$.

[…] bandwidth, the 21st century most valued resource. (tags: digital tv cable bandwidth video analog) Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com Great article on how Google plans to take over the world. (tags: google business maps free gps […]

[…] to make an email intro without making yourself look bad (this is how I do it). Bill Gurley explains why Google will pay mobile device companies to use their OS. Fred Destin explains why, much of the time, he doesn’t know why he passes on investments […]

[…] business thoughts. You need to see the following article: Google Redefines Disruption: The “Less than Free” business model. This is not the […]

While the Google’s navigation product might still be inferior to that of the big GPS makers – Garmin, TomTom, Navigon (i still mourn latter’s departure from american market, especially looking at the new models they are introducing now in Europe), consumers don’t need “the best” product – in most cases they just need it to be “good enough”. And given the Google’s price point – I dare to say this is more than just “good enough”. Especially given that the product will evolve. But so will, of course, the competitor’s products.
On the other hand, I’m speaking of american (or any local) market. Find i myself in Europe with all the data roaming charges – would i be even tempted to use the “less than free” service? Unless the data traffic could be separated on the per application basis and specific apps’ traffic would be subsidized (or offset by LTF business model).

Bill – thanks for a great article and your deep insight into this move. What I appreciate is the long-term strategy and investment Google undertook to crack this duopoly with a (less than) free product offering. It will mean a big USP for all present and future Android devices including Android-powered new online car navigation devices. But I am not sure if this free killer app is enough to beat Apple’s iPhone and its market success.

Google is redefining “Strategery”

[…] Bill Gurley has a number of articles discussing the concept of free as a disruptive price. In Google Redefines Disruption with the “less than free” business model he explains in some detail how the company will change the market for in car navigation (and other […]

[…] Blog, zusammenführe. Wie dem auch sei – der Mann mit dem sympathisch arroganten BlogNamen abovethecrowd.com erklärt warum Google seinen Konkurrenten mal wieder so rShai-Huludtig schön in den Arsch tritt, […]

Nokia’s and Symbian’s days are already numbered. Their financial and marketing analysis shows it too.

Excellent article here. Do take a look at my analysis too: It’s ‘Is Nokia the Next Motorola’ @ http://umairmohsin.wordpress.com/2009/10/27/is-nokia-the-next-motorola/.

It talks about how Nokia’s current strategy is doomed to fail.

Google doesn’t need to include ads in order to monetize this. They will make their money off of what they learn.

I expect that this software will provide real time telematic data, used to map, and eventually predict traffic patterns. This data has some immediate use – it tells users what traffic conditions other drivers are experiencing in real time and may offer the ability to re-plan a route. This is similar to the Dash Express PND that never quite made it in the market, though users loved it. To Google, this data collection offers them a cheap way to collect the most complete, continuously updated traffic data available anywhere. This can be marketed to news agencies, civic and highway planners, automakers, business planners (where do you put the new gas station or Dunkin Donuts?), roadside advertisers, radio advertisers, the possibilities are endless. And the user perceives little to no coast, and increased benefit. Google pays for the software development, and the price point allows them to disrupt the PND and in-dash Nav market (why buy a Nav system stuck with your car, and limited in it’s ability to communicate and update?) and boost interest and adoption of their cell phone platform? Brilliant move by Google, and an excellent fit with their business model.

[…] Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com Enviar a Twitter […]

So If I understand correctly, Google makes makes a compelling ubiquitous product if I’m always connected and online?

Isn’t this what drives all of google initiatives e.g. Wave – if you’re permanently online, google offers more than you need: so that it can maintain high audiences for it’s ads…

Thanks goodness all thoses mobile carriers have bandwidth aplenty!

What happens if data charges increase or as posted above I roam?

Anyone willing to pay my data charges?

[…] Read the rest of this post on the original site Tagged: Google, Internet, Voices, economy, innovation, search, Benchmark Capital, Bill Gurley, Google, venture capital | permalink Sphere.Inline.search("", "http://voices.allthingsd.com/20091104/google-redefines-disruption-the-%e2%80%9cless-than-free%e2%80%9d-business-model/"); « Previous Post ord=Math.random()*10000000000000000; document.write(''); […]

[…] Capita’s Bill Gurley post Google Redefines Disruption: The “Less Than Free” Business Model earlier today. It quickly became a hot topic and defined a new business […]

google is giving consumers what they want, and they will monetize by putting relevant ads on the navigation. for those looking for local ads for their GPS apps (to be able to compete for free), check out LocalAdXchange.com.. they’ll write you checks for your nav traffic..

[…] Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com […]

[…] morning I was reading a somewhat mind-boggling business analysis by Bill Gurley of their maps business and the effects it’s having on GPS companies in the US. […]

[…] Google redefines disruption: the “less than free” business model. […]

Great post…but I was wondering how is this any different, in principle, from a rev share deal? You get my product to the end customers (channel) I will split some of the revenue I make.

Google Satnav isn’t free though. The cost to the user will be the download of the data from Streetview at each turn. That pretty picture costs $$$.

The cost will be part of a mobile device’s download package, which can be very cheap to very expensive. Good for the telco, but not so good for the consumer.

Whereas a standalone device is for the most part a one off, single cost.

Moving this situation for Europe roaming for instance intensives the cost problem. Data roaming can go from anything between £10 per Meg to £5 per day depending on your contract.

Do you really want to go on holiday with a “free” satnav that may cost you anything between £10 and £150 for instance? A standalone device for Europe is only £120 or so.

The other major issue that you have overlooked is that both TeleAtlas and Navteq will simply up their game in the coming years if they haven’t already. Streetview is not unique, only able to be done by Google. Two can play that game, although admittedly, they won’t get the pay per view clicks that is mentioned. Considering both companies have their own fleets of mapping vehicles, it doesn’t take much to start taking pictures as well.

Great point! Although, if you have an all you can eat package, the marginal cost is free.

I also wanted to make the same point. The price point for data consumption is usually ALL or NOTHING. No one pays retail for a smart phone for features they can’t use. It’s like buying a blackberry without an email package???….

I get what you’re saying, but it’s easily fixed by a lite version which has no download of map data and simply shows animated arrows that are included in the install package

Which is why google is working on giving you free bandwith.
Bandwith has been sickly overpriced anyway, time for it to come down.

[…] game-like; with street-view projections, heads-up-displays and zero-click interfaces. The hidden pressure underneath these moves may not be to just provide better maps but to provide a better higher […]

and here is the “oh shit, we’re gonna be obsolete” device from garmin: http://www8.garmin.com/nuvifone/

[…] is gaining ground and becoming more popular with network operators, due largely to Google’s less-than-free model for licensing its OS and applications. Further product line differentiation, and the availability […]

Very good analysis. Microsoft’s problem is that it’s protecting its Windows/Office revenues and therefore can’t adapt quickly. Google doesn’t have that problem, as it’s still growing its space. They’ve been very inventive about expanding information availability.

I take it less than free doesn’t mean you’ll collect more from this as a part of adwords …

Great article.You make a very good case to go short on the GPS purveyors however their technology is already in our cars which gives them a serious head start on market entrants,gives them an opportunity to up their game while Google is creating theirs and frankly it may focus their mind a little more on how they can monetise their platform ie use their technology to sell more service to their captive audience eg What restaurant options do i have in this area?

While I am not recommending anyone short stocks, it is important to remember that the vast majority of a company’s stock price represents predicted cash flows in that are NOT in the next few years. Just look at three years of cash flow as a percentage of market capitalization. As such, if Wall Street fails to believe the a company’s competitive position is well protected (even five years out), i predict you would see incredible multiple contraction.

[…] Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.c… – I then asked my friend, “so why would they ever use the Google (non open source) license version.” (EDIT: One of the commenters below pointed out that all Android is open source, and the Google apps pack, including the GPS, is licensed on top. Doesn’t change the argument, but wanted the correct data included here.) Here was the big punch line – because Google will give you ad splits on search if you use that version! That’s right; Google will pay you to use their mobile OS. I like to call this the “less than free” business model. This is a remarkable card to play. Because of its dominance in search, Google has ad rates that blow away the competition. To compete at an equally “less than free” price point, Symbian or windows mobile would need to subsidize. Double ouch!! […]

Google plans to be the largest yellow pages of the world.
And people will soon stop planning about where they want to have lunch or want to go out since Google will tell them after they are in the car.
Just like you dont plan your trips since GPS will tell you, and dont remember the phone numbers since you phone will tell you.
Only difference is now Google is ‘helping’ you make the decision by their suggestions.
A business will pay to be the first to be called out when being listed or wants to be better visible or recommended. In the long run, if you are not on Google then you don’t exist as a business. Interesting business model hmmm…

Funny that no-one else has commented on that Symbian is already royalty-free. Symbian is in the middle of a transition from a royalty-based platform to open source. The initiative is led by Symbian Foundation. Would be nice to correct this mistake in the article. Nevertheless, this post is great – thanks for sharing!

So how do they make money?

SF is responsible for the maintenance of Symbian platform. Maintenance doesn’t mean RnD here, since it’s done by Foundation member companies. The operating cost of SF is also shared among (board members). Check out http://www.symbian.org/members/member-programs/governance for more details.

[…] to serve these overshot customers. Google later turned its shield into a "sword" strategy by disinteremediating the map providers and incentivizing the carriers with a revenue-share agreement.On the other hand Google's core search technology and GMail are a couple of examples of […]

Thanks for great Info..!! 😀

This is why I invested in Google as soon as their stocks fell with the rest on the market.

google has an interest in pretty much anything that they see having a big turnout of profits, or a valuable add-on to googles many abilities. But a very interesting article, with good content information!

http://redlinemg.net/blog

Loved the article. Only thing I don’t understand is ‘why would carriers embrace a likely future competitor’? Google’s products have taken away carrier texting revenue (SMS to Email) and voice revenue (SIP/VOIP). Now they are taking away carrier Navigation revenue (many millions per year). At what point might carriers realize that they have thrown rose petals along the path of this Trojan horse?

Because carriers, like the rest of the conventional market, are shortsighted businesses. They only care about the past and the present. The future is just that shiny, distance place where new money will come from if they keep doing things the way they’ve always done things.

“Carriers being shortsighted businesses” is not the only reason. Given the free markets, some other carrier who is willing to take risks will embrace Google and take the edge with consumers.

Ignoring their strongest competitor (since it is so hard to beat them) would be much more harming to carriers in the long run, and thus they *have to* come to terms with it now.

The carriers know that they cannot sell someone a new unlimited data plan on one hand and then cripple it in order to preserve text message fees on the other. I think that Verizon and the rest are gearing up for a disruption of their own. If I could get adequate internet access from my mobile carrier I would gladly cancel my cable television/ broadband subscriptions. I haven’t missed having a physical phone line since I cut it off 6 years ago. If Google can provide the traffic, they’ll build the roads.

[…] Nov 02 2009 05:09:55 PM Posted By : Raju Vegesna Comments (0) Bill Gurly wrote up a great piece on Google's disruption in the navigation market. It is a great read to understand the impact Google's new navigation […]

Regarding whether or not Google is using its powers for good or evil: first of all, good and evil are relative–what’s good for one may be devastating to another. Secondly, if Google had gone/were evil we would already know it because we would absolutely be held hostage. Google has access to so much of our personal information, especially those of us with gmail accounts, that they could run or ruin our lives.

For the moment Google is a gentle giant. This altruism may not last forever though…

[…] Google Redefines Disruption: The “Less Than Free” Business Model I like to think of myself as an aficionado of business disruption. After all, as a venture capitalist it is imperative to understand ways in which a smaller private company can gain the upper hand on a large incumbent. One of the most successful ways to do this is to change the rules of the game in such a way that the incumbent would need to abandon or destroy its core business in order to lay chase to your strategy. […]

[…] I’m back from holiday today (Majorca, very nice, thank you…) and have been enjoying catching up on reading and looking forward to getting back into the routine of posting every workday.  Perusing my usual sources for inspiration (amongst which Viewsflow is becoming increasingly important) I hit on this wonderful post from Bill Gurley about Google and the ‘Less Than Free’ business model. […]

Fantastic examples of a cometeing free market! I am always glad to see a shake up in the technology giants.

Very interesting post.

I certainly understand the free model but has anyone stopped to think that if everything becomes free how are we going to pay for the ads that support the free.

At some point the free model will collapse around itself, because it is not sustainable.

Keep in mind that the ‘free’ model isn’t actually FREE. A better term is ‘lossleader’. Google is choosing to lose money on this front in order to gain vaaast amounts of money on another, inherently connected front.

More importantly, their model is not one they would like those companies actually USING their ad services to utilize, mostly because Google would rather those companies not be stupid. It would be an unwise, unless said business is ALSO operating with a well-thought-out loss-leader to a more financially useful product. Few are or can afford to. Nor should they try. It’s sort of a specialized kind of business model, really.

…. anyone else care to comment on the “freenomics” model “collapsing on itself?”

Interesting! If Google ruins the market for all the other businesses, then who will be left to advertise on Google? Perhaps just florists and mechanics – until Google decides to horn in on them as well!

[…] investments in intellectual capital and hiring more talented thinkers to re-think their future. Bill Gurley does a great job putting this into context with respect to […]

[…] lot has been written lately about Google Maps Navigation. Google is basically giving away an incredible mapping […]

[…] insist on hefty licensing fees for Windows. Android is open source . In some cases, there are even revenue benefits for the hardware markers, as Bill Gurley wrote on his Above the Crowd blog. Bill calls this the “Less than Free” […]

This is a great article, well researched and thought provoking. Thank you – it will give us some serious food for thought at the next Canterbury Geek Night were we shall be debating whether or not Google is a force for good. Personally I think it is.

Is there a link supporting the claim that turn by turn navigation will be supported on all Android OS? From what I’ve read I’ve only heard of it being available starting with Android 2.0

Google has done well so far in the US with their plan, but will find the road far more difficult in the rest of the world. Google Maps USA is primarily the result of using the Census Bureau’s TIGER files. Google added addtional routing information and other open source content. In other parts of the world, there is no such equivalent. To start from scratch would take far more work than their US product.

Tele Atlas may well decide to cancel their agreement and pull their maps for remaining coverage areas. NAVTEQ would be smart to not step in to replace Tele Atlas. At that point, Google will be forced to use AND data and second rate sources until they develop additional coverage areas.

Tele Atlas has nothing to lose as Google will undermine their profits with their Free Navigation Solution.

I have been nipped by the Droid bug for a while. This is a great turn of events. Microborg had been on its high horse for far too long. Now what providor do I go with? Sprint or Verizon? Which phone is better HTC or Motorola? Time will tell. Dell are you listening???

Bob Williams’ post (below) is an excellent example of how attempting to stifle a new business model would damage consumers and delay innovation.

Not only (in Bob’s example) are Google’s maps near-continuously and transparently updated, other vendors (Garmin, Magellan etc.) update only quarterly or annually, charge for updates, and require user intervention to get the updates.

In another example, real-time traffic data is free in Google maps; either users or GPS vendors have to pay for it in non-Google GPS devices, it requires an FM radio device (another extra cost), and signal coverage is often much poorer or non-existent compared to cellular internet access to Google.

Let’s not defend those gored by innovation, disruptive or not. I can now get 2TB hard drives for the price 80GB cost only a few years ago, when people were complaining about “disruptive innovation” in the hard drive market. And agile companies are still making money.

[…] Google Redefines Disruption: The “Less Than Free” Business Model 2 11 2009 Very interesting article on the recent Google Maps shake up and Google’s overall strategy within this market (incl. Android). Must Read.http://abovethecrowd.com/2009/10/29/google-redefines-disruption-the-%E2%80%9Cless-than-free%E2%80%9D… […]

And another thing. “Less than free” is more common than many realize. For example, newspapers often carry widely used grocery coupons which make the net cost of that issue “less than free. Often the coupons’value over a year is more than the newspaper subscription for many shoppers. Should that be forbidden because other papers may not carry the same coupons on the same day? Should we be “protecting” newspapers from web news sites who buy the same content from AP or Reuters, but give it away because they carry advertising on the web site? Should be be protecting AP from CNN or FOX if the latter set up their own news bureaus and give away the content through ad subsidies?

No, we should not protect newspapers. They were slow to adapt because the ad revenues were way too lucrative. They were in the best position of any organization to monetize content. They did not do it. The economy is undergoing a much larger shift than people realize as many of the jobs we have done have virtual alternatives. It might just be that economies will start being based on local geography again. We could have a more sustainable future. The problem is that capitalists don’t like the idea of not making money, or maybe making less of it. I see a major, painful correction at play in how much people will pay for anything.

Sorry you spoiled an otherwise excellent post with a dig at capitalism. Capitalists behave just the way they are taught at the Harvard Business School. If a model becomes obsolete or unprofitable, they just change the model. Those that can’t or won’t simply don’t get to survive, thus upgrading the skills and responsiveness of capitalists through natural selection.

Most of the arguments in this thread are just plain silly. They amount to arguing that Google shouldn’t charge less for maps because they carry ads, just because other map data providers don’t or can’t. “Less than free” is just a lower price point on an axis that goes from minus infinity to plus infinity.

By the argument some here try to make we would have no newspapers, especially the “free” weeklies that are nationally ubiquitous, because the low price compared to costs is ad-subsidized. . We would have no magazines, because the non-ad mags have to charge full costs with no allowance for ad revenues, while others are much cheaper.

Google has a better business model. Face it.

As to driving map data firms out of business who don’t use the same business model, tough. That’s called progress. Might as well argue that supermarkets shouldn’t be permitted to undercut and eventually destroy the small neighborhood markets. Too bad. The small markets that found a new model with quality elements (including locational ones) the supers couldn’t match (7-11, Pink Dot, etc.) seem to be doing ok. Instead of whining, companies that sell map data should either find quality enhancements worth the higher price than “less than free’ or should find some other business. As an example of such innovation, Garmin has introduced Lane Guidance. Others will respond, some will find even better ideas (time of day travel planning?) etc.

From a broader perspective, this is just another of the many, many cases where an entrant rationalized small-participant, inefficient industries with a better model (the cement industry is the classic case taught to young economics students).

There is nothing to see here. Please move on. 🙂

Good point. I swear by a local old-school barber shop who are doing absolutely great, business-wise, even against the ubiquitous Supercuts around the area. Small businesses that lose out when larger ones come in have only themselves to blame for doing nothing to separate themselves from the pack.

It’s all about flexibility, and on that front, Google is a goddamn contortionist 😀

[…] interesting; one more reason to pay attention to Android.”  However, after reading Bill Gurley’s excellent post on his “abovethecrowd.com” blog, I am blown away at how shrewd and disruptive this one move is.  This story will pass over many […]

[…] its non-core text, search and display advertising, Google has turned its guns on the GPS market: in a stroke it has taken out the business model of a burgeoning industry; why spend $300 on a GPS unit (or $199 […]

Nice post. It’s funny I just ran into a situation this week where the mobile GPS provided a solution for me. I was traveling on business with a business colleague. We had rented the GPS (Garmin) device from the rental agency. For a dinner outing, the GPS could not find the street address of the restaurant. I assume the address was too new for the version of data in the device. However, I had Google maps for Blackberry and it found the address right-away.

That is pretty neat. At least Google has the consumers in mind for the time being.

I wouldn’t say they ever had the consumer in mind. Not that this is a bad thing. On the contrary. Rather – perhaps because of the situation they were in as a search engine, trapped in the middle of some of the largest businesses on the planet – they they care most about the health of the market-as-a-whole. If they are philanthropic in any sense of the word, it’s toward startup entrepreneurs eager to innovate.

..It only just so happens that THOSE are the ones with the consumer’s interest most in mind 😉

And honest-to-god, I think that’s a good thing.

Great piece. Google definitely smelling like a monopolist using Market power to dominate new markets. However, that aside, the interesting concept is that maybe ALL content is going to be free in the way that most Tv is now. iPhone receipts for good content apps point in this direction (ie low sales). So perhaps the lesson here for any company selling content….prepare for free. 1. Capture the customer for free or even < 2. Advertise and sell to that customer at every opportunity.

[…] Google Redefines Disruption: The “Less Than Free” Business Model – Its free turn-by-turn GPS offering will turn that business inside […]

Great article! It helped me a lot understanding how google is doing for free what others used to charge.

As a customer I really love your ideia of “less than free”, hope it spreads to other markets 🙂

Oh, please: Make those Snap previews go away when looking at this page from mobile device! They are incredibly disruptive.

just using WordPress.com — i could make them go away entirely i suppose.

[…] a blog post from Bill Gurley, a partner at Benchmark, discussing Google’s mobile OS and its new navigation system as a less than free model. This gives platform manufacturers a slice of the search ad revenue that […]

I hate GOOGLE in stealing the ideas of small companies and claiming the idea their own. I think google will fail sooner or later when it is too aggressive in killing other people’s business. There are phone-based GPS already for years. Google just stole their ideas.

I have a HP notebook. HP was not the first company in the world to make neither an electronic computer (probably IBM 1952) nor a notebook (probably Osborne 1981) so they stole somebody’s else idea. Do I have to hate them?

While focusing on Google, Navteq and TeleAtlas, the obvious contenders, you don’t mention another player in the map data market that has potential to be disruptive in the future too: OpenStreetMap. It uses the concept of a wiki, where anyone can add, update and correct e.g. their local street, speed limit or access restrictions and together with a large community create a very detailed map of the world. It is not as detailed as Navteq or TeleAtlas everywhere quite yet, but it is rapidly growing and in some countries like Germany, Australia, Romania or Cypress it is already in some ways better.

But the reason it can be disruptive is that the data is not only free as in cost, but also free as in freedom, and any developer or company can use it for what ever products they want to, be it e.g. web maps with own custom styles, offline maps for mobiles, world wide turn-by-turn navigation devices or even games like monopoly city streets or flight simulator. All things google currently doesn’t offer.

So OpenStreetMap could potentially also be a way for companies like Microsoft, Garmin or Blackberry to fend off Google, as they can take the map data for free, unlike google that presumably had quite substantial costs to create the data it self.

But overall, it looks like map data is going to become much cheaper for the consumer with increasing competition .

[…] Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com Google has long had an interest in maps. Early in its history, the company added “Maps” as one of the coveted tab alternatives offered at the top of the screen above its famed search box. At that time, Google did what many others did to enter the mapping business – they licensed data from the two duopolists that ruled the mapping business – Tele Atlas and NavTeq. Over the years, as these two companies gained more and more power, and larger and larger market capitalizations, Google’s ambitions were growing too. Google wanted to spread its maps across the web, and to allow others to build on top of its mapping API. The duopolists, recognizing a fox in the henhouse, were apprehensive to allow such activity. (tags: google Maps gps android) […]

Seriously best post I’ve read in a long time. Awesome stuff.

It has really opened my eyes to strategic changes I need to apply to my own business. Thanks.

You’re missing another source of disruption in this market, namely OpenStreetMap (OSM). This project is building a free map of the world, and anyone, including any of the players you mention, can use it in their devices.

OSM is likely to do for map data what Linux did for operating systems.

Economics deals easily with negative pricing. What’z the problem? It’s been around for years and is perfectly legal as long as sales aren’t “tied” in the sense of anti-trust law. Rebates, free dishes whose value to the consumer is greater than the cost of the article purchased (even if the cost to the mass wholesaler produces a net profit).

In short, the issue isn’t negative pricing. Any business model that produces a net profit and is legal is perfectly fine. And there is nothing wrong with a long term profit maker subsidizing the cost of entry to the consumer; razor blade makers (and more recently cellular companies) have been doing it for years. As long as the proposition is presented fairly (not bait and switch), there is nothing illegal here.

Too clever by half! Google is flying high right now. It was the most clever of all the first movers at arbitraging the value of public eye balls to the advertisers by leveraging the value of their very excellent search service to web suffers. Google gives nothing to users for free. They are paid at windfall profit levels by the advertisers. Like all other high profit middleman arbitraging operations, it is just a matter of time before the forces at each end point of the arbitrage value chain start looking at ways to commoditize and eliminate the high margins extracted by that monopoly middleman. The web offers so many possible partnering pathways by which to accomplish this dethroning. The most obvious is a direct payment from advertisers directly to the every eye balls that are willing to put up with ads in order to receive something for free. That something for free, could be content services like search, maps, online apps from Google, Microsoft or others. That something for free, could also be extended to even more appealing things like free wireless data plans or subsidized/free mobile devices paid directly to those, end user eye balls, by the advertisers for tolerating ads embedded into their services and webpages in exchange for said freebies. Now if device sellers like Apple, Dell, HP, Nokia, Motorola and other could guaranty the delivery of those ads via hardware lockdown methods that eliminate ad blockers….. you get the picture. What if customers don’t want those annoying ads? It is their choice! Just pay for your content, services or hardware and the ads are eliminated. All content, service or hardware can be subsidized/free or paid, at the consumer’s option! Now I think it is worth noting that Apple has, of late, taken out patents on just such hardware/software ad delivery lockdown technologies and is building a very large server farm facility. Coincidence, maybe, but I thing Not!

I apologize in advance for not reading all the way through your response, but I’m primarily interested in commenting on the idea of arbitrage as it applies to the web. Id est: product makers getting rid of the middle-man – specifically Google – to bring their ads to the consumer directly.

Namely: in what form would this direct marketing take, exactly? This digital door-to-door salesman approach you’re suggesting? I honestly cannot imagine it. Perhaps I’m too narrow-minded to see.

But I’ll tell you what I DO see. I see a company that’s operating in a non-physical space where middlemen are not just the norm, but the life support system. Without them, the entire web ceases to exist. Everything becomes islands of nearly-inaccessible data again. Only in the hands of one of these great aggregators can anyone hope to ever find anything they’re actually looking for. In that sense, Google is not a middleman at all, is it? It’s more of a delivery service.

A delivery service that has a web browser. And has an OS portable enough to use in practically any little digital device that needs one. And that’s working on a version for actual computers. And has literally mapped almost the entire continent. And has their useful little hooks in every biome of the technological landscape. A delivery service where all the junk-mail is guaranteed to reach millions of eyes a day, but guaranteed NOT to if you don’t utilize it. Not because it’s suppressed, but because nobody will care to look for it otherwise. Simple as that.

Basically, what I’m getting at here is…if you really think they’re gonna fail, can I have your Google stock? 🙂

google-redefines-disruption-the-“less-than-free

Amazing and extremely informative article. However, what implications in terms of an eventual antitrust case? It seems that these practices are extremely anti-competitive (low prices – i.e. free – create enormous barriers to entry, but create a larger competitive advantage and monopoly on search, mobile operating systems).

By effectively pricing out NavTeq and TeleAtlas, won’t Google create a monopoly in the maps distribution network? Creating a price point of zero for these services must eventually put these two companies out of business. This is predatory pricing, and effectively creates an insurmountable barrier to entry in this market. Additionally that their practices in the maps market will create additional barriers to entry in their search and mobile OS markets.

I love Google, and I plan on taking full advantage of Android 2.0, but I am very worried about the implications here.

[…] Google Redefines Disruption: The “Less Than Free” Business Model – Its free turn-by-turn GPS offering will turn that business inside […]

Great article. Bill, thanks for sharing. I agree with most of the people who responded that “Less than free” is a brilliant model. Kudos to the Google folks who came up with this business model.

While reading the article I decided to think a step ahead. What can be a disruption business model to Google’s “less than free” model? If companies such as TomTom (navigation) and Microsoft (OS) want to neutralize Google’s business model, what they need to do? Do they still have options or they are doomed? Any ideas?

I think there are people on the planet that are thinking about this. The key to “disrupting” Google is to either (1) deflate their ad network, or (2) steal fundamental search share. I have ideas on both, and perhaps i will write them up. Interestingly, Google uses one to reinforce the other. They use the high prices that result from high liquidity on their ad network to BUY lock in on the distribution side (including Android).

I think companies like Microsoft and companies like TomTom both have lots of options for neutralizing Google. Google isn’t invincible after all. The tougher question is: are they nimble enough to utilize those solutions before Google makes another about-face?

I think, among them, Apple has the best chances (and the strongest platform) to do so. Even though Microsoft is their most outspoken rival, it is not their greatest opponent. It will be interesting to see what sorts of deals will rise to prominence in the future, as Apple becomes more ambitious in its endeavor for mobile device dominance. (MORE ambitious?? I hear you cry. Yes. More ambitious. For all their power, they’re still children in that realm)

[…] Use Android or Google OS. –> EARN SOME MONEY. Written by Chris F. Masse on November 2, 2009 — Leave a Comment Google Redefines Disruption: The “Less Than Free” Business Model. […]

Naysayers to these assertions will likely have the same retort – quality is key. They will argue that Google’s turn-by-turn apps are inferior to their well honed market leading products.

Originally the music industry and audiophiles said the same thing about cassettes and later about mp3s. Lesser quality so don’t use it. And we see how that “quality” argument is working out for them. Expect the same for “turn-by-turn”.

[…] out this article – Google Redefines Disruption: The “Less Than Free” Business Model [ http://abovethecrowd.com/2009/10/29/google-redefines-disruption-the-%E2%80%9Cless-than-free%E2%80%9D… […]

It honestly isn’t that shocking to see Android making such a strong move right now. People seem to forget the history of Android. http://bit.ly/14441x Google is smart, and while it may seem like they throw up hail marry’s and hope for the best, their plays have been drafted long before the other team even knew they would be in the game.

Let’s take this a step further. There could come a point where an Android phone will have more features and be more expensive to produce than the iPhone and a BlackBerry yet cost less for the consumer. It won’t be that the wireless phone company is subsidizing. That will be because Google is subsidizing the handset.

How does Apple and BlackBerry counter this? Will they end up locking out Google apps even if many customers will expect access to them?

Only if they do it fast and preemptively. BlackBerry will no doubt fail miserably at this – either being too restrictive too late, or too wishy washy in general – so honestly, you may as well just write that device off as doomed. (that it still exists is a miracle in my eyes)

Apple has the consumer support and the flexibility and style to pull that kind of move off without looking like fools. They also have the development capabilities to copy or fake whatever the most innovative or necessary Google Aps end up being, I’m sure. The question will be: is that enough? And will it make them an equal player to future Google, or just the wannabe sidekick to future Google, the way the company existed behind Microsoft in the 90s?

Of course, their little debacle with Flash right now may alter that terrain, depending on how it plays out.

Excellent post. A reminder of how insightful some articles can be. What I also find amazing is how clear (and unfortunately bleak) the future is for RIMM and Nokia and yet the stock market doesn’t quite think so. Really no fancy model is required to know what future direction these stocks will take (unless they pull a rabbit out of the hat, which I think is unlikely).

[…] lese ja immer gerne den Fefe Blog und kann euch für heute nur den dort verlinkten Artikel “Google Redefines Disruption: The “Less Than Free” Business Model” empfehlen. Wer keine Lust auf einen Englischen Text hat kann auch Fefes Zusammenfassung lesen, aber […]

A problem android and maps might face is the upcoming government regulations in various states in the US and provinces in Canada that prohibits cell phone use while driving in a car.

If it is mandated by the judicial system that anyone found operating a “phone-like” device while driving a vehicle is charged a hefty fine of $300 or so, just who is going to use android devices to get turn by turn? Never mind that people aren’t actually talking on the cell phone, but just being seen by someone on the road who calls it into the police will get you a misdemeanor on your driver’s record.

I think the market for standalone gps devices will be artificially propped up just because people don’t want to be misunderstood by their fellow citizens.

[…] as in Turn-by-Turn Directions. Maps are useful for cultures which use maps extensively. This is true for most native […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com […]

LiveOps offers a product based on this model that generates nearly a third of the company’s revenue.

There’s something to it.

[…] Via Bill Curley Google has long had an interest in maps. Early in its history, the company added “Maps” as one of the coveted tab alternatives offered at the top of the screen above its famed search box. At that time, Google did what many others did to enter the mapping business – they licensed data from the two duopolists that ruled the mapping business – Tele Atlas and NavTeq. Over the years, as these two companies gained more and more power, and larger and larger market capitalizations, Google’s ambitions were growing too. Google wanted to spread its maps across the web, and to allow others to build on top of its mapping API.  The duopolists, recognizing a fox in the henhouse, were apprehensive to allow such activity. […]

[…] Google Redefines Disruption: The “Less Than Free” Business Model [Follow Me on Twitter] […]

[…] There’s a decent wrap-up of this development here. […]

“Less than free” is a principle subverting capitalist frameworks (on a certain level). When an operative company wields such big levers as Google does, the consequences might turn out as revolutionary (on a certain level…).

More deflation ahead…? If the things we are using on an everyday basis become cheaper, what does that mean for our personal productivity? What does that mean for well-being and general confidence? What will be Google’s next big thing? I am curious!

A very interesting and easy to read article – the best I’ve come across via Techmeme for a long time. Thanks.

Brilliant and insightful post followed by an amazingly interesting discussion ! Thank you for that guys.

Overall, this is an interesting post and a driver for good discussion on the future of GPS market (which will unlikely really tank entirely because free is not for everyone).

However, I’m not sure I see how this “less than free” model is all that new. After all, the world of advertising has several examples of this historically. One example, billboard advertisers in malls pay the mall operators a “rent” fee for being able to put up ads throughout the mall. The ads posted by these advertisers are a great consumer utility as usually they are for movies or products available in the mall.

very interesting article and a great strategy for google. I wonder if people will complain to the anti-trust gods about them misusing their search monopoly.

Great Post! I like the point about what could happen with Microsoft when Google’s Chrome OS is released. While I don’t think we’ll see a drop in MSFT like the GPS stocks due to its product and technological diversity, this Microsoft vs. Google battle is definately heating up and will be interesting to watch. I think that Google will ultimately prevail forcing Microsoft to adapt “or else” because, in this information age, he who controls the information reigns supreme.

woah woah woah. didn’t microsoft get in a lot of trouble for paying manufacturers to use their OS aaaand for packaging an OS exclusively with their browser? so what, when google does it it becomes cool and revolutionary?

[…] This is one of the more interesting takes I’ve seen on Google’s Business Model going […]

[…] is one of the more interesting takes I’ve seen on Google’s Business Model going forward. bookmark this […]

Google’s strategy sure is paying off for us on the Cabulous application. We like the strategy so much, it is at the core of how we are approaching our arena (taxi industry), even as we build on Google’s api (which is working out very well for us).

I think Google has been doing “less than free” for a long time already – isn’t that what adsense is? Content that’s less than free? See also http://english.net.in/how-to-define-advertising-what-are-advertisem

🙂 nmw

[…] Gurley has a fantastic blog post on how google is disrupting even the free business model with its android platform and free […]

Until the execs start allowing some of the really good engineers and PMs to move from Search to android and chrom, our offerings here will be sub-par. One of the reasons why Android has so many flakey edges is that Search monopolizes like 99% of the talent. And to be quite honest, within Google Search is the only place to get really noticed by the insiders. That might be changing with Android’s new prominence, but it’s still mostly a backwater.

Interesting article, but you appear to be under the impression that Android is dual-licensed. (‘I then asked my friend, “so why would they ever use the Google (non open source) license version.”’)

This is not the case. The only version of Android is the open-source mostly-Apache-licensed version. There is no dual-licensing model.

However, the actual Google apps like Maps, YouTube, Gmail and so on are not open-source, are not considered part of Android, and are licensed separately.

Thanks for the clarification. I will edit the post.

Nice post. IMHO Matter of fact, the battle today is for how has the value prosotion works in “free economy model” [1-99, 1% support all the operation and the rest free], but less than free seams like a pre-free, because in the first step, for build layers, over the “less than free model” you need to erase the competition, paying for these at the first layer: OS. Then, the earnings, come in the second layer: Apps and services.

I for one love Google, just wish I owned part of it. ” Less That Free ” its what the broke and poorer people want to hear. Well done again Google great move. Better and Free ” I Like It “.

[…] Google Redefines Disruption: The “Less Than Free” Business Model – garry’s posterous November 1st, 2009 Widespread Leave a comment Go to comments Customers seem to really like free as a price point. I suspect they will love “less than free.” via abovethecrowd.com […]

This is the best post have read in a long time. Even though I am not much interested in business related stuff, I actually read the whole article twice.

Awesome article. The situation is getting worse for Garmin and Tomtom.

I’m patiently waiting for Android 3 in a brand-new car 🙂

remember Netscape? Google is just a new, more agile, Microsoft.

[…] Google se carga el mercado de mapas GPS con su modelo gratuito [ENG] abovethecrowd.com/2009/10/29/google-redefines-disruption-the…  por timonoj el 07:11 UTC […]

So, Google are going to kick start this new business by offering early adopters a slice of revenue from a business where they have monopolistic dominance?

Hello DoJ!

Excellent article. “Norting” more to add.

You fail to mention that TomTom announced its quarterly results (48% earnings drop) prior to Google’s announcement. To attribute the markets reaction that day only to Google is naive on your part and misleading to your readers.

Let’s see what is does Monday. And let me know if you are going long.

Google’s main cash-flow source (advertising) is based largely on its ability to provide relevant data to users for free. The more relevant the data Google provides, the more users will use Google search. As more users pass information through Google, the data becomes more relevant and meaningful. It’s an endless loop.

Of course, the benefit for Google is that its ads become more attractive as a result of this endless loop.

So, is the fact that Google is giving away turn-by-turn directions a surprise? No. Is it a great move? Yes. Google already knows what users are searching for and what applications they are using, and now Google will know where people are going and what they are doing. This gives Google even more relevant information to sell to advertisers.

[…] There can be no doubt now that Google truly are the smartest people in the room. Though unlike Enron, they use their smarts in a way that isn’t just predicting future markets, its making them.  What has separated them from just about every contemporary player is their incredibly astute understanding of the power of metaphor and the manner in which we use metaphors to arrange knowledge.  Google Earth, wasn’t just some clever trick to amuse us.  It was a ploy.  They were training us to use maps again because they knew, that a map was the ultimate metaphor.  This was why Fairfax was so freaked out when Google wanted to put real estate listings on Google maps, because they realised that this was the perfect way to look for real estate.  Yet this straightforward derivation is nothing compared to what they have in store with Android and their most recent offering of a free GPS based turn by turn navigation device.  Now the world as we know it is close to being completely digitised with a continuous and seamless interface between the real and the binary.  And it will be Google that arranges it.  The following article, though a little dry, takes you through some of the issues and describes the genius behind the move…. from Above the crowd […]

Because Android devices can communicate back to the server, Google’s map data can easily get much better very quickly. All Google has to do is have the device communicate back to their servers where the device did something that doesn’t match their map data.

With enough Android phones out there, they could detect street closings, detours and maybe even slow traffic.

[…] Google Redefines Disruption: The “Less Than Free” Business Model « abovethecrowd.com (tags: google strategy business) […]

Assuming you take your mobile phone pretty much everywhere, give me one reason why you wouldn’t want to have your GPS in the same box

Ofcourse, it is great to have yet another feature on your mobile. But, would someone
who needs a gps give up on a separate unit with
a custom processor. Moreover, I’m not sure
how the mobile gps will handle a turn-prompt
when someone is on a important phone call!
Well you can have another pair of speakers,
and then the custom gps processor… and
end up slapping together the dishwasher and microwave.

SG: It’s called digital signal processing. It’s a trivial job to mix two seperate audio signals together and output through the speakers, your PC does it with a crappy generic audio framework (HDA). The GPS app could even lower the volume of the call while reading a turn prompt, then restore the call volume.

While licence-based revenues have been cash-cows for navigation-data companies, they must have pre-epmted such threats from Google and the likes.
Next generation of PNDs plan to offer a service-based revenue model via “connected PNDs” partly using UGC ( for example, traffic incidents)as well as ad-supported content.

Very interesting.. but there is an oversight of a major issue.
There is no point in trying to combine the dishwasher
and the microwave, even if you can cut the price by half.
People just like to see and use them separately!
I think the hand held gps market will prevail, maybe until the auto
industry stops charging a premium.
I’m sure google knows too.

“Prevail” and “Survive” are certainly possible. But keep in mind that you can use Android to build a competitor. Now “anyone” can enter that market.

Well.. not in the hand held gps, unless google
plans build one with android on it, while keeping it as “likeable” as the top models, and ends up selling a few million units.

[…] Venture capitalist Bill Gurley vertelt hoe de recente aankondigen van Google dat Android platform toegang zal krijgen tot gratis Turn-by-turn GPS Navigatie, wederom kans maakt om de wereld zoals wij die kennen ingrijpend te veranderen. Aandelen Garamin (-17%) en TomTom (-21%) zakten eerder deze week al enorm in reactie op het bericht. […]

I don’t think bgurley is claiming Google was the first to ever think of this strategy. In the mobile space, this has been happening with services in Korea for many years.

It’s just that everyone is talking about free nav, when in fact as Bill is pointing out, it’s even better (or worse, if you’re a competitor) than that.

It is possible to compete against “better”. It is also possible to compete against “free”. But when the competition is “better” AND “free”, it’s time to go home.

[…] Shared Google Redefines Disruption: The “Less Than Free” Business Model. […]

[…] Google redefines Disruption — The Less-than-Free Business Model: by Bill Gurley. “Google will pay you to use their mobile OS. I like to call this the “less than free” business model. This is a remarkable card to play.” […]

Seems like a high-minded analysis of the simple fact that while Google is swimming in cash compared to its closest-thing-to-competitors, it can easily afford gargantuan investments that shareholders would normally balk at. Could you, for example, compare the mobile ad revenue over the next five years with the cost of developing Android and digitizing every street on earth? Likely below the ROI threshold of a normal company with short-term focus. In my opinion, simply a benefit of Google’s cingular, lucrative Ads business and rather than a proactive attack on competition. Btw, I am a Google shareholder.

i cannot agree with this. Simply put, you can be flush without being smart and aggressive.

it’s a brilliant, audacious strategy with near flawless execution. It’s hard to argue that this is not really great for consumers, at least in the short term — more, free, better stuff. so, why am i so worried about this? does their apetite know any bounds?

[…] Google redefines disruption (via @Valuecruncher) – Fascinating read on Google’s mobile and mapping developments. […]

Dell already has a a deal as you described. Google pays Dell for installing their browser.
http://www.marketingvox.com/google_dell_sign_software_bundle_deal-021844/
This is similar to paying for shelf space.

Actually, I think the future might look even different: Dell (and others) might pay to get a share of the revenue split on the Google/Microsoft ads.

[…] I just read a pretty stunning analysis over on, abovethecorwd.com (Bill Gurley’s blog, a VC with Benchmark Capital): Google Redefines Disruption. […]

Great post. I wouldn’t be surprised if Hal Varian had a big influence on Google’s Android distribution strategy. He’s one of the best minds in tech strategy (and in particular, the economics of software platforms) — Google is lucky to have him.

Good background and analysis, Bill. But it’s even tougher than you state. It’s not just free maps; Google has included features in its navigation product that will be very hard for others to replicate, like Streetview imagery and web based search.Quality is still TBD but its “Less than Free and (possibly) Better than Yours”

Excellent post. I think your insights on Google disrupting the data GPS data market is right on the mark. Also your thoughts on Google’s “Less than Free” Business model are very insightful and which I hadn’t considered before. Thanks for the post.

Fantastic post. But didn’t Bing do less-than-free first, as a consumer incentive? At the time it was seen as a pitiable move, and I certainly thought it was. What’s your take?

That’s a great point. they in fact did.

Bill… really top notch thinking on this topic.

This isn’t predatory bundling that violates anti-trust (like browser in OS). In the long run Google will probably end up selling these GPS licenses for more than they are being sold for today. They’ve simply shifted who is paying to the advertisers. Consumers almost always like it when someone else is paying the bills.

Does this force Nokia and TomTom into competing with advertiser supported maps? Unlikely that they will beat Google at that game.

I wonder why this isn’t predatory bundling? They bundle their OS with their search offering and free navigation. B/c they can afford to lose tons of cash until they’ve gained enough market share.

Microsoft added the browser into a monopoly offering and raised the price. Since the OS was a monopoly you were forced into buying the browser.

The free map is different. You pay for the map by paying attention to the advertising contained in it. Google then sells this attention to the advertiser to pay for the map application. If you chose not to open the map icon you don’t participate in the transaction – it’s not a forced bundle. If you choose not to use Internet Explorer you were still forced to pay for it.


Where's The Comment Form?

    About

    …focusing on the evolution and economics of high technology business and strategy. By day, I am a venture capitalist at Benchmark Capital.

    RSS

    Subscribe Via RSS

    • Subscribe with Bloglines
    • Add your feed to Newsburst from CNET News.com
    • Subscribe in Google Reader
    • Add to My Yahoo!
    • Subscribe in NewsGator Online
    • The latest comments to all posts in RSS

    Meta

Liked it here?
Why not try sites on the blogroll...

%d bloggers like this: