‘Less than free’ as a business – is it time to be afraid of Google?

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.

Bill’s first point is that this is VERY BAD NEWS for TomTom/Tele Atlas and Nokia/Navteq as Android now includes turn by turn navigation for free based on Google’s data (after they dropped Tele Atlas in October).

His second point, and this is where ‘less than free’ comes in, is that Google will effectively be paying mobile OEMs to use its Android OS by offering them a share of the search ad revenues that come with it.  This presents a tough choice for Apple and RIM who must choose to either not match the competitive offering of free turn by turn navigation or pay royalties to Tele Atlas or Navteq on every device sold, threatening already tight margins.

It is worse news for mobile OS vendors Microsoft and Symbian who will face the same choice but will have few other dimensions on which to compete with Android and lower revenues per handset to soak up the cost of a license to Tele Atlas/Navteq.

Bill’s final point is that Google can make the same ‘less than free’ offer to PC OEMs who might choose to use Chrome instead of Windows or another open source alternative.

All this adds up to a very powerful set of moves from Google and have the potential to significantly increase their stranglehold on the search market – which will be bad news for most of us.  I have been impressed by Microsoft’s latest efforts with Bing, but it is hard to even dream about a search feature set which would compete with the structural competitive advantages that Google is building.

Afterword: naysayers on ‘free’ in general take note.

Reblog this post [with Zemanta]
  • Microsoft could leverage the same structural competitive advantages as Google, should they choose to do so.

    They would be cannibalising their revenue model in the process – but perhaps it would be for the greater good.

  • They could and probably should, but most companies lack the courage to cannibalise their legacy products with cheaper next generation offerings, so moving from 'you pay me' to 'I pay you' would show that Ballmer has vision and courage unmatched by perhaps any fortune 500 CEO in history. And I bet Wall Street wouldn't thank him.

  • I concur.

    Not for the first time and definitely not for the last, Google have put
    Microsoft between a rock and a hard-place

    2009/11/2 Disqus <>

  • Android is definitely the one and only serious tricky fear Steve Jobs should have – shifting down Appstore's potential from Great to Good; even saw some posts of people leaving iPhone when that GOOG 3D revolutionary navigation system was announced, that surprised me a bit.

    As an open platform we'll be impressed by the explosion of the Android's ecosystem as soon as 2010 – less good quality though than iPhone on average; the natural counterpart of an open platform with no quality check; also meaning security leaks?.. And a still-lagging-behind/outpaced hardware design from handset manufacturers facing Apple?..

    The GooG news (if I may say) is that after TomTom has gone through sharp decreases in revenues, it will slowly but surely become a nice affordable target for Apple?.. And the other Goog news for Apple is that, just besides this navigation system, the whole Goog's world has to remain accessible on iPhone…

    In the end Larry Page and Steve Jobs are both genius “indigo founders” moved by passion, vision and change-the-world capabilities; and there will be I am sure quite a few surprinsingly successful entrepreneurial stories within both iPhone and Android's explosive ecosystems…

  • I don't think Apple/the iPhone are going to disappear or anything, but the quality of devices from HTC etc will slowly increase and will probably become good enough for most people.

    The question for Apple shareholders is whether the mobile phone market comes to resemble the PC market in the late 90s when their company was in the doldrums or whether it looks more like the current situation.

  • Android is definitely the one and only serious tricky fear Steve Jobs should have – shifting down Appstore's potential from Great to Good; even saw some posts of people leaving iPhone when that GOOG 3D revolutionary navigation system was announced, that surprised me a bit.

    As an open platform we'll be impressed by the explosion of the Android's ecosystem as soon as 2010 – less good quality though than iPhone on average; the natural counterpart of an open platform with no quality check; also meaning security leaks?.. And a still-lagging-behind/outpaced hardware design from handset manufacturers facing Apple?..

    The GooG news (if I may say) is that after TomTom has gone through sharp decreases in revenues, it will slowly but surely become a nice affordable target for Apple?.. And the other Goog news for Apple is that, just besides this navigation system, the whole Goog's world has to remain accessible on iPhone…

    In the end Larry Page and Steve Jobs are both genius “indigo founders” moved by passion, vision and change-the-world capabilities; and there will be I am sure quite a few surprinsingly successful entrepreneurial stories within both iPhone and Android's explosive ecosystems…

  • Pingback: Finance Geek » Admob data – Android making great progress()

  • I don't think Apple/the iPhone are going to disappear or anything, but the quality of devices from HTC etc will slowly increase and will probably become good enough for most people.

    The question for Apple shareholders is whether the mobile phone market comes to resemble the PC market in the late 90s when their company was in the doldrums or whether it looks more like the current situation.