Above the Crowd

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

October 29, 2009:

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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.”

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411 Comments

  1. Jon Smirl October 30, 2009

    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.

    Reply
    • Adrian Ionel October 30, 2009

      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.

    • Jon Smirl October 30, 2009

      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.

  2. Joshua Karp October 30, 2009

    Bill… really top notch thinking on this topic.

    Reply
  3. Glenn Kelman October 30, 2009

    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?

    Reply
    • bgurley October 30, 2009

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

  4. Steve Zimmerman October 30, 2009

    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.

    Reply
  5. Marc Prioleau October 30, 2009

    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”

    Reply
  6. john r October 30, 2009

    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.

    Reply
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  8. Gijs Bos October 30, 2009

    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.

    Reply
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  10. Richard Barton October 30, 2009

    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?

    Reply
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  12. Mdouble October 30, 2009

    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.

    Reply
    • bgurley October 30, 2009

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

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  15. Howard October 31, 2009

    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.

    Reply
  16. Mark October 31, 2009

    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.

    Reply
  17. Pingback: “Less than Free” | Syndicat

  18. SG October 31, 2009

    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.

    Reply
    • bgurley October 31, 2009

      “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.

    • SG October 31, 2009

      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.

  19. DJ Singh October 31, 2009

    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.

    Reply
  20. Gijs Bos October 31, 2009

    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

    Reply
    • SG October 31, 2009

      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.

    • AT October 31, 2009

      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.

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  22. Steve October 31, 2009

    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.

    Reply
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  24. chrisj October 31, 2009

    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.

    Reply
  25. Bob October 31, 2009

    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.

    Reply
    • bgurley October 31, 2009

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

  26. James October 31, 2009

    Excellent article. “Norting” more to add.

    Reply
  27. George Williams October 31, 2009

    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!

    Reply
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  29. pax November 1, 2009

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

    Reply
  30. Benjamin Flesch November 1, 2009

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

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

    Reply
  31. arun kamath November 1, 2009

    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.

    Reply
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  34. magicdrinkscompany November 1, 2009

    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 “.

    Reply
  35. Jose A Vivas November 1, 2009

    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.

    Reply
  36. Dan Morrill November 1, 2009

    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.

    Reply
    • bgurley November 1, 2009

      Thanks for the clarification. I will edit the post.

  37. googleinzider November 1, 2009

    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.

    Reply
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  39. nmw November 1, 2009

    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

    Reply
  40. John Wolpert November 1, 2009

    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).

    Reply
  41. Pingback: Google Domination through Less-Than-Free

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  43. fred November 1, 2009

    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?

    Reply
  44. TechClicker November 1, 2009

    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.

    Reply
  45. raul November 1, 2009

    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.

    Reply
  46. Charlie K November 1, 2009

    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.

    Reply
  47. Pingback: Google’s “Less Than Free” Business Model « Keegan Headlines

  48. BubblyBull November 1, 2009

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

    Reply
  49. Theo November 1, 2009

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

    Reply
  50. Eigensinn83 November 1, 2009

    “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!

    Reply
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  54. Ross Dakin November 1, 2009

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

    There’s something to it.

    Reply
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  57. Jonathan Lin November 1, 2009

    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.

    Reply
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  59. Gregor November 1, 2009

    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).

    Reply
  60. Sean Hackbarth November 1, 2009

    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?

    Reply
    • Eugene November 3, 2009

      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.

  61. NetApex November 1, 2009

    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.

    Reply
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  63. JAK88 November 1, 2009

    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”.

    Reply
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  65. Stan November 1, 2009

    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?

    Reply
    • bgurley November 1, 2009

      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).

    • Eugene November 3, 2009

      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)

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  67. Jaremy November 2, 2009

    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.

    Reply
  68. Raymond Cote November 2, 2009

    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!

    Reply
    • Eugene November 3, 2009

      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? :)

    • nursebebo May 26, 2011

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

  69. David Sternlight November 2, 2009

    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.

    Reply
  70. Jonathan Bennett November 2, 2009

    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.

    Reply
  71. Wesley Lynch November 2, 2009

    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.

    Reply
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  73. XYZAX12 November 2, 2009

    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 .

    Reply
  74. joan November 2, 2009

    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.

    Reply
    • Paolo November 3, 2009

      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?

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  76. Pablo November 2, 2009

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

    Reply
    • bgurley November 2, 2009

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

  77. thelocalguide November 2, 2009

    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 :)

    Reply
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  79. Dan November 2, 2009

    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.

    Reply
  80. Jgoyette November 2, 2009

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

    Reply
    • Eugene November 3, 2009

      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.

  81. Bob Williams November 2, 2009

    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.

    Reply
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  84. David Sternlight November 2, 2009

    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. :-)

    Reply
    • Eugene November 3, 2009

      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 :D

  85. David Sternlight November 2, 2009

    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?

    Reply
    • kylereinson November 2, 2009

      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.

    • David Sternlight November 2, 2009

      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.

  86. Pingback: Google Redefines Disruption: The “Less Than Free” Business Model « The Read Gear

  87. David Sternlight November 2, 2009

    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.

    Reply
  88. Roger November 2, 2009

    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???

    Reply
  89. MapDude November 2, 2009

    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.

    Reply
  90. omegix November 2, 2009

    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

    Reply
  91. Nomis November 2, 2009

    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.

    Reply
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  96. 5150 November 2, 2009

    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.

    Reply
    • Eugene November 3, 2009

      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.

    • Nelson Yuen November 3, 2009

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

    • GetGnu November 12, 2009

      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!

  97. Lee Forbes November 2, 2009

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

    Reply
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  100. Amber November 2, 2009

    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…

    Reply
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  102. Dazed and Obtuse November 2, 2009

    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?

    Reply
    • Eugene November 3, 2009

      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.

    • tayfun November 3, 2009

      “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.

    • Brett L November 5, 2009

      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.

  103. chuck November 2, 2009

    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

    Reply
  104. Zoasterboy November 2, 2009

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

    Reply
  105. Toto November 2, 2009

    Thanks for great Info..!! :D

    Reply
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  107. Gabor Torok November 3, 2009

    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!

    Reply
    • bgurley November 3, 2009

      So how do they make money?

    • Gabor Torok November 3, 2009

      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.

  108. ragdapeti November 3, 2009

    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…

    Reply
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  111. Mooloolaba resort November 3, 2009

    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?

    Reply
    • bgurley November 3, 2009

      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.

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  113. Mike November 3, 2009

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

    Reply
  114. peter November 3, 2009

    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.

    Reply
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  116. kevin williams November 3, 2009

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

    Reply
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  118. Justin Clements November 3, 2009

    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.

    Reply
    • bgurley November 3, 2009

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

    • Nelson Yuen November 3, 2009

      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???….

    • Lach November 3, 2009

      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

    • Shadow Step November 18, 2009

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

  119. vinay November 3, 2009

    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.

    Reply
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  123. Dave Smith November 3, 2009

    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..

    Reply
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  126. San Cabraal November 4, 2009

    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?

    Reply
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  128. Mike November 4, 2009

    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.

    Reply
  129. Umair Mohsin November 4, 2009

    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.

    Reply
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  132. Russ November 4, 2009

    Google is redefining “Strategery”

    Reply
  133. Jan Michael Hess November 4, 2009

    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.

    Reply
  134. Dmitry Naidionov November 4, 2009

    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).

    Reply
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  138. Jason November 4, 2009

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

    Reply
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  140. Edster November 4, 2009

    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…

    Reply
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  142. Pingback: Google’s Disruption Leads to Commoditization « Raju Vegesna’s Blog

  143. Nita November 4, 2009

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

    Reply
  144. Deb November 4, 2009

    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.

    Reply
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  146. Ariel November 5, 2009

    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!

    Reply
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  153. cvos man November 9, 2009

    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.

    Reply
  154. Pingback: Google Redefines Disruption with the “Less Than Free” Business Model | Bob and Scott

  155. Josh November 9, 2009

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

    Reply
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  158. Steve Lewis November 9, 2009

    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”?

    Reply
  159. true that. nuff said.

    Reply
  160. previous comment directed at the original post.

    Reply
  161. C. Enrique Ortiz November 11, 2009

    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

    Reply
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  163. Andrew November 15, 2009

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

    Reply
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  167. Miblon November 17, 2009

    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…

    Reply
    • kikito November 18, 2009

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

    • Dave November 19, 2009

      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.

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  169. Matt November 17, 2009

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

    Reply
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  171. oiaohm November 17, 2009

    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.

    Reply
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  173. Joe November 17, 2009

    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?

    Reply
    • bgurley November 18, 2009

      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?

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  178. Shadow Step November 18, 2009

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

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

    Reply
    • bgurley November 18, 2009

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

  179. Jiminy November 18, 2009

    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.

    Reply
  180. Pingback: Passing Through: Less Than Free Software « John Bell: Blog

  181. GregC November 18, 2009

    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.

    Reply
  182. Bob Monsour November 18, 2009

    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.

    Reply
  183. OSMer November 18, 2009

    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.

    Reply
    • Use Tags May 10, 2010

      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”

    • Use Tags May 10, 2010

      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?

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  187. Ryan November 18, 2009

    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.

    Reply
  188. iphone crowds November 19, 2009

    Good Looking……….!

    Reply
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    • 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

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  199. kylereinson November 21, 2009

    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.

    Reply
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    • Tim Bates March 29, 2010

      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.

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  219. Darrin Keller December 30, 2009

    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.

    Reply
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  238. michael milstead April 29, 2010

    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.

    Reply
    • Wind September 23, 2011

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

  239. First Aid Antiseptics May 4, 2010

    […..]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.[…..”]

    Reply
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  245. TV Links May 23, 2010

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

    Reply
  246. 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.

    Reply
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  249. Christian Maurice June 8, 2010

    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.

    Reply
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  251. Lela Howe June 14, 2010

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

    Reply
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  253. Steve July 28, 2010

    Got to love google

    Reply
  254. Heritage Hotel in Jaipur July 29, 2010

    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.

    Reply
  255. Hier Hotel July 29, 2010

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

    Reply
  256. cheap belly button rings August 1, 2010

    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 ;-)

    Reply
  257. Jim Harrer August 8, 2010

    Excellent post Bill! Great narration!

    Reply
  258. it solutioners August 19, 2010

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

    Reply
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  260. Seo Bever September 5, 2010

    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.

    Reply
  261. Sabine Wellness September 18, 2010

    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

    Reply
  262. Alison Lewis September 22, 2010

    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.

    Reply
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  264. Brian October 7, 2010

    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?

    Reply
  265. Yachts October 7, 2010

    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.

    Reply
  266. Marta October 7, 2010

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

    Reply
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  268. Alexa Beratung October 7, 2010

    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

    Reply
  269. Federer October 8, 2010

    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

    Reply
  270. Federer October 11, 2010

    ’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.

    Reply
  271. Roger November 5, 2010

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

    Reply
  272. Marc November 5, 2010

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

    Reply
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  277. Dustin Anderson November 18, 2010

    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.

    Reply
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  279. Koh Tao Resort December 11, 2010

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

    Reply
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  297. Simply Ridiculous March 25, 2011

    Hmmm..Interesting!!

    Reply
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    Fantastic site – keep it up!

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  315. Frank April 10, 2011

    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

    Reply
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  318. aura7 June 2, 2011

    Thank you for this outstanding article.

    Reply
  319. Pingback: “The Freight Train That Is Android”; more on Google’s moat… | GregSpeicher

  320. TV Series July 20, 2011

    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.

    Reply
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  326. Watch Vampire Diaries Season 3 September 20, 2011

    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.

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

    Reply
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  344. Dianne Doctor January 9, 2012

    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?

    Reply
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  353. Taner Altınsoy September 1, 2012

    Great!

    Reply
  354. Adrian Meli September 20, 2012

    Very prescient…in light of what we see in ios6

    Reply
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  363. Jon November 20, 2012

    It took me a second reading of this article to realise that “less than free” means “cheaper than free”. “Less than free” can indicate that it “costs a little”.

    Is there such a thing as a less than free lunch?

    Reply
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  367. Douglas Gan March 30, 2013

    There was a time when I built ShowNearby and can totally second these thoughts. I’m glad great minds think alike.

    Reply
  368. Norman February 27, 2014

    This same strategy will soon be used for data as a service. But i still think that although google will push it down our throats, DAAS isnt ready yet. Its still not like SAAS. Data recovery is stll a huge issue and I am going to keep using Rollback Rx for a while. Google drive is ok. But DAAS will hAave to wait.

    Reply

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