Continuations: More (Too Much?) Free from Google: Turn-By-Turn
csertoglu
· 1 month ago
i wonder how antidumping regulations deal with this.
albert
· 1 month ago
In antidumping there is a notion of cross-subsidization between domestic and international customers *for the same product* being illegal.
willwhutson
· 1 month ago
I think they do make money on this in the long run with more users to beta and give exclusive GEO data/apps to. This makes a ton 0f sense when you look at it from the perspective of your GPS potentially being your new coupon clipper.
albert
· 1 month ago
There is no doubt that this makes sense for Google and it is well possible that they will make money of this directly in the future, but neither of those is really in question here. Btw, I am not saying this is definitely wrong and should be stopped, simply that it's not obvious that it is all good.
David Semeria
· 1 month ago
From your point of view Albert - and also factoring-in Fred's recent post about swinging for the fences - does it not further increase the investment risks with going for big markets?
The bigger the market, the more chance someone like Google will use Free to gain a foothold either directly or indirectly (android).
albert
· 1 month ago
This is definitely a concern from an investment perspective. Which is why we generally like ideas that require only very modest monetization to succeed and have a large free component.
kidmercury
· 1 month ago
anti-monopoly legislation is meant to ensure wealth is not overly concentrated, but that is addressing the symptom and not the true cause. the true cause of dangerous wealth concentration is monetary policy. if the monetary policy problem were addressed there would be less need for anti-monopoly legislation as incumbents would not be able to so easily leverage excess cash reserves to engage in predatory pricing.
albert
· 1 month ago
I don't think there is a meaningful relationship between monetary policy and google profits. Goldman Sachs you bet.
Jonathan Betz
· 1 month ago
Great post, Albert - very thought-provoking. There is definitely a big question about the Google cash machine and what it means for Google's ability to negatively disrupt other players in the market. There are a few breakdowns in the Microsoft/Netscape analogy:
* Microsoft was going after a very tiny competitor, whereas TomTom and Garmin are established, long-term, viable businesses. It's easy enough to argue that they could have brought down the price of turn-by-turn navigation years ago.
* Microsoft leveraged an existing monopoly distribution channel (Windows) to gain market share. I don't think anyone would argue that the Android platform is the dominant handset OS.
* Microsoft was pushing a product that was, at least at first, inferior to the competition. From everything I've read about the Android turn-by-turn direction service, it blows the competition out of the water (I can't wait to try street view in directions).
If we stick with Microsoft, a more apt analogy might be the XBox - Microsoft went into into a large, mature, market with established players, using the Windows/Office cash hoard to subsidize development. Although I can't find hard numbers on the market share in the gaming console market, my understanding is that Microsoft leads in the US, but is by no means a runaway winner. And it's quite possible that Microsoft's entry pushed the established players to more innovation. Maybe without the XBox, we'd never have seen the Wii.
The fact is that pretty much anything Microsoft does other than Windows and Office is subsidized by "the disruptive power of monopoly profits". That doesn't make it okay for Google to do the same thing, but I think we can say that Google is being not anti-competitive simply by using profits to enter into new lines of business. If that becomes illegal, what do we do about the Mac profits that were funneled into development of the iPhone?
albert
· 1 month ago
Lots of good points. I was not suggesting that it *is* the same thing, simply that when something that dramatic happens across many categories one needs to start to think about the implications and they are not obvious.
540hudson
· 1 month ago
At web 2.0, Martin Nisenholtz of the New York Times said, "“No one has the right to exist in business. It’s that simple." He was talking about failing news organizations. The same is true in turn-by-turn navigation...
albert
· 1 month ago
I would in no way bemoan the disappearance of Garmin, TomTom, or any particular business. It is, however, a legitimate question to ask where innovation drive will ultimately come from if there are a whole bunch of zero dollar markets. One possible answer is that two big and competing providers is all that it would take.
lissismore
· 1 month ago
I am trying hard to come up with a downside to a company subsidizing my access to navigation software. Do I care about TomTom's survival enough to pay $100 for what I am being offered for free? I think not. Why is it in my interest to pay more than I need to?
albert
· 1 month ago
There is absolutely no short term harm. It is all gravy for now from a consumer perspective. And it's entirely possible that it would stay that way forever, if there are competitive providers that keep innovating. But it is also conceivable that zero dollar markets will not attract new entrants and that incumbents will get lazy and leave everyone worse off in the longrun.
Don Jones - VentureDeal
· 1 month ago
In the physical world, what Google does is analogous to "dumping": using profits in one area in order to subsidize getting market share in another.
I don't think that national or even international (WTO) regulatory bodies have really caught on to what is happening.
albert
· 1 month ago
Dumping generally refers to selling in the international market at less than the domestic market (for the same good) and in particular selling internationally at less than cost. http://en.wikipedia.org/wiki/Dumping_%28pricing...
When it comes to complementary products, the situation is a lot more complicated. Your cell phone carrier is giving you the phone below cost because you also sign a service contract. That is a clear analogous example of cross subsidization. The impact of cross subsidization on the effectiveness of markets is less obvious than dumping.
jkaljundi
· 1 month ago
One thing we see in Europe is the lack of local services in many online areas, because of the large international players subsidizing their services from their other business units. Localization does not mean only translation, it really means being local in anything you do. Users then have to put up with more distant feeling US-based services. In a way this does limit user choice.
On US level, does this limit innovation and competition? Probably yes. Entrepreneurs are somewhat afraid to go into sectors which Google/Yahoo/Microsoft have been subsidizing. We could of course argue, that these have just been great ideas missing good execution.
But in general, free markets should take care of themselves without government intervention. If an idea + execution + some luck is there, you should be able to compete even with the cross-subsidizing near-monopolies. Tough question.
albert
· 1 month ago
You bring up several good examples for the impact on innovation. I don't think this is just an execution question.
All Comments
The bigger the market, the more chance someone like Google will use Free to gain a foothold either directly or indirectly (android).
* Microsoft was going after a very tiny competitor, whereas TomTom and Garmin are established, long-term, viable businesses. It's easy enough to argue that they could have brought down the price of turn-by-turn navigation years ago.
* Microsoft leveraged an existing monopoly distribution channel (Windows) to gain market share. I don't think anyone would argue that the Android platform is the dominant handset OS.
* Microsoft was pushing a product that was, at least at first, inferior to the competition. From everything I've read about the Android turn-by-turn direction service, it blows the competition out of the water (I can't wait to try street view in directions).
If we stick with Microsoft, a more apt analogy might be the XBox - Microsoft went into into a large, mature, market with established players, using the Windows/Office cash hoard to subsidize development. Although I can't find hard numbers on the market share in the gaming console market, my understanding is that Microsoft leads in the US, but is by no means a runaway winner. And it's quite possible that Microsoft's entry pushed the established players to more innovation. Maybe without the XBox, we'd never have seen the Wii.
The fact is that pretty much anything Microsoft does other than Windows and Office is subsidized by "the disruptive power of monopoly profits". That doesn't make it okay for Google to do the same thing, but I think we can say that Google is being not anti-competitive simply by using profits to enter into new lines of business. If that becomes illegal, what do we do about the Mac profits that were funneled into development of the iPhone?
I don't think that national or even international (WTO) regulatory bodies have really caught on to what is happening.
When it comes to complementary products, the situation is a lot more complicated. Your cell phone carrier is giving you the phone below cost because you also sign a service contract. That is a clear analogous example of cross subsidization. The impact of cross subsidization on the effectiveness of markets is less obvious than dumping.
On US level, does this limit innovation and competition? Probably yes. Entrepreneurs are somewhat afraid to go into sectors which Google/Yahoo/Microsoft have been subsidizing. We could of course argue, that these have just been great ideas missing good execution.
But in general, free markets should take care of themselves without government intervention. If an idea + execution + some luck is there, you should be able to compete even with the cross-subsidizing near-monopolies. Tough question.