Beyond Freeconomics?

I read this article on the development of Google's own global mapping service with increasing incredulity and sad amusement. It's called "Google Redefines Disruption: The “Less Than Free” Business Model".

Less than Free, eh - how does that work?

The article is about Google building its own global mapping data, and then no longer buying data from the existing 2 players (NavTeq and TeleAtlas) and then sticking it in Android and giving it away 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!

Yup, it is usually upsetting to players in a sector when a huge behemoth enters by giving away a product. In the Old Days this was called a cross subsidy, and when Microsoft used to do it people called them Evil etc for using their vast revenues in Sector A to drive competitors out of Sub Sector B or C. In fact, in the Old Days it even used to be frowned on, and people reached for the Anti Trust guns. But this is Google, so it is of course Radical New Economics. What really had me chortling morbidly was tying Google's activity to that of a nimble startup:

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....

.....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.

What is it about Google that makes people look at the basic exercise of monopoly power and write pages of paean of New Economic claptrap? Or, as one of the commentators put it:

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.

But because its Web 2.0 and its Google it is of course a Radical Thing That No one Has Thought Of And Will Change The World.

Bah Humbug!