Benchmark Capital’s Bill Gurley examines the planet-buster that Google has dropped on the GPS navigators, and on Apple’s iPhone.
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.
That is exactly what Google has done in the mapping segment. Consider what a game changer is enfolding of turn-by-turn navigation with the Android OS. Enfolding as in FREE!
Suppose you are Apple, finding that more and more people are buying Android phones because they include the functions that previously required buying a TomTom or Garmin device. The pressure will be on Apple to also include free turn-by-turn. But Apple doesn’t own the rights to the map data, and Google does.
Bill explains the background of this Google coup. Here’s an excerpt:
(…) Rumors 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.
Wait — there is more. Have you wondered why Verizon might prefer to ship Android phones instead of iPhones? Well, one reason is that Google will share the AdWords advertising revenues, and pay the teleco for every user search on Google.
Next Bill discusses the implications of Chrome OS, where Dell, HP et al will capture an income stream from Google IF they ship their computers with Chrome OS instead of Windows. They will make money on every search the user does, on every ad clicked. You get the idea.
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