Excerpted from Big Bang Disruption: Strategy in an Age of Devastating Innovation by Larry Downes and Paul Nunes, in agreement with Portfolio, an imprint of Penguin Random House. Copyright (c) Larry Downes and Paul Nunes, 2013.
For most of the 20th century, the production and distribution of road maps was a mature industry dominated by a few leading companies including Rand McNally, Thomas Guides, and not-for-profit automobile clubs.
But with the growth of home computing and the Internet, a new kind of competition arrived. Initial threats came in the form of free Internet-based maps and driving directions from sites including MapQuest and Yahoo, which used digitized map data to offer users the ability to zoom in and out, and later, to overlay satellite photos and highlight selected features, such as the location of restaurants and gas stations.
Then came stand-aloneand in-dash devices that utilize high-precision data from satellite-based Global Positioning Systems (GPS) to generate optimal routes and turn-by-turn spoken directions. Companies such as Garmin, TomTom, and Magellan competed fiercely, offering new models that were increasingly more sophisticated and more compact than their predecessors.
With improvements in technology and production economies of scale, GPS devices quickly moved from luxury items to affordable goods. Garmin’s first commercial product, for example, sold in 1991 for $2,500. By 2000, the company had sold three million devices, and retail prices for some units fell as low as $120. As the printed map market shrank, Rand McNally acquired its longtime competitor Thomas Guides. Still, consolidation wasn’t enough to compete. After more than one hundred years as a family-owned business, Rand McNally fell apart, and was quickly sold off in pieces. By 2003, what had been the commercial mapmaking unit was bankrupt.
The true disruptor, however, turned out to be the smartphone, a device neither designed nor intended to compete with traditional navigation aids. Cloud-based smartphone apps, such as the free and perpetually unfinished Google Maps Navigation, accelerated the reconfiguration of an already fragile industry. Launched in 2009, the product extended Google’s existing mapping database and directional software, adding voice directions, GPS integration, real-time traffic, and connections to other apps including search, e-mail, and address books.
Google also included the navigation app as part of the standard release of every new version of its Android operating system, making it available to any of the millions of users who might want to give it a try. As with most of the company’s software products, Google Maps Navigation was offered for free – or rather, in exchange for permission to present more advertising to users.
Free is easy when manufacturing and distribution costs are low, and when you can rely, as many software-based services do, on reusable information and indirect sources of revenue. For Google Maps Navigation, development costs have been relatively modest.
Much of the software and the data it uses already existed, created at significant expense by Google over the previous decade.
The rest came from public sources, notably from satellites designed and operated for intelligence purposes by the U. S. Department of Defense. That data had existed for decades, but only became available for private use in 1996, when President Bill Clinton ordered it declassified.
“Obviously we like the price of free, because consumers like that as well,” Google CEO Eric Schmidt said at the time.
For users, the navigation app adds virtually nothing to the cost of ownership or maintenance of the device; for Google, per-user costs are trivial. Consumers already pay for the device and the network, and the app takes up a minimal amount of storage and uses little of the data connection. The map data is stored and most of the processing takes place remotely on Google’s servers. Updates to the software are automatically installed on the user’s phone. Google Maps Navigation’s developers don’t do any marketing or sales.
With the growing popularity of the Android operating system, success of the Google product was pretty much guaranteed. Within a year, the navigation app had one hundred million users, a number that doubled less than a year later. When a new version was released for Apple devices in 2012, users downloaded it over 10 million times in the first 48 hours. It’s hard even to estimate how many users have the product now.
App-based services operate, needless to say, under a very different model than traditional businesses. Before the apps showed up, Garmin, TomTom, and Magellan had developed a robust business making and selling stand-alone electronic navigators that performed the same functions. At the time Google released its navigation app into the cloud, traditional navigation devices were still selling – and selling well – for hundreds of dollars.
Google claims it wasn’t looking to disrupt the business of these companies. Yet from the outset, the app outperformed the stand-alone navigation devices on every competitive dimension. Being free was clearly cheaper.
And Google designed its offering to be better by keeping most of the mapping data and route calculation in the cloud, making it easy to continually update and enhance the product. Unlike most stand-alone GPS devices, Google’s app doesn’t store maps on the device. So they don’t become outdated or require time-consuming and often expensive updates.
By connecting with other smartphone services, the free product also offers a more integrated solution. (Search the Web for a nearby restaurant and hit the navigation button to go right to directions.) And it does so for nearly every customer segment, from consumers to enterprise users.
Google continues to improve its product. In 2013, the company paid a reported $1-billion to buy Israeli software company Waze, which relies on user-submitted data to create and improve its maps and navigation, and provides easy-to-use tools for users to report errors, shortcuts, and traffic conditions. Waze, launched in 2008, had 50 million users at the time of the acquisition. Google is integrating the new technology into its navigation product, enhancements for which its users will continue to pay nothing.
While the incumbent GPS device makers still offer specialized in-dashboard units and proprietary apps that vie with free alternatives from Google and others, it’s hard to compete with better and cheaper. The day Google announced Google Maps Navigation, the share price of traditional navigation device makers fell more than 15 per cent, a drop that accelerated a decline that began with the release of Apple’s iPhone.
Between 2008 and 2012, TomTom’s consumer revenue fell by more than half; Garmin’s automotive and mobile sales fell 40 per cent.
Eighteen months after the introduction of Google Maps Navigation, the makers of stand-alone GPS devices had lost as much as 85 per cent of their market value.