Yesterday, Google announced something stunning: free turn-by-turn directions for Android 2.0 to be first available shortly on the Droid phones.  It is stunning because the previously cheapest software only alternatives were apps such as Navigon ($89.99) and TomTom ($99.99) for the iPhone (as an aside, stand alone GPS devices with turn-by-turn directions can now be found on Amazon for as little as $139 for a Garmin nuvi 260 and that’s after 2 seconds of looking).  So here we have a case of Google taking something that previously cost nearly $100 per instance and making it free. Obviously, this is awesome news for the Android platform.

Tim O'Reilly greeted the news with the following tweet

Google Shrinks Another Market With Free Turn-By-Turn Navigation http://bit.ly/Oz00q Once again we see the disruptive power of big data.

To which I replied

@timoreilly we could also be seeing the power of something less benign: cross-subsidization

I was not the only one who had that reaction.  For instance, Dare Obasanjo also tweeted more pointedly

timoreilly isn’t that really the disruptive power of monopoly profits? :)

Tim’s two part reply was

@Carnage4Life Nokia has Google scale profits, but couldn’t do free turn by turn despite buying NavTech. It’s more than just money (½)

@Carnage4Life It’s also understanding how to use data to create network effects in 2-sided markets (see http://bit.ly/lPemc ) 2/2

This brings up the basic issue: should it be legal for Google to give away a product below cost as part of a strategy of attracting users (and developers) to other services on which it does make money?

The answer to this question is anything but obvious.  I remember well when Microsoft starting pushing Internet Explorer aggressively (and free) to “cut off Netscape’s air supply” (a quote denied by Paul Maritz, but mentioned in the antitrust case against Microsoft).  Microsoft engaged in various forms of bundling, which is what made the strategy illegal.  It could be argued that Google is not bundling and hence it should be legal (the impact on existing providers may be the same in any case with Garmin stock hammered yesterday).  But with tons of free initiatives by Google, such as Chrome, Chrome OS, music in search results, book search, and the list goes on, there comes an eventual question as to whether this will all be good for competition and consumer benefit in the long run (it’s no doubt great in the short run!).

This will be a long discussion which I am sure will play itself out over several years to come in the press and in courts (and in a tiny part on this blog).  So stay tuned for more!