Maps, dynamic pricing and competition in the network

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Technology - General
Sunday, 24 June 2012 14:41

In October last year, after several years of free, Google decided to impose a price on those who were using Google Maps applications above a certain threshold : those that generate more than twenty-five thousand loads of maps up to date as Google only 0.35% of total applications using their system, they should pay four thousand dollars for each cargo.

The move provoked an exodus of applications to OpenStreetMap , the "free wikimapamundi", a collaborative project powered by its users, an exodus that hit precisely those popular applications and therefore generated a certain "effect" on other . This helped, of course, a higher level of development of OpenStreetMap , which became increasingly considered an alternative worthy of consideration and with an interesting progression toward maturity.

Moreover, new conditions led to an alternative that quite possibly would not have arisen but for such a change: Apple decided to develop its own map application along with technology partners including TomTom and other functions as Waze , Getchee , Localeze , Urban Mapping , DMTI and MapData Services .

The result has been extremely interesting: Google, a week's Google I / O , has taken the decision to announce a price reduction of its API from four dollars to fifty cents per thousand loads . That's right: $ 4 to $ 0.50, in one motion . The reduction is notable for what it has of illustrative of the "network economy" and the value of the price variable, one of the four known "P" of the marketing mix : a free product that have decided to switch to a fixed price based - possibly - in calculations of costs and demand elasticity, and to test the effect that the price has had on the user base, decided to readjust the price some seven months after proposing a cut of it for almost 90% . A combination of virtual products and markets with very rapid evolution in terms of dynamic competition and customer behavior, which gives an idea of ​​what it means to compete in such environments.

Can a drastic price cut to reverse the flight of customers to other applications? With its decision, Google not only encouraged the development of alternatives, but generated an attitude of defiance, proof that a market as dominant development was not a good idea for anyone. The scenario to seven months of the decision can not be more disturbing: an alternative that could open up a very strong result in migration of value - by the approach of the battle between Britannica and Wikipedia versus Encarta - and a powerful competitor with partners important and reasonably feasible alternatives.

What Google sends signal to the market with such a radical change in the price of your product? Obviously, this is a clear admission that the estimates and the strategy developed for the calculation of the previous price was not too good: possibly have posed a much lower price at first, especially coming from a situation of years of free, would have decreased the incentive to develop new alternatives, and perhaps would have allowed Google to maintain its near monopoly for longer.

On the Internet, things move very, very fast. For all.