Beyond The Long Game

I just read a pretty stunning analysis over on, abovethecorwd.com (Bill Gurley's blog, a VC with Benchmark Capital): Google Redefines Disruption.

I underestimated Google's price/cost strategy, in my previous post. I thought they were going to allow market forces and free (both as in beer and speech) to bring cost of handsets to near zero for average customers. What I failed to realize is that Google is acting even more agressively than that with an even more disruptive business plan, 'Less Than Free'.

Here's Bill Gurley's description of the less than free effect.

Google’s brilliance doesn’t stop there. It is hard not to have been surprised by the rapid rise in recent buzz surrounding the Google Android Smartphone OS. When I asked a mobile industry veteran why carriers were so willing to dance with Google, a company they once feared, he suggested that Google was the “lesser of two evils.” With Blackberry and iPhone grabbing more and more subs, the carriers were losing control of the customer UI, which undoubtedly represents power and future monetization opportunities. With Android, carriers could re-claim their customer “deck.” Additionally, because Google has created an open source version of Android, carriers believe they have an “out” if they part ways with Google in the future.

I then asked my friend, “so why would they ever use the Google (non open source) license version.” Here was the big punch line – because Google will give you ad splits on search if you use that version! That’s right; Google will pay you to use their mobile OS. I like to call this the “less than free” business model. This is a remarkable card to play. Because of its dominance in search, Google has ad rates that blow away the competition. To compete at an equally “less than free” price point, Symbian or windows mobile would need to subsidize. Double ouch!!

All I can say is... wow.