While watching the latest episode of Diggnation yesterday, one of the hosts, Alex Albrecht, made an interesting point about Google becoming a monopoly by entering other industries. He said that because Google has so much money, they can go into another industry (in this example: turn-by-turn navigation) and do it for free without having to make money. This, he said, will push out the other competitors in the market (you can’t beat free), thus establishing Google as the sole company providing a service, which would lead to a degradation of quality of service. Part of his argument used the examples of Microsoft’s Xbox 360 and Sony’s PlayStation 3. The two leaders in the industry, he said, didn’t need to many money from video gaming, since they had other products that provided their cash (Microsoft’s OS and Office suite, Sony’s computers, TVs, etc.), so they could sell their consoles at a loss. While he made some interesting points (far more interesting than anything I’ve ever said after a few beers), and I agree that monopolies must always be avoided, Google currently is not the enemy.

For starters, he’s off when it comes to how Google, Microsoft and Sony operate. As publicly traded corporations, they do not enter a market if they don’t think they can make a profit. If they started entering random markets just to be charity cases, the CEO would be replaced pretty quickly. True, when they first released the systems, both Microsoft and Sony sold their consoles at below cost, and Sony still loses money on the PlayStation 3, but they aren’t losing money in the industry. Microsoft and Sony both receive a licensing fee from games sold for their systems, as well as a cut of DLC, and, in Microsoft’s case, $60/year on every Xbox Live Gold account. He used the example of “not needing to make money” for working in Microsoft and Sony’s favour and causing the Sega Dreamcast to fail. The Dreamcast, while an amazing system, failed for a number of reasons, and not being involved in other industries wasn’t one of them. The fact of the matter is, the Dreamcast ultimately lost because its predecessor, the Saturn, was a failure, so many were hesitant to give Sega a chance. When the PlayStation 2 was released, Sony easily trounced Sega, mainly because of positive brand recognition from the first PlayStation. The PlayStation 2 won over the Dreamcast because of better brand recognition and marketing, not because Sony also made cameras and could sell the PlayStation 2 for less. When the PlayStation 2 was released, there was a shortage and many people were paying upwards of $1000 on eBay for it, so price was not an issue. Also, Sony and Microsoft aren’t the leaders in the video game market, if we go by sales, Nintendo is with (based on October 2009 figures) 50.39 million Wii’s sold worldwide (warning: PDF). Microsoft follows with (based on January 2009 figures) 31.20 million Xbox 360′s sold worldwide and Sony taking up the rear with (based on July 2009 figures) 27 million PlayStation 3′s sold worldwide. I realize it’s unfair to pick figures form different time spans, but I was too lazy to look for worldwide sales figures from the same month. Besides, it’s highly unlikely that Microsoft has over taken Nintendo in that 9 month span (I apologize if they have).

Similarly, when Google enters a new market, it does so with the intention of making money. True, their amount of capital allows them to take a loss for a while, but the end goal is to make money, not to do something “for funzies”. Usually, their method of choice is to make money from advertising, as opposed to outright sales. While Google often does dominate the markets it enters, such as search, email, online maps, it does so not because its competitors can’t compete with free, but rather because they offer a better service. For Google Maps, Google makes money with advertising, and while I haven’t had the chance to use a Motorola Droid (not available in Canada), or Google’s turn-by-turn navigation, I imagine they plan on implementing it into that as well. When you type, for example, hotels, into Google Maps, it will have at the top of the results, a sponsored link, as well as a sponsored link in the map itself, when giving a list of hotels.

To think that Google is not planning on doing this (if they have not already done so) with turn-by-turn directions is foolish. If you are in a strange city, looking for a place to stay and the first place to come up when you type in “hotel” is the Days Inn, there’s a very good chance you’re going to go there, instead of a Holiday Inn or Super-8. If Garmin and TomTom cannot compete against Google, it’s no one’s fault except Garmin and TomTom. They still have an advantage, currently, in that Google’s turn-by-turn navigation is only available on the Motorola Android for the time being, and changing cell phones just for free turn-by-turn is a little impractical. Obviously, the goal is to make it available on all Android devices, and people will take that into account when buying a new phone, but there will always be people who want an iPhone or Blackberry instead, and even many Android owners may wish to have a dedicated GPS. What Garmin and TomTom need to do is to tell consumers why we should spend our money on their dedicated devices, rather than use the free app on a Motorola Droid, much like companies that make MP3 players already do. Garmin and TomTom have an advantage over MP3 player manufactures, however, in that they can also make apps for other devices, such as the Apple iPhone and Motorola Android. If Garmin and TomTom are going to neglect the advertising model, or the software app angle (as Garmin so far has), and they lose out to Google, that is not the result of an unfair advantage, or monopolistic practices by Google, it is the result of companies refusing to adapt to changing conditions. On the other hand, if Garmin and TomTom continue to make products that are so good, that people will pay for them, despite having free alternatives, good on them.

Does this mean we shouldn’t keep an eye on Google, to make sure they don’t become an monopoly that controls ever facet of our lives? Of course not. So far, Google has provided only competition, and as long as they continue to do that, there is no issue. That being said, if Google starts taking over the marketplace, we obviously want to prevent that, but that’s why there are anti-trust laws. We don’t want Gmail to be the only way to get email, or Google Maps to be the only mapping service available, and the anti-trust measures that are in place should be enacted if that starts to happen, but until then, we can’t blame Google if its competition refuses to adapt, and as a result, goes out of business.