Google released a new mobile navigation app today and GPS navigation companies such as Garmin And TomTom saw their shares take a plunge. The announcement shaved $1.2 billion off of Garmin’s market cap alone. Its shares are down more than 16 percent so far today to $31.60. TomTom’s shares are down 21 percent to $8.11.
And this is just for an Android app. But Google could very well make it available to other phones as well, and that is what has investors worried. GPS navigation apps are among the most expensive, and most lucrative, of all mobile apps. TomTom sells its iPhone apps for $50 to $100, with a different app per country.
Google just cut the traditional GPS navigation companies at the knees by releasing what may be a far superior product for free. It is not a standalone navigation app. Rather it taps into a lot of the resources Google makes available on the Web, including Google Maps, Streetview, voice recognition, and sophisticated search. You can use voice search just as you would look for something on Google’s search engine. “Where is the Pizza Hut in downtown Palo Alto”? If Google’s search engine can find it, then so can Google’s navigation app. Garmin and TomTom can’t compete with that kind of Web-scale computing power.
And Google is happy to give its navigation app away for free because it leverages many existing technologies it has already built for the Web, and it encourages more people to use Web-capable phones and do local searches on them. Its strategy is to give the software away for free, and make money on the search ads.