Google Maps Doubles Down on Network Effects to Stave Off Formidable Competition
Google Maps has evolved into a platform boasting powerful direct and indirect network effects.
In October 2004, Google acquired Sydney-based Where 2 Technologies to create web application Google Maps (1). At the time, it may have seemed that Google Maps was purely a product/service-centric tool—after all it provided users with a way to map locations and navigate to their destinations. However, over the years, Google Maps has transformed into a platform boasting powerful network effects.
Network effects help Google Maps dominate
Google’s effort to map the world has been nothing short of monumental. The continuous mapping effort (described in fascinating detail here), has required an incredible amount of human capital invested in driving 5+ million miles all over the world to track roads and take Street View pictures, as well as coding, and manually cleaning up data based on thousands of reports of problems that Google Maps users send in every day (2).
However, today’s Google Maps would not have been possible without powerful direct network effects acquired through the app’s large user base. Google has utilized data collected from hundreds of millions of users over several years to improve its maps’ functionality (3). Their product MapMaker allows users to edit maps, adding landmarks and data, and correcting errors (2). Even the aforementioned problem reports are a product of network effects—without a large user base, there would be no problem reports, and without those problem reports, the product wouldn’t improve!
Google Maps has also benefited from indirect network effects between its user base and 3rd party customers. 3rd party customers include businesses advertising on Google Maps, as well as popular companies utilizing Google Maps’ API as a core element in their own product (such as Uber, Lyft, Yelp, and Airbnb).
With competition lurking around the corner, Google can’t afford to fall asleep at the wheel
Google’s head start and seemingly massive barriers to entry haven’t deterred competitors. In 2012, Apple released its own mapping app as a feature of the new iOS 6, replacing Google Maps on iPhones. Apple Maps’ launch turned out to be disastrous due to major flaws in its functionality, bringing about widespread criticism to Apple.
Waze, another competitor, primarily relied on user-generated data to map cities and provide real-time traffic data. Waze was acquired by Google in 2013 for over $1bn (4).
And last year, Uber announced a $500m investment to map the world’s roads (with autonomous vehicles in mind) (5).
Google doubles down on network effects to navigate competitive threats
In order to quell competition and maintain their dominance in the market, Google has undertaken several steps to strengthen network effects of their own maps app, and weaken multi-homing effects to discourage users (and 3rd party customers) from turning to competitors.
(A) Leverage user-generated data to improve product (direct network effects):
As mentioned above, Google has relied on its user base to improve its product. Google searches (through web and app) guides customers to 1.5 billion destinations every year (6). Its recent acquisition of Waze, which primarily relies on user-generated data, further signals Google’s intent on leveraging direct network effects to keep its product superior to its competitors.
(B) Make platform more attractive to 3rd party customers (indirect network effects):
Google recently announced the “next generation” of local search ads (6). In the announcement, Google pointed out that ~90% of all global sales happen in stores (as opposed to online), and that location-related searches have been growing 50% faster than overall mobile searches (6). Accordingly, the new effort aims to make local businesses more visible on Google Maps users through new ad formats. These formats include Promoted Pins (shown below), in-store promotions, customizable business pages, and local inventory search (6).
(C) Turn Google Maps into a social app (both direct and indirect network effects):
Earlier this year, Google introduced its latest feature to Google Maps: Lists. Lists allows users to mark their favorite locations, organize them customizable lists, and share those lists with friends (see video below). This has the potential of increasing user interaction on the app, thereby driving both direct (user side) and indirect (business and 3rd party side) network effects.
(D) Discourage multi-homing
As a by-product of the direct and indirect network effects mentioned above, Google has made multi-homing less attractive for both the demand side (users), as well as the supply side (3rd party customers and business).
On the user side, as the app becomes more social, and one’s social network becomes concentrated on one platform, there is less incentive to use multiple mapping apps simultaneously. Similarly, local businesses will find no incentive spending their precious ad dollars on multiple mapping apps, when they know that over a billion people are on Google Maps (6).
The matrix below illustrated the shift of Google Maps towards stronger network effects and weaker multi-homing, fortifying its position against competition.
Student comments on Google Maps Doubles Down on Network Effects to Stave Off Formidable Competition
Great Post! I think the acquisition of Waze was extremely critical as it felt like they were gaining a lot of steam very quickly.
I wonder how all of the advertisers feel about this process? Now that there is really only one mapping service, and they are further distinguishing themselves from their peers, will they be able to force a dramatic increase in price? Will the service they provide advertisers get so much better with all the improvements that it is worth that increase in price? Should be interesting.
I really enjoyed your post, Ali! This seems to be a traditional case of first-mover advantage and commitment to sustaining improvements propelling network effects. I’m glad you pointed out the introduction of “next generation” of local search ads. I think this is going to be critical for large and small retailers, alike, moving forward. As you mentioned, brick and mortar still dominates retail despite the high growth of e-commerce. However, it is very difficult to ascertain intent when a consumer searches for a brand of product online. For example, I could be searching for Walmart because I’m writing a blog post about them (and thus am not a potential customer in this instance). Walmart doesn’t want to waste a bid on me and Google hypothetically doesn’t want me to click and not buy because it will make Google’s conversion numbers look bad. Searching for Walmart on GoogleMaps, however, is perhaps the strongest indicator of intent across platforms and retailers will likely pay up for ads to this audience.
Great post! I didn’t know that Google was working to make Maps more social with Lists. It’s a cool way to try to strengthen direct network effects and win against competitors. I think that the 3rd party ads element is also interesting, as Google can earn more business and retain it better with larger amounts of users on its platform. However, it will be interesting to see how users react to an increase of ads, and how Google balances monetization with user base.
Excellent post. I definitely don’t appreciate how much Google Maps has improved my life and it often goes overlooked for how great of an impact it has had on society, particularly on increasing the usefulness of smartphones overall. Nothing made it as evident how hard it is to build a useful mobile map than Apple’s flaws in its debut, and it really has never come close to Google Maps as a competing product. I do wonder though how big the opportunity will be for advertisements on the map platform and the resulting indirect network effects. I could see a world in which advertisements begin to diminish the utility value of Google Maps in a way that might threaten to push away users. For example, how annoyed would I be if I’m searching for restaurants nearby and I’m getting locations further away that pay Google vs. those that are closest to me? Either these would have to remain pretty limited or they are so native to the app that people literally can’t notice them. That said I definitely see other advertising opportunities that you point out that have both great potential and add to the utility of the maps, which is the local inventory search idea. I’ve seen this when I Google restaurants and can book a reservation directly in the map app, or when I search theaters and can see all the movie times, in the app. This is both a revenue opportunity and an incremental network effect in my opinion.
Thanks, this is a very interesting topic. I am a huge Google Maps fan and have noticed that it is becoming more and more a core part of my daily app usage. I think increasing functionality with lists and adding social functions makes the app more “sticky” in a users life. It has now progressed from just a functional directions-focused tool, to becoming a big keepers of an individual’s preferences. I think the focus on keeping up quality and usability of the app have prevented users from switching to Apple maps for example, even though it is more integrated with their hardware.
Interesting post how you are thinking about Google Maps as a platform (I never did, which is probably why its magical 🙂 I couldn’t help but wonder the same could be said about wikipedia and other open sourced, crowd-sourced products on the internet. Typically though, these businesses don’t make money (how many times you ignore the ‘donate’ buttons on wikipedia?) and I would have my money on google using your usage data to bolster its advertising businesses elsewhere. Google has been pushing more partnerships within its Maps product (such as ordering Uber from app) to increase its functionalities, together with the new features you mentioned (love the List function). It is hard to imagine another mapping platform beating Google after they have invested so much into Maps.
Because of its free and extremely prevalent nature, I wonder if we should look at the public utility aspect of Google Maps and how comfortable we are with leaving it in the hand of a privately owned corporation. I don’t want to be a regulation person but the same concern has been brought up regarding Facebook’s new mission statement. Ben Thompson makes a good case that as long as the owner of such public utility such as your social graph or map remains a profit-driven entity, they would be dissuaded from becoming political as doing so is alienating and damaging to its business. Just a thought.