GOOG = BORG, and I Mean that in the Nicest Way

The geo-world was a-twitter last week with the fact that Google had dropped TeleAtlas as their map supplier in the US (here too), and that they have included parcel-level data and geo-coding in their API release. The big question is, “Why?”. Is Google moving into the enterprise mapping business?

Word is Google Maps did >$100M in enterprise sales last year (I got this from multiple sources). A significant revenue number in the mapping industry. Yet, while this is certainly a big number, it represents a drop in the bucket compared to their $20B per year advertising business. Heck, they made more than $100M in the 2Q:2009 just from foreign currency exchange risk management efforts.

Why bother with such a small geo-related business, when to move the revenue needle they need to look at >$1B businesses? Maybe from Google’s perspective’s it is easier/cheaper to build a $1B business from a $100M business, than to have to buy a $1B+ businesses to generate earnings growth. However, here is what I believe. I have seen estimates from Microsoft and others that suggests the hyperlocal advertising business is worth $25 to $60 billion (e.g. this report on directional advertising at $41B). Getting the navigation right helps build the traffic to this advertising business. Parcel level geo-coding helps make sure the addresses are correct for navigation. A green-field $40B directional/hyperlocal advertising business is right in Google’s primary area of focus. Everything else (i.e. other geo revenues) may just be gravy.

Google is building geo-related services, and selling them at much lower costs than traditional service providers, because of the synergistic revenue generation from the advertising business. If I am right, they will probably be taking a similar direction in the mobile market, including support of their Android OS. This is also very logical and consistent with their advertising model as good geo-location for hand-held devices combined with hyperlocal and augmented reality applications will drive future advertising revenue opportunities.

What does this mean for traditional mapping data vendors such as TeleAtlas and NAVTEQ (as well as parcel data providers)? Probably not much in the very near term as the directional/hyperlocal advertising markets are mostly untapped by these traditional vendors. In addition, the quality of the data for advertising-relevant navigation probably doesn’t need to be as sound as for insurance, e911, legal, etc., type businesses. It is also unclear if the licensing and the most up-to-date data from municipalities are properly addressed in the new Google APIs.  But if the price point is right and service is “good-enough”, these services could encroach on the more traditional markets of traditional commercial data vendors.

What does that mean for the rest of the geo-market participants, including software, collaboration, game-playing, and other crowd-sourcing groups hoping to build geo-related revenues. It means GOOG = BORG. They have a mission: “to organize the world’s information and make it universally accessible and useful,” as well as to build revenues from advertising. The phrase, “Assimilate or Die” in the mapping space is not evil, it is just economic Darwinism. Google is chasing a big market, and they are going to leverage their heft and dominance in the advertising space by building better services in the mapping space. They will create and give-away or under-sell geo-related products, which represent large amounts of revenue in geo-related industries, for no other reason than to dominant the directional advertising market.

If you don’t believe me, just look at the impact of Microsoft and Google on the wide-area imaging market.