mad anthony

Rants, politics, and thoughts on politics, technology, life,
and stuff from a generally politically conservative Baltimoron.

Sunday, January 03, 2010

Business models that puzzle me... GPS companies...

On New Year's Day, I went on a hike with an old college roommate and a bunch of his friends. Afterwords, we went out to grab something to eat. Since I had my Tom-Tom, and drive a bright yellow truck, one of the women who went followed me. Unfortunately, the interchange that Tom-Tom sent me on was redesigned after my maps were made. I went the wrong way, she went the right way, and I ended up gettting there about 15 minutes late, although part of that was that I had to stop and get gas since I was almost out.

Anyway, the moral of the story is that I ended up ordering a new Tom-Tom. eCost had a refurbed Tom-Tom One - a slightly updated version of the one I have now, with a better mounting bracket - for ~$60 shipped after rebate. It includes new maps for the first 30 days, so I'll get a current map. I figure that I can probably sell my old TomTom for $30 or so at a Hamfest or on eBay, so I'll have a new GPS with new maps for $30.

What is odd is if I wanted to buy new maps for my existing TomTom, it's $55. They do have a map update service where you get 4 new maps in a year for $40, which sounds like a great deal until you read the fine print and realize that it makes you pay full price for the first map.

I'm really puzzled by this business model. Why is it cheaper for me to buy the hardware and software than just the software? After all, software has a near-zero marginal cost - it costs next to nothing to distribute an additional copy, especially as a download. If I could get an updated map for $20 or so, I'd buy it - it would save me the hassle of transferring all my favorites to the new device, installing POI's, ect. But when it's the same price for a new device as the maps, and I can resell my old device, it's a no-brainer.

The only thing I can come up with is that TomTom wants to keep up/increase market share, and they figure that means keeping the price of the device low so that new customers buy it. Since they can't separate new customers from old ones - there's no way to price-discriminate, as an economist would say - existing customers like me get an advantage. The other thing I can think of is that they figure that people who insist on super-up-to-date maps are people who really need them - businesses, people who drive for a living, ect - and they are willing to pay whatever to get them. To use another econ term, they are price-inelastic.

I do wonder if a GPS company would do better if they sold the maps cheap instead of making it cheaper to buy a new device. I feel like I'm buying a new PC just to get a copy of Windows, but if it works...


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