Paid vs. free: which business model prevails?

Social networking holds potential

When it comes to business models, the discussion usually breaks into a debate over paid vs. free LBS apps. Two of the major navigation software companies that supply navigation technology to the Tier 1 carriers in the United States--Networks In Motion and TeleNav--believe that the consumer will pay for LBS apps and that the paid model will prevail. However, analysts say that third party applications will keep the big vendors and the major carriers on their toes. The application must "really have an impact on someone's life," said Frank Dickson, an analyst at In-Stat. "It turns into real money when people get those bills at the end of the month."

Sal Dhanani, TeleNav's co-founder and executive director of marketing, said that his company continues to see strong growth in paid apps. "We see clear willingness to pay. There is no need to have that downward pressure in the near- or mid-term future, unless some big disruption happens."

And for free applications to thrive, developers are going to have to find a way to get their application supported by hundreds of devices, a proposition that isn't cheap. According to Steve Andler, vice president of marketing for Networks In Motion, getting an application to work across numerous devices requires a multimillion-dollar effort that the stereotypical three guys in a garage working on an application simply do not have.

"Much like the California gold rush," he said, "there are going to be a few people who hit a vein and strike it rich, but then the big mining companies are going to come in and take it all over."

Nevertheless, Brent Iadorola, an analyst at Frost & Sullivan, believes that free applications--such as Google's offerings, Nokia's Navteq offerings or other location-based applications outside the carriers' purview--will be a threat to the traditional premium offering business model. "I think what you'll see longer term, more consolidation in this space," he said. "Some of the more innovative application providers merge or get acquired by some of the bigger players."

Carriers - the giant in the room

Social networking holds potential