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Less Than Free 330

Posted by kdawson
from the fine-price-point dept.
VC Bill Gurley has up an insightful piece on the strategy behind Google's releasing turn-by-turn mapping for free. He calls it the "Less Than Free" business model, and it is beyond disruptive. On the day that Google announced its new service, the stock in the two companies that had controlled the market for map data, Garmin and TomTom, dropped by 16% and 21%, respectively. (Those companies had bought Google's erstwhile map-data suppliers, Tele Atlas and NavTeq, in 2007.) "When I asked a mobile industry veteran why carriers were so willing to dance with Google, a company they once feared, he suggested that Google was the 'lesser of two evils.' With Blackberry and iPhone grabbing more and more subs, the carriers were losing control of the customer UI... With Android, carriers could re-claim their customer 'deck.' Additionally, because Google has created an open source version of Android, carriers believe they have an 'out' if they part ways with Google in the future. I then asked my friend, 'So why would they ever use the Google (non open source) license version?' ... Here was the big punch line — because Google will give you ad splits on search if you use that version! That's right; Google will pay you to use their mobile OS. I like to call this the 'less than free' business model. This is a remarkable card to play. Because of its dominance in search, Google has ad rates that blow away the competition. To compete at an equally 'less than free' price point, Symbian or Windows Mobile would need to subsidize." Gurley speculates that the company may broaden "less than free" to include the Google Chrome OS.
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Less Than Free

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  • by iluvcapra (782887) on Tuesday November 17, 2009 @09:39PM (#30138356)
    The virtue of Android, from the carrier's perspective, is that it allows them to create terrible branded user experiences.
    • by Nursie (632944) on Tuesday November 17, 2009 @09:42PM (#30138372)

      And get paid for it! Don't forget that bit!

      Yeah, sound sucky doesn't it? I had hoped that we were starting to see the end of "this feature crippled by your carrier, instead here's a button that'll take you to our website (and charge you for that)".

      • by rho (6063)

        Thank God we have Google to defend the end-users' interests.

        Seriously, is there anything that Google can't provide? Maybe they should run everything!

        • Re: (Score:3, Interesting)

          by ajs (35943)

          Thank God we have Google to defend the end-users' interests.

          Seriously, is there anything that Google can't provide? Maybe they should run everything!

          Of course they should. And so should everyone else who wants to try to compete with them.

          The great evil here, consider, is that Goolge offered phone vendors a share of search ad profits. Mind you, they also offer YOU a share of their search ad profits, and anyone else that wants to embed their search box on their Web page, device or what-have-you. So do other search engines.

          As far as I can tell, this is a plain reading of modern free-services business models from Google and just about everyone else, but to

      • by xzvf (924443) on Tuesday November 17, 2009 @10:42PM (#30138790)
        Less than free as in beer, less than free as in freedom?
      • Re: (Score:3, Insightful)

        by xant (99438)

        Google isn't going to force carriers to do things a particular way. They've created an operating system that's fairly easy to root and take over, so even the most stringent anti-customer policies will be broken pretty easily, just because of the OS. I pity the companies that waste development budget on trying to lock their phones down from now on, it's only going to get easier and easier to break out. My phone already has a completely automated, well-maintained 3rd-party OS distribution called CyanogenMo

    • by PitaBred (632671)
      No more so than Windows mobile, and at least you can get the source code for Android.
    • by Abreu (173023)

      The virtue of Android, from the carrier's perspective, is that it allows them to create terrible branded user experiences.

      And thus create a small industry out of people reinstalling the non-terrible, open source version of the same phone's software

    • Re: (Score:2, Interesting)

      by TooMuchToDo (882796)
      I just got a G1 from my brother to use for development. I thought it was very cool I could wipe the firmware from T-Mobile and put a custom mod on there that allowed me to move apps to the SD card, use WiFi tethering, etc. Show me another phone/OS environment you see that happen on.
      • by ceoyoyo (59147)

        Sounds very much like the experience on an iPhone, actually.

        Stock from the carrier some stuff is restricted. Jailbreak it and it's the wild west.

  • by Saint Stephen (19450) on Tuesday November 17, 2009 @09:40PM (#30138364) Homepage Journal

    or something...

    Let's see, using dominance in one market to establish dominance in another market. Check!

    • by cvd6262 (180823) on Tuesday November 17, 2009 @09:58PM (#30138482)

      When I first read this I thought about IBM back in the day. They could put a small company out of business simply by announcing, "Yeah, we're working on that too." And they had to fight off some well-founded lawsuits. Eventually, IBM became known for quiet and consistent R&D (Giant MR comes to mind) because they had to watch what they said.

      Will that day come for Google? I think not (or it's a long way off). IBM's issues with the courts came around the same time Ma Bell was dismantled, which couldn't happen now.

    • Horseshit. (Score:5, Interesting)

      by Ethanol-fueled (1125189) on Tuesday November 17, 2009 @09:59PM (#30138492) Homepage Journal
      The operative word being "dominant". Google isn't the only big-time company that obviously throws money at people to use their shit (remember MLB and Obama's inaguration streaming with respect to Silverlight?), but they might be one of the few to actually succeed at it.

      Bing is a joke, Yahoo is for 12 year-olds. If the other giants actually innovated instead of rehashing and hyping to death the same tired shit, maybe we'd have some real competition.
      • Re: (Score:2, Interesting)

        by lordmetroid (708723)
        The Japanese sure seem to like Yahoo! Maybe Yahoo is the only search engine that does not deliver insane search results when searhing in Japanese??? Anyone with experience that can clarify why Yahoo is big in the Japanese market?
        • by TikiTDO (759782)

          I am pulling this completely out of my ass, but I wouldn't be too surprised if some Japanese like Yahoo! just because it's named "Yahoo!" Some of those people are WEIRD.

          • Ohhhh-kay. I'll agree, some Japanese probably do just fall in love with the silly name. For all I know, the word "yahoo" means something in Japanese that really is cool. But - what excuse do all the rest of the weird people in the world have?

            Someone mentioned above that Yahoo is for twelve year olds. I would add all the clueless users of the world to that. From day one, I never saw anything on Yahoo that would induce me to use their services. On the other hand, I liked what I saw on Google immediately

        • Japanese are comfortable being bombarded. The main reason you saw the switch to Google early on was that the site was spartan. NA users switched fast, it didn't bug the Asian market too much. For a Japanese specific experience people hit up Goo. I think most people use Google now in Japan since iGoogle. I guess a lot of Japanese ppl like the everything on one page setup. Mostly I think people are just slow to move. People are all about phone tech and gadgetry... not so much computing experiences.
        • Re: (Score:3, Funny)

          by PachmanP (881352)

          The Japanese sure seem to like Yahoo! Maybe Yahoo is the only search engine that does not deliver insane search results when searhing in Japanese??? Anyone with experience that can clarify why Yahoo is big in the Japanese market?

          Any search redirects to tentacle porn?

      • by Blakey Rat (99501) on Tuesday November 17, 2009 @11:37PM (#30139246)

        Bing is not a joke.

    • by MosesJones (55544)

      That would make sense if you could demonstrate how they are leveraging their current "monopoly" (search) to dominate in another area (mobile phone OS, Sat Nav). This is VERY different from having a dominant (and convicted) monopoly in one type of operating system (desktop) and then using that to shift into other operating system areas (Mobile, Gaming, etc).

      Its the difference between GE and Standard Oil. Being GOOD at different things is fine.

      • by wvmarle (1070040) on Tuesday November 17, 2009 @10:31PM (#30138740)

        you are very happy to point out that MS is convicted for abuse of a monopoly position, which is true, but please try not to make it complete fud-style.

        First of all, having a monopoly is legal. Nothing wrong with that.

        Secondly, MS got only convicted way after becoming a monopoly, AND abusing that position to work themselves into other market. Your comment makes it sound like it's the other way around.

        Google can be argued to have a dominant position in search and online advertising, whether it qualifies as a monopoly you will have to ask a judge.

        This subsidising of an ad-supported operating system imho does reek of abuse of position in one market (on-line advertising) to push out competitors in another market (mobile phone advertising).

    • Re: (Score:3, Insightful)

      by Flammon (4726)
      No it's not. Having dominance in one market is a monopoly. Using dominance in one market to establish dominance in another market is an illegal monopolistic activity, in some countries anyway. Using a strategy that gave you a monopoly in one market, in another market is perfectly acceptable though which I think is what Google is really doing here.
    • by nephridium (928664) on Tuesday November 17, 2009 @10:42PM (#30138788)
      You're not thinking BIG enough. Their stated goal is to monopolise any and all information available and put it in easily indexed electronic form. This includes, obviously, YOUR data, i.e. where you live/work (through IP tracking, gEarth), what you're interested in (Search, Youtube), what you consume (Marketplace, affiliates), aka your net worth, and any means you use to communicate and access data, be it through your PC (gDesktop, Chrome OS), mobile (Android+apps) or any other conceivable device/network.
    • Nope. What market dominance did they need for this?
    • Maybe I'm blind (Score:4, Insightful)

      by symbolset (646467) on Tuesday November 17, 2009 @10:58PM (#30138928) Journal

      I fail to see the harm. In order for this sort of thing to be illegal, some user somewhere has to come to actual harm somewhere. Instead of paying through the nose for navigation information (much of which is already public knowledge), people get it provided by advertising sponsors like they get their free TV. There's room for free TV and cable also. As long as the other providers provide a premium experience and content, they'll be fine.

      Should they fail to provide a premium experience and content, they'll lose customers. Isn't that what's supposed to happen?

      In the article he points out that Google wanted to do some things with the data that they didn't want to let Google do. They told Google no. In the old world, where the buyer of that data had no choice that would have been the end of the story. But now, apparently Google has the resources to build their own data and publish it however they like - they're not held hostage by the vendor of their information.

      It seems fair to me that if Google takes the trouble to drive a car through and photograph every major intersection in the country, index it against their map, address and aerial photographs, they ought to be able to publish that data any way they like.

      In a world where we have monopoly after monopoly leveraging their power to prevent progress, here we have a powerful company leveraging its tremendous market power to cause progress to occur. I think that's fabulous.

  • Monopoly (Score:3, Insightful)

    by Nerdfest (867930) on Tuesday November 17, 2009 @09:44PM (#30138392)
    It's certainly a hard deal to pass up for carriers. Is leveraging like this considered to be approaching an abuse of monopoly for Google?
    • Can you explain what monopoly they have? It's a rhetorical question, they have none of course.

      With all you "true capitalists" running around babbling about how _you_ are the real capitalist because you want the government to "protect" the market, I'm sure that pretty much everybody will have a "monopoly" over something eventually.

      • by Eskarel (565631)

        That would be internet searching and advertising for 500 Alex.

        Yes there are other players in both sectors, but none big enough to matter.

        • Re:Monopoly (Score:5, Insightful)

          by RightSaidFred99 (874576) on Tuesday November 17, 2009 @10:23PM (#30138688)

          Ahh, another demand-created "monopoly". I find that concept just fascinating. Apparently in this day and age you can have a monopoly in something even when there are 50 alternatives just because the consumers overwhelmingly choose your product.

          I find this concept baffling. There's a low barrier to entry, and if Google raised prices enough advertisers would go elsewhere. If customers didn't like the search engine, they'll go elsewhere.

          This isn't what the antitrust laws were designed for, they were designed to prevent abuse of government granted monopolies or monopolies over physically limited (supply side) resources. There's no ethical or rational reason to define a monopoly as "being too successful in your field despite numerous competitors".

          When one power company or phone company uses anti-competitive tactics to drive out their competition I'm all for going after their asses, but most applications of antitrust law nowadays are just bullshit crybabyism by competitors.

          • Re:Monopoly (Score:4, Interesting)

            by Chandon Seldon (43083) on Tuesday November 17, 2009 @10:45PM (#30138824) Homepage

            The world "monopoly" here is being used to mean "market power". This is common usage.

            A firm having market power means that the market is broken. Firms abusing market power in one market to create market power in another market is a serious problem.

            Whether simply having market power due to lucking out with the network effect is something that anyone should be given shit over is arguable. On the other hand, market power gained through abuse of government regulation is a serious issue that needs to be fixed.

            Google's power seems to come mostly from economies of scale, somewhat from network effects, and hardly at all from government regulation.

          • by int69h (60728)

            Nothing wrong w/ having a monopoly. You only run afoul of antitrust laws when you abuse it. Is Google classified as a monopoly yet? I dunno, but if they're not they're approaching it.

          • by kjart (941720)

            Ahh, another demand-created "monopoly". I find that concept just fascinating. Apparently in this day and age you can have a monopoly in something even when there are 50 alternatives just because the consumers overwhelmingly choose your product.

            So by that logic Microsoft wasn't a monopoly due to the existence of many distros of Linux? The problem isn't becoming too successful, it's using your success in one market to break into another: i.e. bundling things with Windows and, in this case, allegedly exploitin

          • Re: (Score:2, Informative)

            by Anonymous Coward

            I find this concept baffling. There's a low barrier to entry, and if Google raised prices enough advertisers would go elsewhere. If customers didn't like the search engine, they'll go elsewhere.

            Are you seriously saying there's a low barrier to entry on internet search?

            New data center spending:

            2006 - $1.9 billion
            2007 - $2.4 billion
            2008 - no sources?

            Why would the invisible hand let a company take in 3 times their operating costs year after year? Surely if there is actually a low barrier to entry somebody out there would settle for just a measly 200% markup.

            But don't let rational thoughts stop you, or the fact that there are only a few companies in the West that could even buy the hardware to compet

          • Ahh, another demand-created "monopoly". I find that concept just fascinating. Apparently in this day and age you can have a monopoly in something even when there are 50 alternatives just because the consumers overwhelmingly choose your product.

            Then how do you, as a matter of law, divide between "good" monopolies that just provide the best service for customers and "bad" monopolies that use armtwisting to get ahead?

            What about companies that do both to get ahead in a single market?

            What happens when a company gets its lead position in one market the "good" way and then uses its power in that market to leverage its way into another market that it normally wouldn't be able to compete well in?

            Because that's what our laws against tying are about. I'm n

  • Wouldn't that be more than free?

    • Re: (Score:3, Informative)

      by Urza9814 (883915)

      No. You get more, yes. But free doesn't describe what you get, it describes what you pay. And you are paying a negative amount. Therefore it is less than free.

        • Re: (Score:3, Insightful)

          by Urza9814 (883915)

          Mathematically you can - any time someone pays you you are effectively paying them a negative amount. Sure, physically you can't, but when has that ever stopped a slashdotter's argument? :)

          That's also the only possible way 'less than free' would make any kind of sense at all. And 'more than free' can't possibly be what's being referred to in this article - I mean, if the price is more than free then the price has some positive value, so you are paying for it.

        • Re: (Score:3, Funny)

          by unfunk (804468)
          The billing system for a contract I was recently on tried to bill a customer for negative 33 pence. That is, it didn't try to credit him with 33p, and it didn't send him a notice saying "you owe us -£0.33" - it put through a request to his bank to deduct negative 33p from his bank account.

          Needless to say, when I discovered this, I immediately rang the customer and advised them to check if their bank was still there or not. Then I took two aspirin and lay down for a while.
      • Re: (Score:2, Interesting)

        by Narcogen (666692)

        C'mon, it's not just that. Yes, you get paid to use something, which makes it "less than free" in the sense that you are paying a negative sum-- you are receiving money. Since you have to use the closed-source version, and because carriers want access to this to take control over the handset's UI, it also means "less than free" in the sense of being less free, and allowing for less freedom.

    • Re: (Score:3, Insightful)

      by Penguinshit (591885)
      As in beer. The cost is less than free because you get paid to drink the beer.
    • by DMiax (915735)
      The problem is using the word "less" with something that has no clearly quantitative value. OP could have said "costs less than zero" or "cheaper than free" getting no ambiguity.
  • Or is that "More than Free"? I'd consider getting a free operating system AND revenue to be MORE, not less... but perhaps that's semantics.

    It seems like somebody was desperate to write an anti-google story. He seem to be highly suspicious of the carriers for daring to want to compete with the iPod and the Blackberry; than, he seems to be surprised that Google PAYS people to use the version of the Android OS that Google actually PROFITS from.

    There's nothing really nefarious here. It's how it was int
    • by Zarel (900479)

      Or is that "More than Free"? I'd consider getting a free operating system AND revenue to be MORE, not less... but perhaps that's semantics.

      Another poster suggests "better than free", which I think is the least ambiguous way of phrasing it.

      It seems like somebody was desperate to write an anti-google story. He seem to be highly suspicious of the carriers for daring to want to compete with the iPod and the Blackberry; than, he seems to be surprised that Google PAYS people to use the version of the Android OS that Google actually PROFITS from.

      The story doesn't seem very anti-Google at all; in fact, reading TFA (omg shock people do that? etc), it seems that he's praising Google for their ability to disrupt (i.e. out-compete) their competitors. I mean "Google’s brilliance doesn’t stop there" doesn't sound very anti-Google at all.

      • >> Another poster suggests "better than free", which I think is the least ambiguous way of phrasing it.

        But the whole point of TFA is to be ambiguous and somehow prove an open source and free mobile OS as something less desirable. So, a clever spin and you have got 'less for free'.
    • by Mikkeles (698461)

      Well, less is more, more or less.

  • by improfane (855034) on Tuesday November 17, 2009 @10:02PM (#30138520) Journal

    The one thing about Google you have to understand is that they employ lots of very smart people: they employ scientists, research graduates, economists, technicians and business people. They have calculated with sheer intelligence all business moves: they know what they need to do to get the best business and business position.

    In short, they are the foundation. Eventually they will collect all human knowledge and make the encyclopedia that encompasses all human knowledge... this is just a rouse for the real purpose of Google...

    I wonder if they employ psychologists?

  • by Akira1 (5566) on Tuesday November 17, 2009 @10:11PM (#30138590) Homepage

    Navteq was aquired by Nokia.

  • by sphantom (795286) on Tuesday November 17, 2009 @10:23PM (#30138682)

    It's only a matter of time before Android takes over top market share for smartphones, the only real question is how long it takes. Now before you start screaming fan boy, bear with me here.

    - Android is free
    - Android can run on almost any piece of modern hardware, on any carrier (you listening Apple? probably not.)
    - Every major carrier and every major smartphone maker either already has an Android phone, or has one in the works
    - Being open source, carriers and smartphone makers can customize it as little or as much as they want
    - Once smart phone makers are hooked on free, the only reason to dump Android is if there's a better mobile phone operating system out there that's worth the cost. Tough to do considering Android will be constantly approved upon given it's open source. Seriously, why dump Android to pay a per unit license fee when Android can do everything most smartphone users want their phone to do (and more in some cases)?

    Some disclaimers apply here:
    - No I don't have an Android phone, but yes I've used it enough to be familiar with it (including 2.0).
    - I don't think its 100% there yet, but it's not far.
    - Apples UI design is definitely better.

    I'm sure some will disagree with me, and that's fine. Obviously this is my opinion and a guess. If you're looking for some ammo though, I use a Pre, switched from an iPhone and am pretty darn happy with it.

    • by jaxtherat (1165473) on Tuesday November 17, 2009 @10:44PM (#30138808) Homepage
      Aren't those the same arguments used when talking about the superiority of Linux on the desktop, and yet we still have less than 5% market share?

      Just sayin'
      • Re: (Score:2, Insightful)

        by sphantom (795286)

        Absolutely! Linux on the desktop does share many of those common points. The key thing that distinguishes the two is that (in my opinion) Linux on the desktop doesn't actually compare well to Windows from a user's perspective. Unfortunately one of the major factors when deciding between the two is a dependency in what a person is used to. Fortunately, Android has FAR less of a battle to win in the smartphone space given how relatively simple phones are compared to computers and how poor Microsoft's offering

      • Re: (Score:2, Insightful)

        by Anonymous Coward

        The difference is that all the telecom companies aren't in Microsoft's pocket from the start.

      • by 0123456 (636235) on Tuesday November 17, 2009 @11:05PM (#30138960)

        Aren't those the same arguments used when talking about the superiority of Linux on the desktop, and yet we still have less than 5% market share?

        Unlike the desktop, people don't have 20 years' worth of weird old DOS and Windows apps that they 'need' to run on their phones.

        Plus I don't believe that Linus is paying companies to install Linux on their PCs yet.

    • Re: (Score:3, Insightful)

      by MrMista_B (891430)

      "- Apples UI design is definitely better."

      Yep, well, you just defeated your own argument.

      • by macshit (157376)

        "- Apples UI design is definitely better."

        Yep, well, you just defeated your own argument.

        Not really. It's not enough for the UI to be "better", it has to be significantly better to offset Android's other advantages, and as far as I've seen, it isn't (unlike, for instance, the ipod, where the competition often seemed laughably incompetent).

        The iphone's real advantage at this point, is simply mindshare; I guess we'll see if that's enough to keep them on top.

      • Re: (Score:2, Insightful)

        by PPalmgren (1009823)

        Windows did not dominate the OS market by superior design, but by superior approach. MS built a platform and let any hardware manufacturer use it. Google apparently read their tech history and is taking the same approach MS did a few decades ago, with the open factor as icing on the cake. I expect the rewards to be huge.

        Shiny and marketing only go so far.

        • by mjwx (966435)

          Windows did not dominate the OS market by superior design, but by superior approach. MS built a platform and let any hardware manufacturer use it. Google apparently read their tech history and is taking the same approach MS did a few decades ago, with the open factor as icing on the cake. I expect the rewards to be huge.

          I've said this for a while now, Android will do for the mobile phone what Windows 3.1 did for the personal computer. Yes Apple may have had the first popular PC but it was Windows that put

        • Re: (Score:3, Informative)

          by Ash-Fox (726320)

          Windows did not dominate the OS market by superior design, but by superior approach.

          Well, that and Apple also helped them a lot by suing the majority of OS developers that had anything resembling a GUI, thus eliminating the majority of their competition. It was only a little later Microsoft employed various "anti-competitive" tactics against the remaining systems out there.

      • by mjwx (966435)

        Yep, well, you just defeated your own argument.

        tsk, tsk, fanboy.

        Whilst I disagree with the GP's part about Apple's UI being better (personally I think it was in there to appease the fanboys with mod points) better does not imply that the competition is poor, to elaborate the GP implied that Androids UI is good but Apple's is better, this does not automatically imply that Androids UI is bad in any way.

        Now Apple's UI is akin to that of my older Nokia's, an entirely menu driven system except you use a

    • Re: (Score:3, Insightful)

      by ironwill96 (736883)

      Arguably, Apple has had great success by having a completely closed system which is why the argument that Android will succeed because it is open is such a fallacy in my opinion.

      Android may be great, but its implementation is different on every Android phone. Different hardware, different features, different amounts of android functionality. You don't really have a consistent user experience any more than you do with Windows Mobile. Also, I bet that apps will not run the same across the hardware since so

      • by dch24 (904899)
        But PC's did take off.

        It's not that your points aren't valid, but Apple's vertical solution (or Sony's PS3, or Nintendo's Wii, or any of the other locked-down vertical solutions) eventually hits the limit of customers who can swallow the lock-down, and stops growing. (So Macs will never be as numerous as other OS's IMHO.) Yeah, we'll have to suffer with all the competing vendors supplying "Android" phones. Still, somehow, we'll muddle through. Good standardization will help. Individual vendors will shine
    • These are the same sort of arguments proving that everyone will be running Linux on their desktop by . . . five years ago.

      Maybe things will be different on cell phones.

      -Peter

  • by distantbody (852269) on Tuesday November 17, 2009 @10:30PM (#30138730) Journal
    ...It's bad enough that they crawl though emails to find advertising targets, but the OS is one of their biggest plays yet to analyse every piece of seemingly benign and anonymous user data and assemble a specific user profile. Think about that: one company; the single biggest commercial data-miner knowing many of your details and habits and inferring others. Would they try to extract every possible profit out of that? Personally the last data-mining straw from google was them wanting my mobile number to create an email account. For verification? Yeah right... Wouldn't they just love to add that to the profile.
  • by JohnAllison (838880) <johnallison@gma[ ]com ['il.' in gap]> on Tuesday November 17, 2009 @10:46PM (#30138838)

    Please note, kdawson,

    The day Google announced the free turn by turn navigation coincided with the day both companies announced corporate losses.

    Who's to say how much either news contributed to the stock drops. I can't, and ignoring said fact skews the story. Bad editor, bad, bad.

  • Borgle. (Score:3, Funny)

    by Snufu (1049644) on Tuesday November 17, 2009 @11:33PM (#30139196)
    Embrace. Extend. Beta.
  • is essentially "a friend told me...."

    pardon me while i call bullshit against your un-cited source.

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