With a different business model, Google is entering and disrupting different industries by giving away software and services for FREE. In those industries, competition was traditional, based on features and price. But now, you can have the same features, sometimes even more, and all come for free. Just few examples: Google Android is open source and FREE. Google Map Navigation (turn by turn navigation) is now FREE and offered (at the moment) for Android 2.0 devices and in USA. Of course, this is not really FREE, money will come from other channels, in this case from advertising.
But how do compete in these cases? How should “traditional” companies react? Coming from a different industry and with a different business model is quite disruptive from the incumbents.
I do not have the answer to those questions. Certainly, companies must now offer a significant reason to pay for their products and services. For most people a good-enough-offer for FREE is just fine. Companies should also be creative and maybe take some ideas from Free of Chris Anderson. See the previous posts on Free!, Monetization in the Internet, excellent survey on the most popular business models.