As my colleague Tony Rizzo (News - Alert) has chronicled, the Google acquisition of Waze has been compelling to say the least. The interest in the 100-person Israeli mapping company (with 50 million users) has been intense since it was in play on several scores. Its ability to provide real-time alerts of traffic conditions and well-reasoned projections on estimated times of arrival (ETA) is an invaluable resource for the combatants in the mapping wars, i.e., Apple and Facebook (News - Alert) to name two big ones. Plus, the acquisition raised eyebrows both in terms of the valuation as well as angst from consumer groups.
Apparently heeding the concerns of consumer groups, the U.S. Federal Trade Commission (FTC) has decided to look into the matter, and as The Guardian is reporting, despite the FTC being mum on what it is or is not going to do, Google (News - Alert) has confirmed the investigation.
Market dominance challenges continue to plague Google
This is just the latest in a spate of actions that have raised the concerns of competitors, regulators on both sides of the Atlantic and consumer advocates as the Google juggernaut continues to pick up steam. These include for example:
Oh to be a Google attorney. Life may be a challenge for Google but it appears to be a legal annuity stream.
Image via Shutterstock
How bad is the latest investigation?
Before everyone gets too excited over the Waze investigation, a little context is in order since this may turn out to be more pro forma than a real problem. Under U.S. law companies are required to notify the government before closing most major transactions. However, Waze's annual revenue of $70 million was too low to trigger the automatic review. That said, Waze, which relies on its users to crowd source traffic data, probably did not help the cause here when its founder Uri Levine said:
There are only four companies in the world that can create maps, and it's an expensive business: Nokia (News - Alert) (News - Alert) and TomTom, which have acquired companies for billions of dollars; Google; and Waze. Of these four companies, Google and Waze do not care how much it costs to keep the maps up-to-date: Google because it has a lot of money, and Waze because it relies on the community.
The FTC (News - Alert), whose job it is to look at and possibly block deals that could "substantially" harm competition, no doubt took that statement into consideration once the consumer groups noted their problems with the deal.
As others have noted, while it would be unusual for the government to force a company to nullify a merger after it has already been completed, the fact that this is Google certainly weighs heavily on what the final outcome may be.
For its part, when it made the acquisition Google did say that for the time being it would keep Waze as a separate entity, i.e., it would in essence maintain an arm’s length distance to avoid just this type of investigation. What Google shareholders are going to be watching is whether the FTC at a minimum decides to keep the two companies totally separate until it can sort things out.
As I have written on numerous occasions when history is written about this stage of the evolution of the Internet, it is likely to be characterized as “The Battle of the Ecosystems.” The big one are obviously Google, Apple, Microsoft (News - Alert) and Facebook, with others (including what happens ultimately with Twitter) lurking in the background. Each combatant brings some advantages to the table. However, for quite some time Google has been particularly adroit in using its dominance in search—some clearly would say abuse that position rather than smartly leverage it—to optimize its market position.
The end game of all of this ecosystem building is to create an “E”vironment that we never leave. Indeed, it was for this reason that the success or lack thereof of Google+ has been closely watched as an indicator of how much of our Facebook face time Google can erode. The reason is MONEY. If we feel no compunction to ever leave an ecosystem, to the victor will go the spoils. In fact, it is a virtuous circle where advertisers flock to the ecosystem that most people prefer. We then end up basically in a situation where we trust the dominant supplier to not take undue advantage of us as customers.
Since the dawn of the Internet, it has always been maintained that nobody could monopolize it. That does not mean that commercial interests are not going to try. It also means that policy makers are going to keep their eyes open as things evolve and make course corrections they deem to be in the public interest should it appear that innovation and competition are at risk.
It is in this context that despite its size, Waze is a non-trivial piece of the puzzle. The company’s CEO is likely correct about the limited number of entities with the manifest destiny and resources to compete in the mapping and real time location-based services business. In other words, if Google is allowed to engulf Waze, it is likely to be hard to catch, and users will have limited choice.
That is where the FTC comes in. This is not about a short-term problem, but has much broader implications down the road. It is way too early to speculate as to where the FTC interest may lead. Nevertheless, this is one to watch closely. There is a lot more at stake here than first meets the eye.