Google’s $1.1 Billion Purchase of Waze Under FTC Scrutiny

June 26, 2013  - By
Kevin Dennehy

Kevin Dennehy

In a year of ho-hum location deals, or the lack of any, the recent Google purchase of Waze for more than $1 billion is a big one. In fact, readers of GPS World magazine’s LBS Insider would have to go back to the summer of 2007, when TomTom purchased Tele Atlas and Nokia bought Navteq, to find an industry acquisition as big as this one.

The Federal Trade Commission is reviewing Google’s $1.1 billion acquisition of Israel-based mapping startup Waze, according to published reports.  The big issue is that while Waze’s revenue was too low to trigger automatic review by the FTC, it may have hundreds of millions of users worldwide.

The fact that Google’s acquisition of Waze has caught the FTC’s attention is not unusual, said Mike Dobson, TeleMapics president, who authors a location industry blog at “Google, in an attempt to speed the acquisition, declared that the assets of Waze based in the United States are worth less than the $70.9 million that requires an antitrust review. Google maintains, and I agree, that the majority of the [intellectual property] for which they were willing to pay $1 billion was created in Israel, where it is currently located, and in that location it continues to be revised and enhanced,” he said.

One of the supposed reasons, which were publicized in media reports, is that the deal with Facebook fell through because the social media giant wanted to relocate the Waze development activities to the U.S. and the Israel-based company declined.

Google’s purchase of Waze ends months of rumors and stops other suitors, including Facebook, Apple and Microsoft, from moving in on the mapping startup. Google has said that its mapping technology will be incorporated into Waze.

The Waze deal may strengthen Google, but won’t be the deciding factor on whether it has an unfair advantage in the [location] market, said Marc Prioleau, president of Prioleau Advisors. “They will have that regardless of Waze. I am not sure the criteria for the FTC, but I think Waze is just a spark to trigger a look at Google’s mapping position overall,” he said. “The FTC will have a hard time making the case that Google dominates the industry when Google can point to market share for Apple Maps, Nokia/Here [through its own sites as well as Bing, Amazon, Facebook and others] and even MapQuest, which stubbornly hangs on to a high market share with the over-50 demographic.”

When it comes down to it, it is all about money. “It appears that the FTC’s preliminary interest in the Google acquisition of Waze is in determining if the U.S.-based assets are worth more than $70.9 million, and whether or not Google’s position regarding the Waze IP being located in Israel is justified,” Dobson said. “Many would argue that a considerable portion of the value of the Waze IP affects consumers in the United States, resides on cell phones of users in the United States, and has a functional impact in the United States beyond the $70.9 million that Google is claiming. Functional impact is a difficult issue, but since Waze generates little income, Google is probably in a good position here.”

Dobson said that other pundits are commenting that the problem here is that Noam Bardin, Waze CEO, described Google as its only competition during a recent press conference. “Oh, how unusual, someone selling their company trying to increase the value of the company,” he said. “Has everyone forgotten about Nokia and TomTom? Does anyone really think they are incapable of competing with Google, Waze or the combination of both companies?”

Google Made Strategic Decision Not to Buy Tele Atlas and Navteq                          

Dobson said that, more troubling for the FTC and other antitrust interests, is this:  If Google wanted to monopolize the mapping world, why did it not choose to bid (or counterbid) when Navteq and Tele Atlas were sold in 2007?

“I think the answer to this question is quite plain. Google did not participate in either acquisition because it had tried both companies’ data and found that the content quality and spatial coverage was not quite what Google had set as goals when developing its strategy for mapping. Instead, Google built its own ‘map machine’ and has managed to out-innovate either of these companies over the last several years,” Dobson said. “In addition, both Nokia and TomTom have fallen on hard times, not because of Google’s success, but because both companies overpaid for the assets they acquired, just before a worldwide economic downturn. Reduced budgets (for research and compilation) at TomTom and Nokia have had a lot to do with Google’s success in the mapping world.”

The big deal in Google’s interest in Waze lies in the success that the mapping startup has had in capturing traffic information, as well as how it has attracted a large user community willing to contribute traffic data, Dobson said.

“I doubt that Google will find that the map coverage provided by Waze has data they have not already mapped and mapped more exhaustively than Waze. However, it is somewhat camp to be an ‘anybody but Google’ fan boy and I suspect conspiracy theories about the acquisition will abound,” Dobson said. “I doubt that the FTC will find anything actionable. If Google were to announce next week that it was acquiring Inrix, I suspect that the FTC might have a real case with real antitrust issues.”

While Waze hasn’t generated much revenue, its real-time maps and traffic information are valuable. This value was magnified last year when Apple tried to replace Google Maps on the iPhone with a not-so-good alternative.

Analysts are looking around at what other companies are out there as potential acquisition targets — particularly as the smartphone industry becomes even more competitive. The apps on the smartphones will need to be distinguishable, particularly the mapping systems and capability, say several analysts.

One company that stands out as a potential acquisition target is TomTom, which is the last independent provider of digital maps, now that Navteq was gobbled up by Nokia.

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1 Comment on "Google’s $1.1 Billion Purchase of Waze Under FTC Scrutiny"

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  1. In my opinion Waze’s success and interest to someone like Google is that they have a captive audience of users who a) own and use a smartphone, b) drive a car and therefor fall into a favorable LSM bracket, c) are willing to share their location in real time and d) are frequenting the very same cities where the bulk of ad revenue is generated.

    This is just a great place to serve up very targeted ads as well as determine consumer behavior and Google is very well positioned to turn a profit out of this acquisition. Their mapping may well be of secondary interest to Google and Facebook.