Google’s motto is “don’t be evil.” But its recent acquisition of Waze, reportedly for $1 billion in cash, shows that just because you’re not evil, it doesn’t mean you can’t be aggressive in pushing the boundaries of the law.
The question now is whether the U.S. government pushes back and forces Google to give back its new toy.
Waze is yet another one of those blockbuster deals for a technology company with little or no revenue that makes you jealous. Five-year-old Waze has just 110 employees, so Google appears to be paying almost $10 million per employee. As for profits, Waze’s chief executive, Noam Bardin, has said, “This is Silicon Valley. We don’t talk about those things here.”
Google is paying top dollar for Waze because it is at the intersection of two hot fields: map search and social media.
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Users download Waze’s app to their phone and then supply information about locations, routes and traffic, making the maps more intelligent.
And Waze has the usual phenomenal growth in users, with 50 million worldwide. This is a field where there is believed to be oodles of money to be made in related advertising.
From this vantage point, the deal has a number of “must” business justifications for Google. Google is the top dog, dominating mobile maps used on smartphones, and Waze makes Google a bigger dog.
Exact figures are unavailable, but it is estimated that Google has a majority of this market, ahead of other big players like Apple, Microsoft and Waze itself.
A billion dollars not only cements Google’s lead in map search, it does so in a big way. Google has paid large sums to have cars drive around the world to give its maps information content. But Waze is doing the same thing on the cheap by having its own users do the work.
Both types of systems are difficult and hard to build, meaning new entrants are unlikely to come. Just witness the difficulties Apple faced with the controversy over the accuracy of its own map app. If Apple can’t do this easily with its built-in user base of some 400 million iPhone users, not many others can.
So one might think that there would be significant antitrust issues with the acquisition. Google, already the dominant player, is buying what looks like its biggest competitor, and it is doing so in a way that deprives other big players an easier way to compete.
It’s here where Google is pushing as hard as it can on the law.
Normally, to acquire a company in the United States, a buyer is required to supply the Justice Department or the Federal Trade Commission (FTC) with what is known as a Hart-Scott-Rodino filing. This notifies the agencies of the transaction so either can review it for compliance with the antitrust laws.
According to a person close to Google, the company skipped the Hart-Scott-Rodino filing by relying on an exemption.
This filing is not required if the acquisition is of a foreign company that has sales and assets in the United States of less than $71 million. Waze is an Israeli company with headquarters in Silicon Valley, so it comes under this test.
Given that Waze is worth $1 billion, it is hard to see that the value of its intellectual property in the U.S. business doesn’t meet the test. And the FTC has previously taken the position that companies must include this type of intellectual property in informal guidance.
Nonetheless, Google appears to have taken this aggressive position and is forgoing any antitrust review, instead plunging ahead with the acquisition.
So why did Google do this?
A representative from Google declined to comment.
Google may be playing hardball with the government here. Psychologically, it may be harder for the government to undo something that is done.
And once Google acquires this company, it will become harder to force it to undo any integration it may have done with its own services. (For now, Google has said it will keep Waze separate.)
But given the publicity over the acquisition, the government will almost certainly step in to review.
Consumer groups are circling, and the Consumer Watchdog Group has written the government to ask for an in-depth review. That group has noted that Google’s purchase of Doubleclick and AdMob led it to a 93 percent market share in mobile advertising.
As with previous deals, the government can force Google to sell Waze or put other restrictions in place, if there is a problem.
The standard was set forth in a piece of legislation passed a century ago: Will the acquisition “substantially lessen competition”? In part, this will come from how the market is defined — if it is just maps, well, you have to include companies like Rand McNally.
Even if Google can show that this deal does not decrease competition, the acquisition can be unwound if Waze is found to meet Justice Department guidelines as a “firm that plays a disruptive role in the market to the benefit of customers.”
Waze is shaking up the market here, so the authorities will pursue this line of investigation.
At the least, this all means that the Waze acquisition is likely to get a thorough review by the government. The battle will now begin.
That Google will keep Waze without restrictions is no certainty.
But the government faces a challenge. If it does decide to try to unwind this acquisition, Google is going to push the bounds of the law as hard as it can.
The future of map search is at stake, and Google may not be evil, but this is business.