How Google Ruined Waze and Consolidated Mapping
The founder of Waze now publicly notes that mergers are inefficient.
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Noam Bardin, the founder of Waze, wrote an important piece on what Google did to his firm after acquiring it. Effectively, Google took over an innovative startup with employees focused on a mission, and bureaucratized it into a failing subsidiary.
We quickly learned, the hard way, that we could not get distribution from Google. Any idea we had was quickly co-opted by Google Maps. The Android app store treated us as a 3rd party, there was no pre-installation option and no additional distribution. We did have a lot more marketing dollars to spend but had to spend them like any other company, except we were constrained in what we could do and which 3rd parties we could work with due to corporate policies. All of our growth at Waze post acquisition was from work we did, not support from the mothership. Looking back, we could have probably grown faster and much more efficiently had we stayed independent.
There are three main points, which I bolded. The first is that Google bought Waze to kill it, which is why Google Maps got both default installation and copycatted Waze’s feature set. Second, Google imposed a restraint of trade on Waze by blocking it from deals it otherwise would have done. And third, the merger was inefficient. There are other parts of this essay which show that Waze was handing over its data to Google, and that Google’s post-acquisition strategy was to ossify the acquired company. But the most important part of the story is that the merger destroyed value.
One theme of the traditional law and economics world is that mergers are efficient, otherwise business leaders wouldn’t engage in them. This has been institutionalized into something called “error-cost analysis,” which was introduced by a lawyer named Frank Easterbrook. The idea here is that stopping mergers that should be allowed to go through, a so-called ‘false positive,’ is far more harmful than letting a merger go through that leads to a monopoly. After all, the market naturally tends to undo harms from monopoly, but judges condemning bad mergers will lead to firms abandoning attempts to merge even if those mergers would be a good idea.
If that sounds confusing and stupid, don’t worry. It is. It’s also how a lot of antitrust lawyers and judges think about the world, and they do so in confident tones despite their detachment from reality.
At any rate, Google bought Waze and ruined it, then it massively raised prices for developers who rely on Google Maps. And the market hasn’t fixed the problem.