Platform Wars. Google’s acquisition of Waze


Today’s tech giants are in a battle to become the platform of the future.

  • Facebook is extending beyond being a social media website by adding features in groups to increase work productivity, exploring virtual reality with their acquisition of Oculus Rift
  • Apple introduces Apple Pay and makes a serious move into the payments industry
  • Google acquired Waze in 2013.
  • Yahoo! acquires basically everything

All of these firms continuously make acquisitions, for different reasons. I’d like to analyze the Waze acquisition by Google with you because it has a perfect fit for the course material of the last week concerning platform envelopment.

What’s Waze?

Waze is a GPS-based geographical navigation application program for smartphones with GPS support and display screens which provides turn-by-turn information and user-submitted travel times and route details, downloading location-dependent information over the mobile telephone network. It was developed by the Israeli start-up Waze Mobile, which was acquired by Google in 2013. [1]

What’s Platform Envelopment?
Envelopment can occur when platforms providers who serve separate markets are sharing users and/or components. [2] These two images from the lecture will clarify envelopment:

Screen Shot 2014-10-21 at 13.06.52 Screen Shot 2014-10-21 at 13.07.13

Waze offered a similar product to Google Maps, however has successfully differentiated itself from competitors by excelling in user-engagement; user-submitted travel times, map improvements and other datapoints enabled Waze to offer real-time traffic information and rerouting in case of accidents/traffic.

The mechanism of envelopment is bundling:

  • Efficiency gains: transaction and production cost savings, improved user experience
  • Price discrimination: reduces heterogeneity in consumers ́ aggregate valuations
  • Strategic advantages: extend market power into complement market; protect core market by

    foreclosing rivals’ access to key complement

When looking at Google and Waze, the acquisition may have one of the four (main)reasons[3]:

  1. Waze’s user engagement: As mentioned earlier; Waze has a lot of user engagement which Google can use to try and implement this same effect at its own navigation app.
  2. Keep Waze away from competitors: Some acquisitions are made with more defensive reasoning; by acquiring Waze, Google has kept its technology and employees away from companies such as Facebook and Apple. Apple has been making steps in the navigation market and Facebook might consider following suit.
  3. Extra features: Next to the user engagement mentioned in point 1, Waze has features that Google Maps currently lacks; report accidents, police presence, speed cameras and blocked roads. Google could use Waze to integrate these features in its own product.
  4. Use Waze to replace Google maps: This is a strategy that has been used by Microsoft before when it acquired Skype for $8.5 billion in 2011. According to Globes, ”Microsoft, which had a rival product called Messenger closed it not long afterwards and currently offers Skype as its solutions for both Internet conversations and immediate messages.”. Google could replace its current Maps app by Waze in the long-term. This seems tricky since Google Maps is a highly successful product at the moment and changing that for another product makes the relative switching costs for users lower at that point in time; They have to move to the Waze product or can choose a competitor’s product at that moment (they have to change product anyway).

I believe the fact that this keeps Waze’s technology away from competitors is a nice (extra) benefit, but that Google will use this acquisition to heavily improve its own -already successful- navigation app to create the ‘next generation’ application in GPS-based Geographical Navigation. This feeling is also strengthened by the fact that Google has been investing in self-driving cars for a while now; navigation services are extremely interesting to bundle with these self-driving cars and adding real-time information to that could be a big leap in improving the technology of self-driving cars.

Which of the reasons seems most logical to you? 

Sources:

  • [1]http://en.wikipedia.org/wiki/Waze
  • [2]T.Li Lecture Week 7
  • [3]http://www.forbes.com/sites/petercohan/2013/06/11/four-reasons-for-google-to-buy-waze/
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: