Google Maps, Waze, and Network Effects
Implications of the merger between Google Maps and Waze.
Whenever I drive, my dad reminds me to “ignore Waze at your own peril.” Clearly, my old man has tremendous confidence in the guidance provided by Waze. No small feat, considering my dad has been commuting through horrendous New York City traffic for over two and a half decades—that’s longer than I’ve been alive! I prefer the UI of Google Maps and find its integration into my car’s HUD less obtrusive. That said, it has led me astray in the past whereas, while I don’t know the counterfactual, my dad insists Waze would not have failed me.
As I learned from the above handy-dandy WSJ video on the subject, Alphabet, Google’s parent company, has owned Waze since 2013. That is, it acquired Waze (for $1.3B) but did not merge the app into Google Maps. Now, with advertising revenues falling, Google is moving to merge Google Maps with Waze. In merging the two apps’ staffs, Google is seeking to reduce costs and increase efficiency by encouraging cooperation between the two teams. Still, dissolution of the standalone Waze app is not expected to happen for some time still.
Why wait to really merge? Folding the two apps into one would be a way to enhance the network effects the former uses to calculate traffic volume and the latter to locate obstacles, cops, and other hazards. While this action may aggravate the Waze loyalists, initially, Google would surely integrate the best features of Waze into Google Maps. By having access to a single, larger network of users, these features would be even more up-to-date, informative, and useful. In the case of strong network effects, the intrinsic value of having the choice between two inferior solutions is outweighed by integrating the two to create a single superior product. The DOJ, if it seriously prioritizes consumer welfare, should consider the benefits from increased network effects instead of myopically obsessing about the Herfindahl (market concentration) and Lerner (market power) indices.
I, for one, look forward to the day when I no longer have to argue with my dad over which app to use. I’ll have my Google Maps UI, he’ll have his Waze algorithm, and the world will be at peace.