The quote, most likely due to writer and philosopher George Santayana, plays out in many markets today. In an earlier post, I discussed how Vanderbilt exerted a point of strategic control in railroads during the Industrial Revolution and asked the question will history repeat? Well, a recent example may inform this debate.

After a recent talk at the Yale CEO LATAM Forum Miami, the CEO of one of the largest insurance companies in Latin America came up to me right before lunch and said, “I hate Google.” I responded by saying “that sounded pretty harsh” and asked why he felt so strongly. His response was both simple and telling. He said that Google was “extorting much of my profits.” He claimed that, via our cell phones, in his home country, Google has the ability to show that Guillermo has a heavy foot on the gas, Luis doesn’t leave enough space between his car and the one in front, while Carlos respects all traffic rules—including speed limits. Therefore, armed with such data from Google, insurance companies can now better match the risk-rate profiles of their customers and charge premiums for drivers who are higher-risk.

However, as you can imagine, Google wants a significant “cut” of the resulting profits. In fact, he claimed that if he didn’t “pay up,” Google threatened to sell similar information to competitors; thus, he would be at a significant disadvantage vis-à-vis their rivals. In sum, Google owns a key strategic control point (SCP) in this industry—data on drivers’ locations and speeds—and is demanding a cut of insurer’s margin as a result.

There are many things that Google’s parent Alphabet must have in place in order to exert such margin pressure. Primarily, of course, they need to be able to access the data. In the example above, Google is accessing data via operating systems (i.e., the Android OS) and a location-based app (i.e., Google Maps). According to the insurance executive, over 90 percent of the phones in his home market use one and/or the other, which, combined, give Google access to movement data for over 90 percent of drivers on the road. So, Google has slowly been building the infrastructure to gather and own the data that they need to extract margins from this insurance executive’s company.

This begs a number of questions, not the least of which are the following:

  • Given recent global debates on privacy ranging from Facebook’s Cambridge Analytica scandal to the European Union’s recent GDPR (General Data Protection Regulation) initiative, is Google’s parent Alphabet merely repeating the history of Vanderbilt’s Hudson Avenue Bridge?
  • Will data and privacy law parallel the development of US Antitrust legislation passed 100 years ago?

See https://www.linkedin.com/feed/update/urn:li:activity:6437667028089217024 for a discussion …