Why Google Wants to Spend $1.3 Billion on Waze, a Social Mapping App

Waze is powered by users, who win points for pinning notifications onto its mapping software. As you can see, it’s got NYC down pretty well, but the maps aren’t perfect everywhere.

The current steamy hot startup acquisition rumor is that Google is going to drop more than $1 billion to buy social navigation app Waze. But why would Google, whose Maps software dominates the smartphone space, even drop the cash? Having used Waze a bunch, I can safely say that it’s a rad app. But more than that, Google trying to snatch up a new map startup is an attempt to keep it from the competition. That, more than anything, highlights the ridiculous economics of Silicon Valley: Google’s down to drop a cool billion bucks just so competitors can’t play.

That’s not to say Waze isn’t worth anything. The Israeli startup says it has nearly 50 million users globally, which would make the deal terms (reportedly around $1.3 billion) similar to Instagram’s, which sold to Facebook for $1 billion with, at the time, close to 50 million users.

Waze also says that close to 90 percent of Israeli drivers use it, which suggests that with more presence in the US, its adoption rate could be huge. And to be clear, smartphone navigation is a huge deal right now because automakers are starting to give up trying to develop their own nav units in lieu of the better-designed, faster computers in our pockets.

New York-based writers are discussing Waze like no one’s heard of it before, which makes sense because NYC is hardly the target market for nav apps. But back in my home state of California, it was popular even in 2011. (My mom actually turned me on to it.)

On a long cross-state drive on I-5, Waze’s features are awesome: Aside from the maps, users are encouraged (with imaginary internet points) to point out car wrecks, slowdowns, police checkpoints, you name it. It all pops up on your smartphone screen and takes the guesswork and frustrating traffic jams out of long drives.

Waze maps highlight problems added by other users.

Navigation aside (users are encouraged to update/fix maps as you go along, which admittedly can be hit or miss), Waze is valuable because it’s an app people would actually use on their daily commute. Remember, this is something that even Google had trouble figureing out, as its traffic estimates feature was dropped in 2011, only to return a year later. By instead focusing on individual incidents—a crash on the 405, people highlighting a car stopped on the side of the road on the Jersey Turnpike—it allows users to make judgements of traffic problems, which is easier to figure out than broad, data-driven traffic estimates.

Of course, as fellow California transplant Meghan Neal said in a Motherboard email chain, Waze’s social mapping can be a real pain in the ass, especially in a city like LA where there are generally zero freeways that aren’t under some sort of construction. But combine the good social aspects of Waze—turning traffic alerts into a game—with Google Maps could be a winner, and could be just the thing to get people to use their smartphones as nav units on every drive.

That offers up all kinds of tantalizing opportunities for ad delivery, including a refined version of the targeted ads like Kia showed at CES with its Subway partnership. Just imagine: You’re driving along, and Waze tells you to take a detour to avoid traffic. Lo and behold, as you swing by Domino’s on your new route, a coupon pops up on the screen to try to entice you to buy a greasy death pizza. (And you do, because pizza is the only thing getting you out of bed in the morning.)

At CES, Kia showed off a deals network (complete with NFC card payments) built into its next-gen nav platform. Something similar for Waze could make an uncomfortable amount of money. Photo: Derek Mead

But does Google really need Waze? Absolutely not. It’s got years of mapping excellence under its belt, it’s already on just about every smartphone out there, and it has experience with data-driven traffic prediction. Sure, Waze could add social features to Google Maps, perhaps in a similar fashion to its purchase of Zagat, but Google could also do the same on its own.

For Waze fans, it’s possible that it will remain its own app, which is silly until you think about why Google is most likely buying it: Just to keep it out of Apple and Facebook’s hands. Google is by far the top dog in mobile mapping software, and it has plenty of resources to develop new features to compete with startups. But Apple and Facebook don’t, which means both would be far better off spending some of their billions to buy a map platform that already works.

Both have been rumored to be circling Waze in the past, but does either really want it? Apple, for one, doesn’t really need map software, especially a finicky crowdsourced one to follow up its own mapping debacle. I’m sure Apple would love to rid itself of Google completely, it would be buying Waze as a project to try to get its own mapping software up to speed, not as a turnkey system. (Also remember that Apple fired its Maps project manager.)

Richard Williamson, that fired manager, ended up at Facebook, a firm that really could use its own maps platform. Facebook has been looking more and more local with its ad model, and adding Facebook Maps could make all kinds of location-based ad delivery possible. More than any of the three, Waze could actually do Facebook some good.

Yet right now Google and its rumored $1.3 billion offer is on top. Aside from the positives Waze offers Google, that sounds like a lot of money just to keep a shiny toy away from your competitor. But remember that Google has around $50 billion available for mergers and acquisitions, which makes taking a huge target off the market relatively cheap. 

Following on the heels of SnapChat’s $500 million valuation, the potential Waze deal makes clear that Silicon Valley still has insane bundles of money to throw around—as long as you’re one of the few people at the top.