June 12, 2013: After weeks of rumors, Google finally won the Waze Dot Race, paying an estimated $1B for the Israeli-based traffic start-up. Since Google already has traffic, maps and a team, the move has been described as a “blocking” move; a move to keep Waze out of the hands of Google’s rivals who might want to use it to build competitive service in the mapping, navigation and traffic markets.
If it is a blocking move (and I think that’s a good partial explanation. For more talking head stuff, see here), it begs the question of what precisely are they blocking…what do they want to tie up, away from competitors, that is worth that much money?
What they’re not blocking: The Waze app.
The Waze app has had a lot of success, with 47+M downloads and an undisclosed number of active users. It has a lot of passion in the user base as seen in the comments about the deal. But I don’t think Google paid that much just to keep the app out of the hands of others like Facebook or Apple. It’s a good app but not a $1B app. I think the app will do well and that the Google navigation user base will drive more adoption. I think there’s a nice tie in to Google’s ambitions with Google +. But Google could have built that on its own for a lot less.
The Real Target: Independent Map Data
Google is killing it in the mapping world, arguably pulling away from the competition. They are doing this significantly because they own and control their own map data. They can build great, interactive map features without having to worry about either paying the commercial map vendors or hassling with their terms and conditions. They can update the data at will and design highly interactive user experiences without worrying that they have to pay for all those map “transactions” that others have to pay. In the future, this independence will give them an increasing advantage to build better experiences. And significantly, they will also collect much more data than their rivals.
Google’s biggest risk in maps is that someone else copies that advantage.
Waze was doing that by using driver traces to build a map database of the road network. Think of it as if every driver were an Etch-a-Sketch point, writing a trace on a blank sheet. Multiply that by millions of drivers, driving tens of millions of miles, give it time and you draw a road network. Add some hard work and you pull out things like turn restrictions, road categories, etc. It’s hard and fraught with issues (see excellent Mike Dobson piece), but according to people who should know, they were doing it. And it was Waze’s property.
Buying that data set, plus the Waze team, would give a competitor not only a jump start into a mapping platform (the software that draws the maps, geocodes, routes, etc) but also to a proprietary map data base layer. That’s something rare and hard to do. Apple has the platform but not the data (they use TomTom and others). Yahoo and Microsoft use Nokia. No one else, except Nokia and TomTom own their own data.
Google didn’t need that data. They have their own. That’s not why they did this deal. But buying Waze makes sure that none of their competitors get a head start in covering that competitive advantage.
That’s what they were blocking.
Where does that leave the others? Companies like Facebook, Amazon, Samsung, Microsoft, Apple and others who may want to own the mobile mapping data? Those options are another blog, but they look like this:
- Play as aggressively as you can with the commercial map data providers
- Buy one of the commercial map data providers
- Start from scratch and build your own
- Use OpenStreetMap. You won’t own it but you will get a map that’s may become the best in a short time.
What do you think? Is that what Google was blocking? What am I missing?
Marc, agree with your assessment. One other “contributing argument” is to think of Waze as a clean way to get to the user in-car. Undoubtedly Google has been spending years in “partnership discussions” for distribution to the in-car user with the auto manufacturers. I’d bet those discussions provide endless frustration.
If, indeed, Waze has a 10% penetration of LA area drivers – they will win more going down this path for the in-car use cases than they could ever hope to with alliances with the auto makers. Faster, cheaper, with full UX and monetization control.
Having been involved in a “Newton app” that was integrated into the Ford 1993 dashboard-of-the-future project, I’ve advised anyone who asks to run away from dealing with the auto makers!
Good points, Perry. Google has had several in- car press releases but little real traction. Maybe that’s better said ” in-dash” traction. They already have a huge installed base in the “on-knee” category. Indirectly, you raise another useful point: blogs tend to take a “This is THE reason” tone. In fact, there are many interesting combinations with these two companies.
Very interesting point – especially in the week that Apple announced a tie-up with 12 auto manufacturers.
Yeah, but how many of these auto announcements have you seen that never come to market? Google has done at least a half dozen. Perry’s comment on the perils of working with Auto OEMs is well taken but I had a private comment from an auto OEm guy saying “Ok, we’re not great…but have you ever tried to work with Google???”
Marc, I think you’re spot on. While the social engagement and defensive maneuvering are clearly big drivers of the deal, I think another question to ask is how much is Google spending annually to keep its maps up to date? Waze has figured out a way to do this much more efficiently and cheaply than Google hiring and driving cars around the world perpetually, staffing huge teams of map makers, etc. For Google to keep its maps up to date for the next 10-20 years and beyond, the capital outlay will be huge. If they save $50 million per year (a guess) on a $1B acquisition of Waze, thats a decent ROI on the investment off the bat. When you compound that with the fact that they a getting a great mobile-first social network, an area of major weakness for Google, and in addition, keep one of 5 map base layers out of the hands of competitors, it all starts adding up.
Perry makes a good point above, but I think Google has already made some inroads with car OEMs, and licensing waze’s real-time data will be a good ancillary income stream for this deal
Hi Elliot, there’s been a lot of questions about the ROI on this deal from Google. I’m not sure they looked at it from that perspective but I agree, the cost of maintenance is staggering. Mike Dobson (who I think knows more about this than anyone) thinks some combination of crowd-sourced input and curation is the way to go.
There area lot of pieces that go into this. It probably doesn’t hurt that Kleiner is on both boards either!
I think you are spot on in your analysis. The move here is primarily to maintain the lead, and keep the next best platforms so far behind that they have to bleed money for many many years before making a dent to Google’s dominance.
Big loss for Apple, Microsoft (who seems to have been absent during the rumor cycles around Waze), and other platform players.
Hi Miten. I’ve got a blog partly written in my head about how to get around the block…in other words, what other options would these platform players have if they also wanted to develop their own alternative to Google. Getting in an arms race with Google seems like a bad move but it’s going to take some vision on somebody’s part.