Waze: Traffic, navigation and mapping taken to their maximum expression Waze owns an excellent community-based traffic and

navigation app (available on the iPhone and Android platforms). Unlike Google Maps, Waze maps can be edited by users. The Waze community is quite active in editing the maps by putting police alerts, accidents, road hazards or traffic jams. This information is shared by other drivers in real time and could be very valuable: some drivers are using it on a constant basis to find the cheapest gas stations in their routes.

So, the best way to understand Waze is as a Google Maps with a lot of social mechanics and gamification involved. Naturally, this causes users to be more engaged, and although I have not obtained information regarding Waze's engagement metrics, I expect them to be higher than in the case of Google Maps. However, Google Maps is far superior in terms of reach metrics. To begin with, the Waze project started in 2008. Google Maps, on the other hand, is about 4 years older: it started as a C++ program designed by two Danish brothers (Lars and Jens Rasmussen) at the Sydney-based company Where 2 Technologies, which was acquired by Google in October 2004. Also, it is important to note that the Google Maps rich API allows many

developers to use Google Maps in their applications, and this further increases the reach of Google Maps indirectly. In the case of Waze, the current API only enables external URLs to invoke the Waze client application. Furthermore, Waze does not have the marketing budget and connections that Google does. This is crucial: Google Maps became ubiquitous only after the iOS incorporated it by default. All these issues are solvable. If Waze can afford more map editors, increase its map database and develop a rich API, reach metrics will explode. Just imagine a Waze with the same amount of maps as Google Maps: many would replace Google Maps and migrate to Waze, due to the social features and additional relevant information about traffic and nearby interesting locations. In 2012, Waze was made by a community of 36 million drivers who shared more than 90 million user reports. This shows that Waze is growing its user database at an amazing rate: by the end of 2011, it only had 10 million users. Editors (users who are active in sending reports) were also increasing quickly: a 40% month over month increase was reported by the end of last year. By now, the company should have a 50 million user database.

Implications for Google: "Buying Waze is all defense but great defense wins championships" At first glance, this acquisition seems nonsense because Google already has Google Maps, the most widely used map application in the world. If compared with Google Maps, Waze is a baby in terms of metrics. Furthermore, if the acquisition price is $1.3B and we assume that there are

about 50 million Waze users by now, Google would be paying $26 dollars per user, which is way too expensive. But things make more sense if we assume that a post-acquisition Waze would have access to Google's marketing budget and Google Maps database. By having a more complete base map, Waze could accelerate the speed of its user database growth. How much is Waze worth? We know that the Waze user database grew to approximately 50 million users from 36 million users in half a year. This represents an astonishing 38.9% growth rate in half a year. If we assume that the growth rate will stay the same until Waze reaches 150 million and we also assume that the acquisition by Google will have no effect on Waze's user growth rate (which is highly unlikely), Waze will have approximately 70 million users by the end of this year. By mid 2014, Waze will reach 100 million users and by the beginning of 2015, 150 million users. Let us assume the worst scenario to obtain an estimate of Waze's potential revenue. I assume that the user base will stop growing once it reaches 200 million users (by the end of 2015). Furthermore, assuming that an average user will check her Waze twice a day (60 times per month), 200 million users are equivalent to 12 billion impressions per month. Not all of these impressions can be monetized. This is because Waze only charges advertisers when their business pin is shown in the map, which happens quite often in the U.S. and Israel, where maps are very rich in content, but not so often in other countries where Waze's presence is still limited. Therefore, assuming a 40 - 41% conversion rate, we can estimate that about 5 billion impressions per month can be monetized. Pricing Strategy of Waze: How much does Waze charge as cost per mile (CPM)? We checked the Waze pricing wizard to obtain a reference. We are based in INDIA and therefore Waze's maps are quite poor in content. Based on my location, Waze suggested a bid of $1.00 - $1.10 (Waze uses a bidding system). This confirms that my location map is very poor (the lowest bid is $1/CPM). To be conservative, let's assume that for 1000 impressions Waze obtains, on average, $1.5 and spends 20 in operating costs. This leads us to a

$1.3/1000 impressions potential income. Under these assumptions, Waze can generate $7.5M per month in advertisement revenue ($90M per year), or $6.5M per month in net income ($78M per year). Notice that our assumptions are very pessimistic, to say the least. After all, I am assuming that Waze's user base will stop growing after it reaches 200 million users! But it is always good to analyze the "worst scenario." And under this scenario, it would take Google 16 years and a half to recover its investment. How does Google Waze deal happen? Google is nothing if not clever. And although it just spent a cool billion buying Waze which would normally trigger an antitrust review it was able to skirt the review and close the deal, thanks to an exemption that (1) is obsolete and (2) probably ought to be removed from the regulations. The rule concerns the purchase of foreign companies with less than $70.9 million in sales or assets in the U.S. Waze basically has no revenues, so the sales threshold was easy to skirt under. According to law professor Steven Davidoff, wrote that: Given that Waze is worth $1 billion, it is hard to see that the value of its intellectual property in the United States business doesnt meet the test. So what happens after deal? Resistance to this deal has been strong in some quarters. When it was announced the group Consumer Watchdog was especially negative: With the proposed Waze acquisition, the Internet giant would remove the most viable competitor to Google Maps in the mobile space, wrote privacy project director John Simpson to the FTC. Approval of the Waze deal can only allow Google to remove any meaningful competition from the market If the acquisition comes before the you, I urge you to reject it in the strongest possible terms. As Davidoff noted, though, Google and Waze together dont lead the market for smartphone navigation (Telenav does, barely) even though they are both growing fast. So on the grounds of straight up monopolization, its going to be difficult to make the case this is purely anti-competitive. In that respect, in fact, the Avis-Zipc merger looks similar. Yes, an established player is buying a fast-growing, innovative upstart. No, they wont

automatically rule the world. But clearly, there are important differences between Google and Avis that leave this deal vulnerable. There are Justice Department guidelines, Davidoff explained, that allow the merger to be unwound if a firm plays a disruptive role in the market to the benefit of customers. Wazes social-traffic and mapping model certainly does that, having attracted 45 million users who often rave about it. Even more damning, though, were Waze CEOs Noam Bardins own words: We feel that were the only reasonable competition to [Google] in this market of creating maps that are really geared for mobile, for real-time, for consumers for the new world that were moving into. That phrase only reasonable competition, may have been hyperbolic, but expect the government to latch onto it in the coming weeks. And expect also there to be some fallout for Googles decision that something worth $1 billion didnt possess $70 million in intellectual property and therefore require a pre-purchase review. There is a subtle and important question here: When is it not OK for a company to acquire technology rather than invent it? Silicon Valley firms buying missing pieces all the times. What the law doesnt typically like is doing that when youre already too powerful in that particular arena. Google Maps feels like it qualified as already too powerful but the case will turn on how the government defines the arena in question. It may feel arbitrary, but the case to break up this deal is pretty overwhelming. An investigation could run months. In these lightly charted waters, though, the government could push for a rapid resolution. One outcome here is some form of consent decree, in which Google agrees to share data from Waze with third parties. It basically has promised to keep Waze independent and said it woud share the data with Googles own mapping and navigation services; it could do the same with others. Waze might yet have a new route to chart. If Waze's CEO Is Right, Google Won't Be Allowed To Buy His Company??? After dancing with Apple and Face book social navigation company Waze is said to be ready to settle down for good with Google in a reported $1.3 billion deal. It seems like a coup for Google, which already dominates mapping and navigation apps on mobile devices thanks to the strength of its Android operating system and its terrific apps on Apples iOS. But it doesnt seem too soon to bet against this acquisition ever going through as regulators seem likely to pounce on the words of Wazes own CEO Noam

Bardin, who basically called Google his only competitor at last months D: All Things Digital conference. Without weighing in on the merits of antitrust actions, lets be clear on something: The laws on the books in the U.S. and European Union have been enforced, lately at least, with some renewed aggressiveness. The Clayton Act, in particular, put in place restrictions on mergers where, the effect of such may be substantially to lessen competition, or to tend to create a monopoly. People often confuse the various antitrust laws as making monopolies illegal. They dont, but a century of case law has frowned strongly on a company with any particularly strong market share acquiring companies that would allow it to gain anything resembling monopoly control in another line of business. And thats where Bardins own words might well sink this deal in the hands of regulators. What search is for the Web, maps are for mobile, he said at the All things conference. The searches you do on mobile that actually are monetizable, and are different from the Web, are searches that have to do with location. He described the map as quite literally the search tool for mobile. Taken to its logical conclusion, Bardins thesis is that the blank search box of the desktop web is becoming the search bar on the map. And in a fundamental way, hes right. Increasingly, we want to know whats nearby, how do we get to where were going, who is around us. Waze and Google are both fundamentally trying to tap into all of those needs. We feel that were the only reasonable competition to [Google] in this market of creating maps that are really geared for mobile, for real-time, for consumers for the new world that were moving into. This is going to be a problem for combining the two, whatever one believes about the state of competition on mobile. Google already has 93% of the online advertising market, through mobile versions of its search ads and through the tiny display ads you see in many apps and third-party sites placed via Googles ad network. The flap over Apples decision to replace Googles maps with its own centered around the quality of those maps, but lost in the discussion was why it was done in the first place: Apple felt like such an essential service couldnt be outsourced to a third-party any longer. The Department of Justice recently buried the would be merger of AT&T with T-MOBILE and seems likely to take a long, hard look at this deal given the market power of Google in online advertising as well as online mapping. While its true that map data is available from other sources, notably Tom Tom, Garmin , and Nokia , its similarly true that the Waze methodology is unique and special.

Because Waze gathers data from millions of users who voluntarily improve the information on a real-time basis, its not easy to simply go out and replicate its functionality if it disappears. Unlike a photo-sharing app where the lack of fellow users simply means less content to admire, a navigation app without real-time traffic and accident data at this point wouldnt be very useful at all. Baseline navigation for free was enough to get Waze users to try the app out 5 years ago and since then its grown to 45 million users who have driven billions of miles with the app running. Thats made it a valuable company that everyone seemingly wants to marry and grow old with. Google has made the best offer, but the two might never get to the altar.