Facebook Inc (FB): What Is Waze?

Is Facebook Inc (NASDAQ:FB) looking to add its own digital mapping service to the largest social network in the world? Recent reports that the company could pay up to $1 billion for crowdsourced Israeli mapping company Waze appear to confirm that Facebook plans to roll out its own maps service to rival Google Inc (NASDAQ:GOOG), and to reduce its dependence on maps from Microsoft Corporation (NASDAQ:MSFT) Bing.

Facebook Inc (NASDAQ:FB)

If the deal goes through, and Facebook Inc (NASDAQ:FB) acquires Waze’s 47 million global users, then a huge paradigm shift that affects Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), Microsoft and Yelp Inc (NYSE:YELP) could soon occur.

What is Waze?

Although Waze has 47 million registered users, Swedish market research firm Berg Insight claims that it only has 12 million to 13 million active monthly users. By comparison, Google Maps has 30 million active users, Telenav Inc (NASDAQ:TNAV) (which powers a large percentage of GPS devices) has 25 million, while Apple Inc. (NASDAQ:AAPL) Maps has approximately 5 million. Waze was originally conceived as a simple way for drivers to share road conditions with each other via their smartphones.

Waze operates very differently from other mobile navigation apps, which draw data from Google Maps or Nokia Corporation (ADR) (NYSE:NOK)’s Navteq Maps, since it uses its own maps compiled from crowdsourced data. Each Waze user helps collect traffic and road data which is sent back to the company to dynamically improve its maps. In addition to traffic data, Waze users contribute other information, such as where to buy the cheapest gasoline. Waze also provides turn-by-turn navigation for mobile users.

What Waze means for Facebook

Waze and Facebook Inc (NASDAQ:FB) already have an existing partnership, signed last October, that allows Waze users to share their driving routes with Facebook friends. While Waze initially seems like an odd fit for a social network that generally relies on social connections and local business check-ins, there is much more at stake.

First and foremost, acquiring Waze would grant Facebook Inc (NASDAQ:FB) independence from Microsoft Corporation (NASDAQ:MSFT)’s Bing Maps, which are powered by Nokia Corporation (ADR) (NYSE:NOK)’s Navteq technology. Bing Maps are nowhere near as popular as Google Maps. Facebook users who weren’t satisfied with Bing Maps went so far as to develop special apps, such as Facebook Panda, to replace Bing Maps with Google Maps.

Facebook Inc (NASDAQ:FB) could also smoothly integrate its “Nearby” check-ins and ratings system into Waze maps. Therefore, Waze would not only offer directions and gas prices, but also ratings of nearby restaurants and entertainment venues favored by your friends. By doing so, Facebook could horizontally integrate itself with Waze’s crowdsourced database, since Facebook is built upon a business model in which its users do all the heavy lifting by sharing their visited locations.

In addition, advertisers might pay Facebook for in-map advertisements, like virtual billboards, which could unlock a whole new stream of mobile advertising revenue.

Facebook Inc (NASDAQ:FB) also recently reported that its Facebook Home replacement launcher, which covers the Google Android system with a Facebook skin which prioritizes new photos, status updates and Facebook’s messaging system over Android’s native apps, has been downloaded over a million times since its launch last month. With Home, Facebook can cover up Google Maps with Waze Maps for a tighter social experience.

What Waze means for Yelp and Google

Integrating Waze into its social network of 1.1 billion users would be an extremely disruptive move from Facebook. As I mentioned in a previous article, Yelp Inc (NYSE:YELP) and Google Inc (NASDAQ:GOOG) are headed towards a major war in location-based recommendations services. While Yelp uses customer reviews and ratings to categorize businesses, Google draws from professional reviews from Zagat and other Google users’ opinions to rate nearby businesses.

Facebook has a distinct advantage here. While users can’t directly search for nearby “coffee” or “sushi” businesses in Facebook search, they can easily find local businesses recommended by friends, which carry much more weight that anonymous reviews on Yelp Inc (NYSE:YELP), which may have been written by paid freelance writers or by the businesses themselves.

Facebook users have an average of 245 friends. That means that if they travel locally or to a distant locale, it will be easy to follow their friends’ footsteps to more trusted businesses.

Why Apple also needs Waze

Therefore, Facebook’s bid has attracted a lot of attention from Google and Apple. Apple Inc. (NASDAQ:AAPL), which is still recovering from its Apple Maps fiasco, could benefit the most from a dedicated non-Google maps platform. The company’s iPhones and iPads are the second-most used mobile devices in the world after Android, but they are still inseparably tied to Google Maps. Integrating Waze’s map system and real-time traffic updates could help improve Apple Maps considerably and decrease Apple’s dependence on Google Maps.

Waze CEO Noam Bardin once stated that Apple “showed us how to fail.” Bardin claimed that the Apple Maps debacle was caused by its dependence on partnerships with outside GPS services, which made it “difficult for Apple Maps to actually stand on its own two feet and compete with Waze or Google Maps.”

Therefore, many analysts have speculated that Apple might make a play for Waze as well. Back in January, reports were circulating that Apple was planning to purchase Waze for $500million. However, nothing came from those initial reports, which had claimed that Apple was already in “advanced stages” of acquiring Waze.

Now that Facebook has made a play for Waze, it will be interesting to see Apple’s next move. On one hand, it could allow Facebook to take over Waze, adding its maps to its iOS Facebook app at no additional cost. On the other hand, it could play hardball and easily outbid Facebook with its massive cash reserves in order to resuscitate Apple Maps.

What now?

If the deal goes through, then it could be Facebook’s largest acquisition to date after Instagram, which was bought with $1 billion in cash and Facebook stock (now worth $715 million) in April 2012.

However, there are some hurdles that could halt the deal.

Waze, which is based in Ra’anana, Israel, has its offices and the bulk of its workforce in Israel. Facebook would likely prefer to move Waze’s operations back to the United States or to integrate it directly into its overseas offices, which could be a point of contention between the two companies.

Facebook is reportedly also doing its due diligence on the deal, since Apple reportedly wasn’t willing to increase its bid to $750 million earlier this year, which means that Facebook could be seriously overpaying for the company.

The Bottom Line

If Facebook takes over Waze and intelligently integrates its crowdsourced functions, then it could seriously beef up its location-based sharing services. Check-ins would no longer seem like pointless location broadcasts, and would actually serve a purpose in guiding friends toward preferred establishments. Facebook would gain a whole new universe to advertise in, which could grow its mobile advertising revenue even faster than previous projections.

In other words, combining with Waze could create a serious threat to Google Maps and recommendation sites like Yelp, and help advance Facebook’s ultimate goal of being an all-seeing eye in the sky that oversees all of its users interactions and travel patterns.

The article Why Facebook is Crazy About Waze originally appeared on Fool.com is written by Leo Sun.

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