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Waze Purchase Helps Google Inc (GOOG) Beat Apple Inc. (AAPL) in Location Data

A couple weeks ago the U.S. Patent and Trademark Office released a patent filing by . This patent filing describes a process allowing users to rate and alert other users about different streets and routes.

Google WazeThis process is almost identical to the one Waze performs. Before Facebook and began their bidding war for Waze, it was actually Apple Inc. (NASDAQ:AAPL) that was working to purchase Waze. That deal eventually broke down after Apple’s $500 million offer, and resulted in Google Inc (NASDAQ:GOOG) purchasing Waze for $1.3 billion. This patent filing shows, however, that Apple did not back out of the deal because it did not value the technology. Apple merely felt it could build the technology cheaper themselves. The amount of interest in Waze demonstrates the value of crowd-sourced mapping.

I published an article recently detailing the Google Inc (NASDAQ:GOOG) ecosystem, and how this business model feeds off itself. Waze is a prime example of Google further expanding this ecosystem. The focused business decisions Google Inc (NASDAQ:GOOG) makes is what separates Google from competitors. Waze is a product that perfectly fits the mold of what Google does. By its very nature it collects personal location data much more efficiently than Facebook’s check-in function or the iPhone’s location services function. All this data strengthens the moat around Google Inc (NASDAQ:GOOG)’s digital advertising business.

To put the $1.3 billion price tag into perspective, Microsoft Corporation (NASDAQ:MSFT) is burning over a billion dollars a year establishing a foothold in search; meanwhile its primary business is in hardware and software. Yahoo! Inc. (NASDAQ:YHOO), a digital media company dependent on display advertising, recently ventured into social media buying Tumblr for $1.1 billion. These ventures cost the same as Waze, yet are not as tied to the acquirers’ core business.

Imagine a metropolitan area where every driver uses Waze. Everybody would constantly be driving the most efficient route possible and receiving updates about changing traffic situations. Anybody not tuned in would be left to their own devices. Much like Google Search and YouTube changed the way we look for information or videos; it is not unfathomable that Waze could forever alter our daily travel habits.

In Waze’s privacy policy, as outlined by Eric Markowitz, is a section that details how Waze retains the right to your location data. Everything from your route patterns to the time you spend at various places will be stored to better serve Waze. Waze has an annualized user growth rate of 77%. If Google Inc (NASDAQ:GOOG) clears FTC (Federal Trade Commission) hurdles the growth should be even greater as Google fully integrates Waze with Google Maps. While a current analysis of revenue off impressions shows that Google Inc (NASDAQ:GOOG) may have a long way to go to make back what they paid for Waze, I believe Google is the one company that can monetize Waze best.

Back in 2006 Google Inc (NASDAQ:GOOG) paid $1.65 billion for YouTube, a company that had pulled in around $5 million in revenue in its first 18 months of existence.  Today YouTube is expected to generate $4 billion in revenue for 2013, and $20 billion by 2020.  Waze is at a similar stage of development and revenue as YouTube was when Google first purchased it. It is not unreasonable to see Waze generating significant revenue and driving stock price in the future the way YouTube is now. Beyond Waze as an advertising platform; the personal location data gathered will be important in the coming years.

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