Rumors have been flying for the past week that Facebook (FB) is in advanced negotiations to acquire Waze, the crowdsourced maps and navigation system. Rumors say that the price under discussion is between $800 Million and $1 Billion, and that the current sticking point is whether the company's ongoing R&D and operations will remain in Israel or move to California.
First, though, a little perspective. In August, 2012, there were also rumors that Facebook might acquire Waze. Those rumors ended with Waze adding more Facebook integration to their app, but no acquisition. Then, in January, 2013, there were rumors that Apple was going to acquire Waze. These rumors also petered out with no acquisition. Now again the rumors are spreading. Is the third time a charm? Or will these rumors go the way of the previous ones?
Unfortunately no confirmation has been forthcoming from either side. We have to wait and see - either the news will break soon, or these rumors as well will peter out into nothingness, until new rumors start in a few months.
But why would Facebook want to acquire Waze? Most articles have been giving the simple answers that Facebook wants to "expand its mobile expertise," add maps to Facebook Home, "map out local search and ads," "speed up their mobile ad revenue stream," and so on. While these are all good things, they don't really explain why Waze in particular is worth the rumored price.
I think that there are three big reasons that Waze would be a strategic acquisition for Facebook: Mobile stickiness, social location and commerce support.
First, Waze is a mobile app that users run and stay in for long periods of time when they're mobile. Facebook is an incredibly "sticky" application on computers - people go on Facebook and stay on Facebook. This is a big part of their success. But, on mobile, people tend to go in briefly to share or update, or check their timeline, and then go out when they do other things on their phones. Waze is a much stickier application - many people keep it open whenever they drive, which can be hours each day.
This stickiness translates into money. On a simple level, the more time people spend in a mobile app, the more ads they can be shown. But for Facebook and Waze, there is much more involved. The more time people spend in a location-based app, the more the app's owners can know about the person's location. If a Facebook-owned Waze helps me drive to work each day, then Facebook's app can show me advertisements related to my workplace even when I'm at home. If I use Facebook-owned Waze to drive to a lot of movie theaters or restaurants, then Facebook can show me related ads regardless of where I am at the moment.
It goes even deeper than that, which brings us to the second reason that Waze would be strategic for Facebook: It would enable a huge jump in social location.
Facebook has made a number of efforts in social networking based on real-time location. The reason is clear: If I'm being social on-line with friends, wouldn't I often want to be social with friends that are nearby? Facebook's mobile apps have had variations on "who's near me" for some time now, but they haven't caught on that well, partly because, as we said above, friends of mine who are in fact nearby are likely not to be in the Facebook app at that moment.
Facebook is known to be researching methods of improving their social location features. They are researching new methods of tracking the locations of their mobile users, and also new methods of notifying mobile users when they are near their friends. But these methods will still only work when mobile users are using Facebook, either running the mobile app or sharing content from their phones. If Facebook acquires Waze, they'll have an incredible amount of new data on where users are going. This can facilitate "who's near me" features, location-based messaging, "view my friends on a map" features (already supported by Waze), and much more location-based social networking that will be a natural and valuable fit for Facebook.
Third, this location data, along with Waze's mapping and navigation, can enable Facebook to integrate even more into commerce. If a Facebook-owned Waze knows when I get to a new city or neighborhood, in addition to showing me an ad for a local business there that fits my interests, they can tell me how long it will take me to drive there, taking into account real-time traffic conditions, and also offer me directions for how to get there. Moreover, if friends of mine have recommended a nearby restaurant, Facebook can give me a promotion for the restaurant whenever I'm nearby, again along with directions to get there.
All in all, Facebook's acquiring Waze would be more than just upping their mobile presence - it would enable several of their strategic directions.
Taking this reasoning one step further, it looks like Waze is a much more strategic acquisition target for Facebook than for Apple (AAPL), who was rumored to be eyeing Waze a few months ago. Waze would also enable some big new features for Apple, but nothing as strategically significant as it would for Facebook.
What about Google (GOOG) as a Waze acquirer? Certainly everything written above could apply to Google as much as to Facebook. Google is starting from the opposite end as Facebook but working towards the same goals - they have the popular mapping and location applications and are trying to gain a strong foothold in social networking. But for this reason, a Waze acquisition would help Google less than Facebook - it would improve what they have and move mapping in a social direction, but since they already have Google Maps, Waze wouldn't be as transformational an acquisition as it would be for Facebook.
What about Microsoft (MSFT), the other ten-ton gorilla in this space? With Bing Maps less successful than Google Maps across the mobile market, acquiring Waze would give them a big jump in the mapping and navigation area. But they're not positioned, yet, to leverage it for social networking, as much as they may want to. And Microsoft's profit comes from software more than services. So again a Waze acquisition seems less significant for them than for Facebook.
Other major players are certainly moving into these areas. Intel (INTC) is getting into the mapping and navigation space, with their acquisition of Telmap. Telmap's recently-released M8 app delivers mapping and navigation, and is specifically designed to integrate with other services. Qualcomm (QCOM) has a number of technology initiatives in the location area, but is not yet offering services directly to the market. Yahoo! (YHOO) would presumably like to strengthen its maps offering, but is likely in too much of a challenging position themselves these days to compete with Facebook or Google on acquisition prices.
Bottom line, Waze looks like a perfect strategic acquisition for Facebook, more than for other major players. If the rumors are true, Facebook seems to agree, and is now debating maintaining Waze as an R&D center in Israel. While the news articles are relating to this as a hard decision for Facebook management, an R&D center in the so-called start-up nation might be a strategic move for Facebook as well. Faced with the need to innovate in the mobile area, an infusion of new innovation mentality might be an added plus in the deal.
If the deal goes through, we have some exciting developments on the horizon for a Facebook+Waze combination. Will Facebook grab this opportunity for mobile stickiness, location data, social location and location-based commerce?