What Waze Might Mean For Google

| About: Alphabet Inc. (GOOG)

So Google (NASDAQ:GOOG) is buying Waze. After almost a year of Waze acquisition rumors, it's now confirmed (here and here) that Google made the acquisition. The easiest explanation going around is that they wanted to improve Google Maps and deny Waze to Facebook (NASDAQ:FB). But there's much more.

Waze, for the uninitiated, is a mobile mapping and navigation system, with a social twist. As millions of Waze users drive around, Waze tracks their movement, including how fast they're driving, and uses all this movement and speed data to infer traffic conditions at every point along roads. If dozens of cars are moving slowly at one point, traffic is flowing slowly there. If they're stopped on the highway, there's something blocking traffic. Waze adds to this millions of reports that Waze users, or "Wazers," sent in from their phones, informing Waze where there are traffic jams, accidents, police speed traps, and more. Besides reporting all of these data to other users, Waze's navigation algorithms route users the fastest way given the current and changing traffic conditions. When there's an accident on the Parkway holding up all traffic, Waze will take you on the Turnpike instead. Waze has other features as well, such as user submission of map changes, routing drivers directly to their friends, sharing locations on Facebook or on-line, routing groups to Facebook events, and more, but their automatic routing based on traffic conditions is their biggest differentiating feature.

We've now had nine months of Waze acquisition rumors. First, in August, 2012, rumors broke that Facebook was going to acquire Waze. Then in January, 2013, rumors broke that Apple was going to acquire Waze. Then in early May the rumors returned to Facebook acquiring Waze. Then at the end of May rumors shifted to Google's acquiring Waze. These final rumors have now been confirmed.

Some are casting doubts on all the rumors, cynically suspecting that they've been leaked to motivate other buyers and drive up Waze's usage numbers. But there's no real reason to doubt that each rumor reflected serious negotiations that didn't succeed.

All of Waze's social features, with some new ones released in the past few weeks, make it a perfect fit for Facebook. Besides fitting Facebook's social agenda, Waze could bootstrap Facebook's entry into mapping, navigation and serious location-based services, as well as strengthening their overall position in mobile. But Facebook's talks with Waze fell apart, reportedly because of the Waze team's insistence on remaining Israel-based.

Waze is beneficial for Google in very complementary ways. While Facebook is king in social but needs to beef up their mobile and location-based elements, Google is king in mobile and good in location-based services, but needs to beef up social. They also presumably want to defend their position in mapping, making it worth a lot to deny Waze to others.

But is that really worth the rumored $1.1 Billion to Google, when they already have the most popular mobile mapping and navigation service? Clearly the answer is yes, but the question is why, and what it means for the future. What follows is my pure speculation as to what thinking is behind the scenes and what we can expect.

First, Google's track record is not great at adding social features to Google Maps. Their Latitude friend-finding system, which shows your friends' locations on a map, had lukewarm usage for years, and Google has recently moved it out of their Google Maps app and into their Google+ app. Google+ itself has many strong fans but nowhere near the mass-market adoption that Facebook has.

But Waze has emerged as a successful platform for location-based social features. People are using it to navigate to their friends' locations, to see which friends are along their route or otherwise on the road, to share locations, to swap notes about locations along a route, and recently to navigate directly to Facebook events. Of course, some of the social spirit on Waze may be lost as Waze becomes Google. But as of now Waze is the successful mobile-social platform that Google has not succeeded in building to date.

Second, consider that Waze can be integrated not only into Google Maps but into Android. Will all Android users that have agreed to location sharing have their movement data integrated into Waze's traffic analysis algorithms? Will Waze be included as default on all Android devices? While there might be objections, this would multiply tenfold the amount of traffic data that Waze would have.

Third, consider the new mobile OS features that could benefit from Waze. Instead of receiving a calendar event reminder 30 minutes before an event, how about receiving it 5 minutes before you have to leave to drive to your next meeting, with drive times based on current traffic conditions? Apple has researched this, and Google has introduced it in their Google Now application, but Waze's real-time traffic analysis could make it more accurate and useful.

Waze's technology could also facilitate sophisticated location-based reminders, which iOS has launched in rudimentary form but Android has yet to launch, based on technology called GeoFencing, where users can be alerted when they're near a given store or location. With Waze's technology, a user can be alerted when they're a certain amount of time away from a particular place by car, instead of just a certain distance from the place.

Fourth, Waze's system can add sophistication to location-based advertisements. Instead of just seeing an ad for a nearby store, now users can see an ad that tells them how long it will take them to drive to the store, and with one click can start navigating there. Google can do this now with Google Maps, but Waze will facilitate the travel times being more accurate and reliable.

Fifth, Google can take Waze's systems and use them in new ways, such as for pedestrian directions. Will walkers want to know, within Google Maps pedestrian navigation, which walking route will be faster or where the sidewalks are blocked?

Bottom line, Waze can help Google with more than Google Maps, it can facilitate new Android features and better location-based advertising, and can be integrated straight into Android and not just Google Maps.

Lastly, Waze has a certain rebellious and funky feel, while Google Maps and other Google apps are, shall we say, somewhat "establishment" these days. Will Waze bring back to Google the feeling of beating the system instead of joining it?

I still believe that Waze would have more transformational to Facebook, propelling them into location services and strengthening them on mobile. But for Google, Waze's more accurate traffic data and movement analysis can enable or improve a lot of capabilities, and can do so for Android and not only for Maps. Hopefully we'll see some of these new capabilities soon!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.