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Mike Dobson of TeleMapics on Local Search and All Things Geospatial

Waze-Crazy – Would Facebook Drop a Billion on Waze?

May 9th, 2013 by admin

As often happens lately, I had no intention of writing about anything in the news due to lack of interest. However, Marc Prolieau wrote an article this morning on the rumor that Facebook would pay one billion dollars for Waze, and then wrote me to ask my thoughts. I, then, saw an article berating Google for not being the company that was buying Waze. It was at that point that I began thinking that I must have missed some major development at Waze. In turn, this idea prompted me to do some research and write a commentary on the potential acquisition.

In the spirit of openness, I was contacted by someone representing themselves as Facebook’s “location” guy shortly after my blog about the problems associated with the release of Apple Maps in 2012. We never connected. So, I do not have any contacts at Facebook, nor do I have any contacts at Waze with whom I am in communication. Also, in the spirit of openness, I thought about titling this essay “Startup Crowd-Sources Corporate Value.” So, let’s get going.

Waze describes itself as follows:

“After typing in their destination address, users just drive with the app open on their phone to passively contribute traffic and other road data, but they can also take a more active role by sharing road reports on accidents, police traps, or any other hazards along the way, helping to give other users in the area a ‘heads-up’ about what’s to come.”

“In addition to the local communities of drivers using the app, Waze is also home to an active community of online map editors who ensure that the data in their areas is as up-to-date as possible.”

At the end is a video, which can be linked to from the above referenced About Us page on the Waze website. The video ends with a note to this effect – “Keep in mind that Waze is a driver-generated service. Just, as other user-generated projects, it depends on user participation. Your patience and participation are essential.”

I don’t know about you, but if Waze is going to pick up a billion bucks based on my labor, I’d want more than a note indicating that my participation and patience were essential to their success. However, the more interesting question is whether or not Waze is worth $1,000,000,000.00.

To get my arms around valuing Waze I decided to go through a brief acquisition checklist

What is it that is worth a billion dollars at Waze?

Brand? No.

Waze is minor brand that remains generally unknown around the world. I think it might be difficult to put a high valuation on a company whose product is crowd-sourced and whose brand represents the industrious endeavors and lacks of its audience. Note that use of “lacks” here does not indicate that these people are dolts, rather that the user profile is likely not uniform (standardized) or distributed uniformly across geographical space. In turn, this suggests that the product is not uniformly accurate across that same space. As a consequence, the brand’s value may exhibit a significant spatial and temporal variation.

Distribution/Users ? No.

Wikipedia claims that Waze was downloaded 12 million times worldwide by January 2012 and 20 million times by July 2012. By the end of 2012, according to Waze, that number had increased to 36 million drivers. Today, there are apparently 44 million users. To be honest, I am not sure how to parse the information on downloads. Downloads do not indicate active users. The notion of downloads, also, does not indicate geographic coverage or the ability to harvest GPS traces or active crowdsourced updates in specific geographies.

Next, I am not sure how Waze measures users, nor was I able to find any definitive source for this information. I doubt that it has 44 million active users. An article in the Huffington Post indicates that Berg Insight, a Swedish market research firm, says Waze has from 12 million to 13 million monthly active users. If Berg Insight is correct, then the Waze contributors are likely spread thin on a worldwide basis and likely concentrated in a modest number of large urban areas. In addition, how long the active users of Waze have been contributing GPS traces or active updates would appear to be time limited based on the reported number of users and the growth of the company.

So distribution remains unknown, except, perhaps, to Waze. However, even if they could validate the number of reliable active users, it remains unclear how those users are distributed across the geographical space of Waze’s target markets.

Finally, another problem is the type of driving usually performed by Waze users. Are the majority of the miles traced those showing a repetitive journey to work five days a week? I suspect this is a large portion of the tracks they receive. If this is true, then their distribution is likely quite limited in terms of the uniformity and the extent of geographic coverage.

Intellectual Property, Trade Secrets, Know-how? No.

Waze has 100 employees. I am sure that they are bright, energetic and extremely capable. I doubt that what they may know, have codified, filed as patent applications or hold as trade secrets is worth anything near a billion dollars. After all, it is not that other people are ignorant on the topic of how to build a crowdsourced mapping system.

Map Database? No.

Waze claims that in 2012 its users made 500 million map edits and upgraded the map to reflect 1.7 million changes on-the-ground that took place in 110 countries with community-edited maps. Ok, just what does this stuff really mean?

Updates may merely reflect the poor quality of a map base or even the lack of a map base available to Waze for its customers use. The number of countries involved does not necessarily indicate that the company has complete, up-to-date coverage in any of these countries. More problematically, I suspect that Waze has no objective method of assessing the accuracy of its maps compared to other sources. For those of you who need a short primer on Spatial Data Quality, see my blog on the Apple Maps fiasco, as this is the reason they got a failing grade on their product roll out.

Again, the issue here is how many users have been contributing GPS traces and active edits and over what period of time. It appears to me that the time horizon of Waze is too short to have created a map database of considerable value.

Other Assets (intangibles)? No.

Waze has some uniquely capable people and assets, but, for me, they do not tip the scales at a billion dollars.

Is the whole worth more than the sum of the parts? No.

I just can’t get to the billion dollar number no matter how I combine the basic facts. I have read the articles indicating that Facebook needs its own map base so it can customize it for mobile advertising, or that it needs its own map database in order to compete in the mobile location market. I suppose a company can convince itself of anything and Facebook may have crossed the chasm based on these types of assumption. If so, I think they are wandering in a labyrinth of strategic blunders.

Yes, they could wind-up with their own map database, but I suspect that with this purchase will from day one be a headache in terms of spatial data quality. Facebook will spend more money fixing and tuning the Waze database than if they had licensed a database from Nokia or TomTom or from a collection of companies, as has Apple. In turn, the adoption of their “mapping product” by the market might be significantly delayed.

The more serious issue is that dealing with the quality of the Waze database and integrating the database with other Facebook applications will subtract cycles from their efforts in areas that are core to building a successful Facebook mobile business. In the end, Facebook will come down with a serious case of buyer’s remorse, as they will eventually ask the question “Why wasn’t anyone else willing to pay a billion dollars for Waze?

In a final check of the Waze site tonight I noticed that the Waze homepage (http://www.waze.com/) redirects to http://world.waze.com/?redirect=1 , which is a complete and absolute blank. Perhaps the deal is done. Or, it might simply be a map tribute to Lewis Carroll.

Best,

Mike

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Posted in Apple, Facebook, Google maps, Local Search, Mapping, Nokia, TomTom, User Generated Content, Volunteered Geographic Information, Waze, crowdsourced map data, map compilation, map updating

5 Responses

  1. Sandeep

    Dear Mr Mike !

    You are analysis is amazing and I love reading your blogs; eagerly awaiting every day :-)
    I personally feel that your blogs are “prophetic” ! Please keep writing!
    Thank you so much !

    Hi, Sandeep:

    Thanks for your comment.

    Just remember, that if my blogs really were prophetic, I would have founded Waze.

    Mike

  2. Jillles van Gurp

    Nice write up. You seem to assume they have world wide coverage. That’s not the case. They are a US only company. They have no users outside of the US. Just zoom out on their ‘live’ map and you’ll see. The rest of the world is a blank space as far as Waze is concerned. No users, no data.

    If Facebook needs cheap maps with decent world wide coverage, they should use open street map. Otherwise there are only three games in town: Nokia/Navteq, Teleatlas, Google. All three are known to improve their maps using gps traces from their users. They each have tens of millions of active users. And they each of them have feet on the ground world wide for actual mapping.

    So, I agree. 1 billion $ is a lot of money for a talent acquisition. It fits the recent trends of rather excessive acquisitions by Yahoo, Google and others. Especially Yahoo seems to have gone on a shopping spree and is dropping tens of millions on seemingly insignificant startups.

    Hi, Jillles:

    Thanks for contributing your thoughts on Waze.

    In regards to what I took to be a claim that Waze operates only in the US – consider this – Waze is regarded by many as having the finest map of Israel around. Waze’s main offices are in Israel. with a satellite office in Palo Alto, CA. The company has users and user groups scattered around the world, so it is unlikely that they are operating only in one market as you claim. That said, they seem to be having problems with their website. When I looked today the Waze world map showed the US as a complete blank and when I queried it, the system indicated there were no streets to be found anywhere. South America had many icons, as did Europe.

    OSM is always an interesting topic, but many companies shy away because they cannot make business-sense of OSM’s license.

    I enjoyed your insights,

    Mike

  3. Mark

    I appreciate your perspective, thank you for writing this piece.

    I wondered if their purposes are less about mapping databases and stuff, and more about demographic information, to increase the “value” of their real Product, namely their knowledge of their subscribers. Putting together their FB online profile with their location, driving habits, proximity to various stores, etc could be of great value. Waze already places advertisements for fast food chains, but what if FB knew you “Liked” Burgerking but did not “Like” McDonalds; then it could display on their map just Burgerking and hide McDonald’ses.

    And, of course, you’d have to have this map and location awareness on in order to use their iOS/Android/Windows app (similar to Google Now, but worse).

    Another aspect might be to purchase Waze defensively, to prevent Apple or Google from buying them; there could be value in that.

    Another piece would be simply to increase their psychological capital, that they are still innovators, still have something fresh moving forward, still relevant. That would increase their stock (perceived value).

    perhaps all these combined with a lot of other stuff make them willing to spend the coin for Waze?

    Hi, Mark:

    Thanks for the interesting comments.

    I am not sure that FB would need Waze to create an “awareness” of the location of their users or a personal location profile. What is important is that FB have/create a comprehensive list of POI’s that represent targets for their users. I doubt that Waze has this data and it may be the most important collection that FB will need to be successful in location.

    I too am uncertain how FB would value the Waze “package”, but think it would be a stretch to pay a billion dollars for it. Maybe the number will be closer to 500 million, which would still be too high, but more reasonable. On the other hand, FB stock went up on the news yesterday, so who knows.

    Thanks,

    Mike

  4. Scott Goldman

    Another excellent commentary and analysis, Mike. While I concur with many of the points you make here there are some issues that I’d like to point out:

    1. You conduct your analysis based on facts and logic. While you and I bring the same quaint idea about companies having to make a *profit* (or, at the least, contain some value) to actually be worth something this doesn’t appear to be relevant in today’s world. A $1B acquisition, therefore, cannot be based on the normal assessment of value. Venture investors, in my experience, treat opportunities with more gut emotion (i.e., “Will this be a home run?”) than analytical perspective (“How many customers do they have and what value are they contributing?”).

    2. My personal experience with Waze has left me less than impressed. My wife and I both downloaded the app long ago, tried it and decided it was more of a nuisance and intrusion than it was worth. We’re not the only ones, I’m sure, amongst the millions of downloaders that aren’t using the app at all.

    3. There’s a privacy issue here that few people address. This app must, by definition, be left running and will track you everywhere. Once people realize that, or have a single bad experience based on it, the backlash could be significant.

    4. In Facebook’s defense, I thought the Instagram purchase was equally dumb and boy was I wrong. They bought it also for $1B (they seem to like that number) even though the company had zero revenue and 12 employees. However, in talking to people age 15-30 I find that their interest in Facebook postings declining and their use of Instagram as their chosen method for documenting their lives skyrocketing. Maybe Zuckerberg really does know something about his user base that we can’t see from the outside.

    In short, while I agree with your valid technical and business points here I am more apprehensive about underestimating Waze’s value. Whether it’s due to the land-rush mentality of the Big Four (Amazon, Apple, Facebook and Google) to acquire any company that shows a high number of aggregate users or to bowing to the “last greater fool” theory of bubble-generated stock and real estate purchases is unclear to me so far. The ultimate question regarding value is, of course, what someone is willing to pay for it and if we judge this rumored acquisition that way, well, by definition Waze is worth it.

    Being a bit old-school myself, though, I’d never buy it at that price because I still need to see current or future value before throwing money at something. From Facebook’s perspective, though, it’s really Monopoly money as it’s coming out of the shareholders and thus has less impact on them as a company – perhaps generating a less-rigorous review of the long-term potential.

    Anyway, just my 2 cents.

    Hi, Scott:

    Good to hear from you. There were many interesting items in your comment, but the one that caught my eye was — “wife”. Congratulations.

    I agree that FB or some other company may pay the price and that their valuation is not based on the same “currency” that I use. However, I think they will run into substantial data quality issues that will lead to a less than successful implementation, if they base their plans on moving forward only with Waze. Time will tell.

    Thanks for your comment,

    Mike
    .
    ,

  5. Peter

    Why not buy TomTom then?

    I see some advantages in that.

    - Maps are better and cover more countries than Waze’s
    - FB can use TomTom MapShare technology for crowdsourcing by FB users
    - Ability to deploy mapping vans (complementory to crowdsourcing)
    - TomTom customer base and revenue
    - Expertise (GIS, engineers, etc.)
    - They know the business (teleatlas founded some 20yrs ago)

    I know you have your critical opinions on TomTom/TeleAtlas, but I assume you agree there’s far more substance to them, as opposed to Waze. It’ll be more expensive than 1 billion I suppose, but it would have more potential / value as well.

    Hi, Peter:

    Thanks for your comments, as they are insightful.

    I suspect, but do not know, that Apple has a “right of first-refusal” if TomTom were to receive an offer. Also, TomTom’s corporate structure has been strategically engineered to be able to reject any bid that it made for them, if the owners do not want to sell (there is a “poison pill”). In other words, TomTom must decide that it wants to be involved in a transaction. It appears to me that the owners are reluctant to let go of their dream and believe that they can once again transform the company (this time into a content/service powerhouse). As noted in your comment, I do have my doubts that TomTom can prosper on its present course, but it can survive without being acquired.

    Second, one of the benefits of WAZE, from the perspective of FB, is that is it a “mobile” play. That is, WAZE already collects its data using crowdsourcing and likely has more expertise in mobile phone-based crowdsourcing than TomTom (although TomTom’s MapShare is very slick – it does not have the penetration on mobile phones that WAZE can bring to the party).

    Third, I agree that TomTom has better content and significantly broader map coverage than WAZE.

    I am no longer as sanguine that TomTom has retained the edge it once had in respect to the level of talent and expertise of its staff with respect to maps and spatial data. I realize that TT has a number of very bright engineers and content specialists. However, it has lost (downsized) a lot of very talented workers since it acquired Tele Atlas. In addition, its financial problems over the last few years likely are reflected by declining quality and update levels in their database. On the other hand, Nokia does not seem to have done any better at managing Navteq’s fortunes. Of course, it is unlikely that Google wants to sell :-) so your suppositions on a candidate for FB are as reasonable as mine.

    I suspect that FB is interested, but not at a billion dollars. Who knows?

    Thanks,

    Mike