As one of the greatest gangsta rap artists of all time, 2Pac, once said, “There’s war on the streets.” And while the late great poet may have been referring to gang violence and the Bad Boy/Death Row feud, his words (in)appropriately sum up some of the latest developments in California.
“Ambitionz Az a Ridah”
Two weeks after news broke that Facebook Inc (NASDAQ:FB) was in talks with Waze to acquire the Israeli based company for $1 billion, Google Inc (NASDAQ:GOOG) reportedly made a similar offer.
Waze, which has nearly 50 million users, just started monetizing the business in November of last year. It claims its users spend an average of 7.5 hours a month using the app, providing it with an ample opportunity to cash in on the growing local ad business. Local advertising spend on mobile is expected to reach nearly $2 billion this year and $6.4 billion by 2017.
With a strong position in a rapidly expanding market, Waze may think of itself as more valuable than $1 billion. It’s last round of funding in October 2011 valued the company at $250 million. Earlier this year, it turned down an offer from Apple Inc. (NASDAQ:AAPL) worth $500 million. And now, just five months later, it has two bids for $1 billion. Waze may be ‘ambitiouz’ and try to garner an even higher price from either Google Inc (NASDAQ:GOOG) or Facebook Inc (NASDAQ:FB) before this war is over.
“I Get Around”
There are plenty of reasons Facebook Inc (NASDAQ:FB) would want what Waze has. Numerous articles have covered the idea that Waze could expand Facebook’s mobile presence, more closely integrate mapping with Facebook Inc (NASDAQ:FB) on mobile, add another mobile revenue stream, and so on.
Those are all true, but Facebook Inc (NASDAQ:FB) would benefit from acquiring Waze for the simple fact that, like 2Pac, I get around. Most other people do to.
If Facebook had data on my regular commutes, it could better target local advertisements for businesses located along those commutes. Those advertisements don’t need to be in Waze either. They can be on any of Facebook’s platforms.
More importantly, one of the few times people don’t use Facebook is when they’re driving. Waze presents an opportunity to engage its users when they’re least likely to be using a Facebook service.
Additionally, while Facebook currently has location based features to find friends nearby, it simply hasn’t caught on that well. Waze can give a big boost to this feature by sharing where users are going with their friends, allowing users to find their friends a la the Apple Inc. (NASDAQ:AAPL) app, and alerting users when friends are close by.
Facebook doesn’t see Waze as just a new mobile presence and revenue stream, but a treasure trove of data that can help make its core product better. For that, it’s likely willing to spend even more than $1 billion. After all, it bid $1 billion for Instagram, which still has no revenue and merely echoed Facebook’s photo features.
Strictly 4 My G.O.O.G.L.E.Z.
Google Inc (NASDAQ:GOOG)’s motive seems clear: it wants to keep Waze’s app – and its data – out of the hands of current and potential competitors.
It already has the most popular mobile mapping service with 30 million active monthly users. By comparison, Telenav has 25 million users, and Apple Maps has approximately 5 million. While Waze has nearly 50 million registered users only about one-fourth actively use the app.
Google Inc (NASDAQ:GOOG) may also be interested in Waze for its social features. Waze can easily be integrated with Google+ and increase user engagement. Google Inc (NASDAQ:GOOG) is already pushing into integrating its social network with its current Maps app, but Waze users appear much more inclined that Google Maps users to provide user-generated information.
Google could also make Waze a better product. Imagine Google’s fleet of self-driving cars providing traffic data, or pedestrians providing data in the background of any Android device, including Glass. Google has so much data, it’s almost impossible for it not to make Waze better.
With significantly more cash on its balance sheet, Google could easily outbid Facebook for Waze. It’s just a matter of how much Google wants to keep it out of the hands of its competitors.
Not only would Google be able to keep Waze out of the hands of Facebook, it would also be able to keep it out of Apple Inc. (NASDAQ:AAPL)’s. Apple Inc. (NASDAQ:AAPL) uses Waze’s data in its Apple Maps app. Specifically, it uses Waze’s crowd-sourced maps are used to draw parts of Apple Inc. (NASDAQ:AAPL)’s map. Google may elect to end that agreement, giving Apple Inc. (NASDAQ:AAPL)’s maligned Maps app another setback and Google Maps a further boost on iOS.
The detriment of Apple Inc. (NASDAQ:AAPL) losing access is clear to Apple. That’s why the company made a bid to acquire the company earlier this year for $500 million, but CEO Noam Bardin rejected the offer and held out for more.
This time around, it doesn’t look like Apple is getting involved, which could be more costly than joining the bidding wars. It wouldn’t be the equivalent of Death Row Records losing Dr. Dre and Pac in the same year, but it’s still a tough pill to swallow. With billions in cash sitting on the balance sheet, Apple might make a bid if it looks like Google is going to take control of the app and its data.
“Keep Ya Head Up”
Whoever it is that acquires Waze, it could have a profound effect not just on the acquiring company, but on those that lose the bidding war. Google wants to maintain, or widen, its position as the go-to mobile mapping app. It could easily hurt Apple’s product in the process.
Facebook has a lot to gain from the acquisition, and could certainly grow the presence of Waze just as it did with Instagram. That could pose a real threat to Google as it battles Facebook for local advertising dollars and for social network engagement.
One thing’s for certain, Waze is getting a lot of “California Love.”
The article 2Pac Saw This ‘Street-War’ Coming originally appeared on Fool.com.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Facebook, and Google. Adam is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
