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.

This 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.

Six months ago CEO Larry Page answered a question about the monetization of Google Maps.  He answered that Google Inc (NASDAQ:GOOG) Maps is “critical to search. To understand those queries, we have to understand where things are in the real world.” Despite not directly generating revenue, Google Maps is indirectly helping the core business. It is for these reasons that Apple Inc. (NASDAQ:AAPL) came out with the competing Apple Maps.

When Apple Inc. (NASDAQ:AAPL) Maps first came out it was a failure, and it sparked off a year in which Google Inc (NASDAQ:GOOG) stock went on a rip while Apple stock plummeted. Despite this Apple has been at work to improve Apple Inc. (NASDAQ:AAPL) Maps, and is in position to become Google’s main mapping competitor. This is because personal location data is going to be huge in the future. McKinsey projected in 2012 that “services enabled by personal location data can allow consumers to capture $600 billion in economic surplus.” Whichever map program best services users will play an integral part in facilitating this surplus and new business because of it.

With the purchase of Waze, Google Inc (NASDAQ:GOOG) is taking an active step towards coming out on top.  If they do, Google will benefit from all the revenue related to bringing together new business enabled by personal location data services.  Google saw the future of personal location data and spent $1.3 billion on Waze while its competitors are burning billions on random ventures.  In my view this solidifies them as a must have for long term investors buying into the next wave of technology.

The article Waze Purchase Helps Google Beat Apple in Location Data originally appeared on Fool.com.

Xuebing is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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