Google set to buy Israeli startup Waze for more than $1 billion

Navigation app's development center will remain in Israel for at least three years.

Google is set to acquire much sought-after Israeli navigation app startup Waze, after the two companies agreed in principle to most term, including a price tag exceeding $1 billion in cash, sources said Sunday. 

In addition, Waze's research and development center will remain in Israel for at least three years as will the company's CEO, Noam Bardin. Waze will retain its independent identity both as a company and as a brand, they said.

The agreement comes about a week-and-half after talks between the Israeli company and Facebook collapsed, apparently over Waze's insistence that its R&D operations remain in Israel. Facebook had sought to fold the company's operations into its California headquarters and re-brand them as a Facebook product.

Facebook had offered about $1 billion for the Israeli company, but when its exclusive right to hold acquisition talks expired, Waze apparently turned to Google as its preferred suitor. In addition, to letting Waze keep its operations in Israel for now, Google offered all cash, as against Facebook's offer to pay half the purchase price in cash and half in shares.

Moreover, the U.S. company agreed not to reduce the size of the R&D staff during the next three years.

None of the companies involved had officially commented on the reports as of late yesterday.

Waze is a crowd-sourced, mobile-oriented navigation device for drivers that relies on information provided by its 47 million members to populate its maps.
Mapping services are among the five most-used applications on smartphones and are crucial to engaging and retaining mobile users. The key advantage of owning, rather than licensing, a mapping service is that it allows the product to be personalized for users.

Google's interest in Waze stems principally from its aim of blocking Facebook's growth. The search company operates its own navigation service that competes head on with Waze. It has invested heavily in its system, including the ambitious Google Street View database of images and satellite images.

Teaming up with Waze would have enabled Facebook, which right now doesn't have a similar product, to put the social media company into competition with Google in a key area. With this threat in mind, Google was ready to offer more generous terms than Facebook reportedly did to eliminate the competition.

Apple was also a rumored bidder, but its CEO, Tim Cook, told a conference at the end of May that the company made no such bid.

Waze uses satellite signals from members' smartphones to generate maps and traffic data, which it then shares with other users, offering real-time traffic info. Because its technology is designed for social media, Waze was considered a good fit for Facebook, analysts said.

Mapping services are among the five most-used applications on smartphones and are crucial to engaging and retaining mobile users. The key advantage of owning, rather than licensing, a mapping service is that it allows for the product to be tailored and personalized for users.

"Whoever holds the mapping data is going to be a hot commodity," Brian Proffitt, author of several books on mobile technology and an adjunct instructor of management in the University of Notre Dame, told Reuters last month. "As larger vendors acquire mapping data, businesses and consumers will discover that it's more difficult to gain free access and correct errors."

Waze is owned by a group of local and foreign investors, including the Israeli venture capital funds Magma and Vertex. Chinese investor Li Ka Shing invested $30 million in the company via Horizon Ventures in October 2011. Other invesotrs include the U.S. VC funds Kleiner Perkins and Blue Run Ventures as well as the U.S. tech companies Microsoft and Qualcomm.

Altogether some $67 million has been invested in the company since it formed in 2008 by Ehud Shabtai, Amir Shinar and Uri Levine.

Waze has enjoyed years of spectacular growth. About 12% of its users hail from the United States, and it also has high penetration in Italy and Brazil. Its user base has skyrocketed to 47.5 million today from about seven million in 2011. By the end of 2013, the company expects it to reach 70 million.

By its estimates, this year alone it will have saved users some 82 million hours of time not stuck in traffic and the global environment some 844,000 tons of carbon monoxide. The average Waze users shaves 15% off his or her driving time.