On June 11, Google (NASDAQ:GOOG) posted to its blog that it had finalized the deal to acquire the Israeli-based Waze social mapping app for around $1.1 billion. Google didn’t disclose the details of the transaction.
If you followed the transaction, you likely noticed that the story came from nowhere, developed and changed rapidly, and closed. This didn’t feel like the normal slow moving acquisitions that Wall Street is used to especially when it involves a single app with a $1 billion price tag.
Why does Google want Waze so badly and why is it willing to put out so much money to get it?
Because it’s a Great App
The price tag isn’t as outlandish as one might think. In 2012, the app was one of the most downloaded apps at the Apple (NASDAQ:AAPL) App Store. Its user base doubled last year to 40 million people in 110 countries. Users shared 90 million traffic reports, according to The Times of Israel.
The app has won a host of “best of” awards and receives overwhelmingly positive reviews on Google Play and the Apple App Store. What makes Waze unique is its social-based component. Not only can the app route the driver to their destination like the Google and Apple apps, but Waze allows users to post reports like gas prices or traffic problems. The app alerts you of other people’s reports as you navigate toward the area in question. It’s a unique idea that anybody who has used a mapping app has secretly wanted for a long time.
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Remove the Competition
If you have an extra $50 billion in cash to deploy at will, why bother going head to head with such small competition? Not only does Google not have to worry about losing its position as the mainstream mapping choice for Android and iPhone users, but also by purchasing the company, it has a host of options.
It can let Waze continue to function as an independent App like Facebook (NASDAQ:FB) does with Instagram, it could buy it, bury it in a drawer, and let users forget about it (highly unlikely), or it could integrate the app and its user base into the current Google Maps app.
Whatever it decides to do with Waze, $1 billion is small price to pay for what was quickly becoming the Instagram of mapping apps. It could end up spending far more in order to combat its growing popularity.
To Keep it Out of the Hands of Others
The acquisition went into high gear when Google learned that Facebook was interested. Apple never publicly announced that it was interested, but Google and Facebook know that it’s the perfect fit for Apple—the company who suffered a rare embarrassment with its map app.
Even Microsoft (NASDAQ:MSFT), an early-stage investor in the company, might be interested. That would give the company some bargaining power if it wanted to make a bigger name for itself in the mobile space.
Google knew that whoever owned it had a unique concept which, combined with their cash piles, could easily make Google the has-been name in the space.
The company clearly didn’t buy Waze because it has social media expertise to add to the app. Its primary reason was for control. As long as Waze is under the Google umbrella, other companies will have to work harder to gain market share in the mobile mapping space.
Disclosure: At the time of this writing, Tim Parker owned shares of Apple.