Technology & Data
- Big Data
- Tech & Innovation
How to Get Your Sales and Marketing Teams to Work in HarmonyContent Marketing for Midsized Companies: Whom to Target, What to CreateAtri Chatterjee of Act-On Software on the New Generation of MarketersMarketing Automation: What It Is and Why You Need to Know
- Social Tools
Join us September 15th in Atlanta for The Employee Advocacy Summit and learn how to unleash the power of your employees.
Post your event here and we'll share it with our community. If one of our members is featured, we'll promote as well on their profile.
- Marketplace & Webinars
The SMT Marketplace
Your resource for exclusive content and insights from Social Media Today, and opportunities to reach our community of professionals.
The Social Business Book Club brings you books, discussions, and insights from today's to business thought leaders.
Join interactive talks and and panel discussions with leading thinkers and practitioners on social media and networked business, or browse the catalogue of recorded sessions - all completely free.
Reach Social Media Today's community of marketing and communications professionals in an editor-approved context with a native advertising package.
Facebook and Google in Smackdown Over Waze Start-Up
Posted on May 29th 2013
Eight years ago Skype was acquired by eBay for $2.6 billion.
The public explanation for the purchase had something to do with “synergy” between buyers in the eBay flea market talking face-to-face with sellers. (There’s a lesson here: always be cautious when you hear the word “synergy” in a merger or acquisition discussion.)
Around that time I had lunch with a senior eBay executive. I asked him what in the world they were thinking when they paid all that money for Skype?
“We had to keep it away from Google,” he said. “We just couldn’t allow Google to monopolize such a huge telecom opportunity. They could have added bidding and come after us.”
This anecdote comes to mind as we read about the battle between Facebook and Google to buy Waze, an Israeli start-up that gathers real-time traffic information from crowdsourcing. The idea behind Waze is that if I see a traffic snarl or a police speed trap, I check into Waze and then you or anyone can see my note and avoid that area.
Presumably none of this checking in happens while you or I are actually driving in our cars.
But Waze also works by collecting “passive data” from members—that is, if you leave the Waze application open on your smartphone, Waze can track your location and how fast you're moving and use that to calculate how well traffic is moving where you are. (BTW, You can run up some big data charges on your phone plan this way, which you pay for—not Waze.) Waze is supported by the same business model as both Google and Facebook—advertising.
I've worked on mergers and acquisitions throughout my career, and I can tell you there are four or five really good reasons for one company to buy another. These include strategies such as buying into a specialty or vertical market, or acquiring technology or talent, or buying a potentially disruptive start-up.
There are also three or four lousy reasons to buy a company.
These include buying a company in order to "transform" the purchasing company (Time Warner and AOL), buying a company because it looks like a cheap bargain (Cisco and Flip Camera), or buying a company because the CEO has a big ego. (I call this the “Edifice Complex,” a mad desire to look monumentally important.)
Buying a company---as eBay bought Skype—for a defensive “blocking” maneuver is a strategy that is either forced on a company or is the result of too many morons in management. Neither of these are good reasons, though the first may be simply a matter of survival.
My friend at eBay may have been perfectly right that letting Skype fall into the hands of Google would have been disastrous for eBay in 2005. After all, Google didn’t come to market with Google+ until 2011.
So what to make of the Google versus Facebook smackdown over Waze?
Any good MBA can draw the outline of how Waze would work within Google or Facebook. Waze—if the business model holds up—could leapfrog one of the two giants into real-time wayfinding and geo-targeted advertising.
And there's a layer of gamification that can be added with reviews, badges and sharing with friends. Backed by the firehose of traffic from one of these two giants, Waze could build up these functions and eventually beat Foursquare for dominance in location-based check ins and special deals.
Facebook gets more than half of its traffic from mobile. But Google has a huge edge in mobile advertising. A purchase price of $1 billion by either one is small change if the technology and perhaps the Waze brand could fast-forward profitable development of mobile.
I still worry about the synergy between location-based advertising and people driving in their cars.
Either Facebook or Google can scale Waze a hundred times faster than Waze could do organically. Waze needs consistent, engaged users in order for its crowd-sourced business model to succeed. Right now the traffic reports on Waze are very spotty with only 15 million active users. For example in Minneapolis, where I live, the results are too inconsistent to be usable. Google and Facebook can pump millions of users into the Waze system, and across a global footprint.
If Waze gets a premium for itself because Google and Facebook also are worried about the other guy buying into this marketplace, well good for them. That’s just a multi-million dollar game of Texas Hold-Em that you and I don’t get to play. That’s for Mark and Larry and Sergey to bluff around with.
And as Wired's Andy Biao pointed out in his excellent analysis of Facebook's purchase of Instagram last year, if you measure Waze's purchase price per active user even $1.5 billion isn't much more than Facebook paid for Instagram or Google paid for Blogger.
Facebook has the most to lose, from all appearances. Google owns two-thirds of the search advertising market, worth about $15 billion a year. Facebook pulls in $4 billion a year from advertising, with a third of that, less than $1.5 billion, coming from mobile platforms.
And Facebook’s search business is an even smaller fraction of Google’s. At the same time Facebook finds the mobile market is growing faster than on computer platforms---so Facebook needs all the extra rocket fuel it can buy to turbo-charge mobile numbers growth, and find some way to disrupt the mobile advertising market in its favor.
Someday Facebook would like to grow up to be Google. Having 600 million active users doesn’t mean much unless you find ways to make big profits from them. Facebook is doing fine right now, but search remains a disappointing, small-time opportunity for the company.
And time could be a bigger enemy for Facebook than for Google. Amazon and Apple are fencing Facebook out of big e-commerce opportunities, so advertising looks like the only proven, existing growth path.
As long as Google controls search Facebook has to look for ways—meaning Waze—to disrupt the mobile social marketplace.
The bidding for Waze may go over $1 billion, but no matter what the final price at the end of the auction, it’s worth much more to Facebook than to Goggle.