In Passing on Waze, Did Facebook Make a Big Mistake or the Right Call?
Google finalized its acquisition of Waze earlier this week in a $1 billion-plus cash deal. It ended months of speculation on which big Silicon Valley player would snap up the innovative social mapping startup.
But the outcome of the mega deal begs a question about Waze’s other most ardent suitor: Did Facebook brilliantly avoid future headaches by not overpaying for a pricey app, or did the social giant just make a huge mistake by letting an important mapping asset fall into a major competitor’s hands?
Or, as many sources close to the situation assert, perhaps it was never meant to be at all.
Up until the talks fell apart weeks ago, a Facebook-Waze pairing made a good deal of sense. For one, it fit Facebook’s overall philosophy: Like the social networking giant, Waze is “social from the ground up,” and traffic data on Waze is only as strong as the community that feeds it.
Ostensibly, then, the DNA of the services could have been a match.
But, after a series of talks, according to sources, both companies ended up walking away from the possibility of a deal thanks to a variety of issues, including a growing wariness between the pair and an essential lack of chemistry and trust.
But one thing that was reported early on (and repeated incorrectly on AllThingsD) that seemed to indicate that fissure was wrong: The assertion that Facebook wouldn’t accept Waze’s insistence that the majority of its team remain based in Israel, where the company was founded, preferring that it be located at its Menlo Park, Calif., headquarters.
While this has been Facebook’s style with many company acquisitions, sources on both sides said this was untrue and that the social networking giant was willing to give Waze a lot of independence, including keeping its staffers in Israel.
Sources said that the idea that Facebook would try to move one of that tech-savvy country’s most prominent players out was not in keeping with the interests of the U.S. giant to have a good reputation among entrepreneurs there.
“There was always recognition in both companies that Waze was a company in both Israel and Silicon Valley and that they would be allowed to operate with a large amount of independence,” said one source.
More importantly, from the start, neither company jibed with the other. One source said after Facebook did its “due diligence” on Waze, the social giant became less enamored with acquiring it, a feeling that was further reinforced by the sudden entrance of Google interest in the middle of a no-shop period.
While Google had previously been in talks with Waze, sources said the idea of getting into an auction and price war was anathema to Facebook.
It also helped drop the level of trust between the two sides. These kinds of “social” issues are often key to creating an atmosphere of comfort, and many deals founder when they take too long and the companies devolve into disagreements over seemingly minor issues.
That’s a stark contrast to Facebook’s whirlwind $1 billion acquisition of Instagram, which practically occurred over the course of a bromance-tastic weekend at Mark Zuckerberg’s house with Instagram founder and CEO Kevin Systrom.
In that case, the pair already knew each other and had a long-developing personal and professional relationship over a series of dinners and other events in closely knit Silicon Valley.
That was a different situation with Waze and its outspoken and aggressive CEO Noam Bardin, who has struck a more swaggering posture throughout many months of negotiations with much bigger companies.
“There was an idea that he might not be the best team player,” said one person close to the situation. “While the interest was definitely there, given all the growing tensions, there was not enough to keep it going.”
An investor in Waze agreed: “Facebook could have done this if they really wanted to do it, despite the issues, which means they decided they really did not want it at all costs.”
Speaking of costs, there’s the money issue, too. While the billion in cash Waze sold for may not be much to a company like Google — which has plenty in the bank — that’s 10 percent of Facebook’s cash on hand.
Indeed, Facebook was willing and able to shell out that same amount on Instagram, but the photo-sharing service’s user growth numbers were on a far more drastic curve than Waze; just two-and-a-half years after launch, Instagram boasts more than 100 million active users, and shows little signs of slowing. Waze, on the other hand, hosts around half that number of registered (though not necessarily active) users, despite being around since 2010. Fifty million is no doubt still impressive, though not as compelling.
Also an issue, Facebook’s tense relationship with investors. If Waze turned out to be a dud, Facebook would hardly hear the end of it from the many disgruntled shareholders whose confidence has already been shaken since the company’s botched IPO. It’s possible that by letting Waze go, Facebook saved itself a potential headache if the app went south.
“I think the question of whether it was really worth it and what is being bought got a lot louder and louder,” said another person with knowledge of the situation. “The addition of Google to the equation just sent it over the top.”
But there’s a flip side to all of this: Facebook could have also let slip a major chance to move toward truly owning its mobile experience.
Consider Facebook’s lofty ambitions here. The company is hard at work trying to make Facebook Home — the Facebook-ified version of the Google Android mobile operating system — the go-to choice for consumers. And, as we’ve seen with Android, Apple’s iOS and even Nokia’s devices, if you want to be a major player in mobile, you’ve got to own the maps.
Google now owns two mapping apps, solidifying with Waze a more potent stranglehold on mapping in general. Facebook still has zero. And without any mapping service to speak of, any Facebook mobile play remains forced into defaulting to Google’s services. Apple knew this, yet endured massive public backlash to move its mobile platform off of reliance on Google Maps and transition iOS users over to its own proprietary maps app.
Of course, it’ll be some time before we know if Facebook ended up making a good call. Waze could flounder, Facebook may come out looking smart, and Google could chalk it up to the cost of doing business by keeping potential threats out of competitors’ hands. Or Waze could flourish under Google, and Facebook may end up looking the fool for missing out on its second Instagram.
We’ll see — but not for a little while down the road.