Successful Israeli navigation app developer Waze Ltd. has reached an important milestone: it has 20 million registered users worldwide, including 1.1 million active customers in Israel. The number of Israelis who have downloaded its app is even higher at 1.8 million - most of the country's smartphone owners.
For the past three years, Waze CEO Noam Bardin has been marketing the app around the world. He spends most of his time travelling between Israel and the US, where he spends five weeks at a time, at the company's office in San Francisco.
The decision to open a US office turns out to have been an important milestone. The physical proximity to Apple Inc's (Nasdaq: AAPL) offices gave rise to collaboration, in which Waze and navigation software and devices developer TomTom NV (Euronext: TOM2) will provide traffic updates, and apparently maps as well, for Apple's navigation software, which is due out in the autumn. Bardin declines to disclose details about this fascinating collaboration.
Waze is not seeking to go head to head against Apple or Google Inc. (Nasdaq: GOOG). It continues to differentiate its product, which, in addition to navigation, includes a social network of drivers who report congestion, police patrols, and accidents. The company has just launched its gas stations feature in Israel, following the US launch, which tells drivers about prices at fuel stations nearby, and offers coupons at participating stations.
Putting cars online
"We want to add travel services features," Bardin told "Globes" in an interview. "Every driver needs fuel and parking along the route."
Bardin's next step is the car market. Waze's app will be installed in the entertainment systems that the customer buys independently, after buying a car from the manufacturer. "The media systems of Pioneer, Panasonic, and Alpine are just the beginning. From 2013, car systems will be more open, and it will be possible to connect a smartphone to them and display and operate the app on the car screen," he says.
Waze's entry into the car market is natural, but the timing is a surprise, because, historically, both media systems makers and carmakers preferred for-pay navigation systems, which unjustifiably were considered more reliable, but for which they could charge an exorbitant NIS 10,000 in Israel or $2,000 in the US.
Media systems makers have begun to allow the products to be attached to smartphones, which will function as the brains linking phone apps to the systems' car screens. "Two years ago, car vendors thought that they were going to be the next Apple and opened their own app stores, but they didn’t realize that it wouldn’t work," says Bardin. "The winning model is that you'll run the apps on the phone with a hook-up to the car. This will make it possible to report the presence of a cop via our app directly from the steering wheel, or make a voice report via the car's system. I believe that, in the coming years, we'll see a revolution in the car industry, with cars hooked up and open to the Internet."
This creates value
Competition is tough in the navigation services market. On one side are the app companies: Intel Corporation (Nasdaq; INTC) unit Telmap, whose software reaches the smartphones of many mobile carriers worldwide, including in Israel; Israeli-Hungarian NavNGo Ltd. with its iGo My Waysoftware; and Waze. On the other side are smartphone makers, such as Apple, which will offer its software on iPhones; Google, with its Google Maps, which offers free navigation service in some countries; and Nokia Corporation (NYSE; LSE; HEX: NOK) with a free app on phones powered Microsoft Corporation's (Nasdaq: MSFT) Windows Phone operating system.
A third side are personal navigation device (PND) makers, such as TomTom, Garmin, and Mio Technology Corporation.
"PNDs have reached the end of the road," says Bardin. "Every mobile operating system will come with a basic free navigation system, which will be based on competition with the local search engine. Apple didn’t develop maps to compete with Waze, but to compete with Google in searches, because that's where the money is. We specialize in the daily driving experience on the way to work. Navigation today isn't an app, but a feature that's part of something else."
Waze's problem is that users who receive a navigation service via their iPhones, or Android or Windows Phone powered smartphones, won't bother to download another app. "When you look today at people who have GPS in their cars or a PND, you see that they use us for something else. When you drive to work every day, you have no need to open Google Maps; that won't help you to know whether the road ahead is jammed. You'll open Waze because it gives you value. People also enjoy the experience that we offer," says Bardin.
"We're competing against very, very big players," he adds. "It seems to us that, in the end, we'll have to cooperate one way or another with one of the big players. It doesn’t have to be a sale, but we're looking for in-depth collaboration because we're ultimately in a battle against Google. We're not fighting against another start-up."
Although Google is his competitor, Bardin is opening his app to Android, but he doesn’t seem to really like it. "Android is a nightmare. We have four people for development with Android and just one for the iPhone," he says.
Heading to Asia
Although Waze has succeeded in the US and in several European countries, it has barely touched Asia, which is Bardin's current mission. "What happened with Waze in Malaysia is amazing. We did nothing there, and people organized on their own to build the map. There's a community of almost 600,000 users where. We did nothing in Korea, and we hope to enter Japan by the end of the year," he says.
Another important country is China, which has huge car and smartphone sales, along with the development of a road network. "China has the worst traffic jams," says Bardin. "If you think the Ayalon is awful, try to get into Beijing in the morning. It’s a catastrophe. Strategically, we see China as a very, very important market, where all the rules of the game are different, there's regulation and the military is involved. I'm personally investing a lot of time in China to find a partner."
One of Waze's investors is Hong Kong billionaire Li Ka-shing, the chairman of Hutchison Whampoa Ltd. (HKSE: 0013), the once and future controlling shareholder of Orange franchisee Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR), who will help Waze in China.
Waze has raised $67 million, but the company is not profitable. "This is because we moved to Silicon Valley. Silicon Valley is not a place where you make money, and we don’t really need to make money, which makes it easier to run the company," says Bardin. "We're currently organized around advertising and coupons. We're seeking the hook-up that will give users value, and bring us value, and, of course, the advertiser."
"Globes": Are you generating enough revenue, or will you have to raise more capital?
Bardin: "We're examining various models. We're not yet in a place where revenue is the focus. The company's focus is on the user experience. We've raised enough money, so we don’t have to raise any more right now."
Published by Globes [online], Israel business news - www.globes-online.com - on July 5, 2012
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