Facebook and Waze mull road ahead

Shmulik Shelach

Facebook has had limited success in creating revenue from smartphone users.

Anyone who felt a sense of déjà vu today when reading the headlines about Waze Ltd. can rest at ease. This was also the case among Waze employees from whom "Globes" asked for a response. This scenario has happened before, and unsurprisingly in Israel's high-tech industry, there is speculation about what is going to occur.

Is it possible that such sensitive information was leaked deliberately to two technology blogs in an attempt to create value as part of the negotiations or for the raising of capital? Whether or not this is the case, skepticism should accompany any information published today about negotiations.

The signals in the field causing the Israeli media to report on negotiations are the same signals we have seen in countless similar cases in Israeli high tech. There have already been unequivocal reports on talks by Waze, which then pulled back ("TechCrunch"). With this experience, it is hard to accept the published details as the unvarnished truth until an official acquisition announcement is made.

The technology media's infatuation with Waze plays into its hands and the hands of its investors. It was very hard to reach Waze's Israeli parties today. Assuming that Facebook Inc. (Nasdaq: FB) is in advanced talks with Waze, it is hard to be in their place. The reason has more to do with Facebook and less with the character of the investors. The last time that Facebook held negotiations to acquire an Israeli company, Face.com, premature exposure of the negotiations almost killed the deal. Facebook immediately stopped the talks, saying that the disclosure was a manipulation to raise the price. It took Face.com's investors and management weeks to restart the talks, and they lost millions of dollars in value and a lot of goodwill in the meantime.

The case of Waze is more complicated. The amount mentioned is much higher, whether it is $500 million, which was the price in the previous acquisition talks a few months ago, or closer to $1 billion, which is the current estimate. The idea of losing the deal is probably driving Waze's investors round the bend.

Such a deal reflects on Waze, but possibly even more on Facebook. It is hard to give a value to a social network, let alone a company which offers a navigation app, but with no proven business model. The high price on the table seems problematic for both companies, which have already known and collaborated with each other for a long time.

As in many other cases, familiarity between a start-up and a big company can lead to an acquisition, but the price probably reflects pressure on Facebook. Facebook needs to create more revenue from the mobile space around it, and even though it does not have inexhaustible resources, it could be spending a fortune on a company with unclear revenue potential.

Assuming that the negotiations will result in an acquisition, both Facebook and Waze will have a long way to try and figure out how to make money (a lot of money) from Waze's platform. Anyone who thinks that the deal itself means that Facebook has solved the conundrum of making money from a mobile navigation social network, and included this in the price, should remember that the company has been trying for a long time to figure out how to maximize revenue from smartphone users, with only limited success.

Published by Globes [online], Israel business news - www.globes-online.com - on May 9, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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