Waze: Using Network Effects to Improve Your GPS System

Waze is a different kind of GPS navigation system. It uses data generated by its users to map cities, provide real time data about traffic patterns, alert users to accidents and police checkpoints, and even identify the cheapest places to buy gas or local shopping deals.

Value Creation

Waze users collect real-time data that drivers can use to get as quickly as possible to their destination, while avoiding potential snafus. The value of the platform increases with each additional user and requires a certain minimum number of users for it to be fully functional. To date, about 13 countries have been fully mapped, while others are still being brought up to date and modified by users. This operating model, having users do the legwork that is involved in mapping countries, allowed Waze to avoid the infrastructure costs associated with starting a traditional GPS navigation system. Users receive value by being able to use the service free of charge and benefit from the wealth of data the app generates.

Value Capture

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Waze began to monetize its app by introducing location-based advertisements that allow it to capitalize on the valuable data known about a particular user and can learn even more information about how to target users based on what ads they not only click on, but actually redeem. Television stations also use Waze to broadcast traffic reports, which 20+ stations have used. Advertisers and television stations benefit the more users are on the Waze platform as their ads will have a larger audience and more opportunity for redemption.

Direct and Indirect Network Effects

In this way, Waze is benefits from both direct and indirect network effects. For users, the network effects are direct. Each additional user on the platform increases the value of the platform for other users. Additional users allow for more cities and countries to be mapped and allows for more information to be aggregated on the platform in general. The relationship between users and advertisers is an indirect network effect because the more users on the platform, the more the platform becomes valuable to advertisers. Conversely, the more advertisers on the platform, users benefit because they are given more location-based, specific ads that can be targeted to their individual needs.

Waze Purchased by Google for $996 Million

Google purchased Waze in June 2013 in order to improve its GPS navigation system, Google Maps. Google and Apple (another rumored potential buyer) had long been entrenched in a war over their respective navigation systems. This was perhaps most evident when Apple launched a new iPhone that conspicuously did not have Google Maps pre-installed, as was the case in previous versions. For this reason, the acquisition of Waze in many ways can be seen as a defensive action. It also opens up the door for Google to use the technology in ways that may not currently be scope. For example, Google has been developing its Google Cars which benefit from Waze technology by connecting to other Google Cars on the road to provide valuable data about traffic, the speed and location of other cars, and other pertinent information that will lead the way for autonomous vehicle technology.

Waze is an interesting platform that shows the benefit and scope of two-sided platforms. However, it also underlines some of the unique issues – if Waze did not achieve a critical mass of users then the underlying technology and functionality would be moot. Waze was able to create a platform that provided enough value to both users and advertisers to gain about 50 million users when it was acquired in 2013. Now as a part of Google, Waze will be at the forefront of further innovation not only in GPS technology, but within the transportation sector as a whole.