Waze: A People-Powered Mapping App Is Finding Its Way

Waze iPhone screen shot
Waze iPhone screen shot

Can distributed gray matter toting smartphones upend the GPS market?That's the implict bet of Waze -- and one of the more ambitious crowd-sourcing business plans to date. The company makes an innovative, free smartphone app that taps collective driving behavior to create turn-by-turn driving instructions and even real-time traffic alerts, all powered by information gathered from its roving users.

While Waze uses GPS chips to determine locations, its primary intelligence comes from its users, who not only get free turn-by-turn guidance but also are enticed by a PacManesque game interface to drive their way to collecting Waze points and even virtual bling.

Venture capitalists are buying it. The Israeli startup just bagged a $25 million second-round funding, led by Blue Run Ventures. Two other previous investors, Magma Venture Partners and Vertex Venture Capital, joined in with Qualcomm Ventures coming aboard as a new investor.

Another Challenge to Stand-Alone GPS Devices

What makes Waze interesting? For starters, it's a well-designed crowd-sourcing play, a tech investing theme that's enjoying strong interest from investors. Waze introduces the notion that a crowd of humans can provide very useful traffic information and driving directions based on their collective intelligence and the increasing ubiquity of smartphones. The Waze app taps into the GPS chips of its user base to grab information about where they're driving and correlates it with maps.

This is yet another challenge to the already flagging stand-alone GPS navigation-device segment. But no, Waze isn't going to replace Google Streetview or other applications that provide street-by-street photographs. And it can't match Google Navigation's phenomenal voice-recognition capabilities. We're only talking about smartphones, after all.

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But ultimately, Waze could provide a big boost to other mapping companies. It has said it plans to have an open API (application programming interface) structure that would allow Google (GOOG), Microsoft (MSFT), AOL (AOL), Nokia (NOK) -- owner of Navteq -- or anyone else to tap into its crowd-sourced mapping data to enhance their own maps or location-based information offerings. And Waze isn't the first company to attempt this sort of peer-to-peer traffic data, but it may have a better shot at succeeding.

The company will take some of that venture loot and move its headquarters from Tel Aviv to Palo Alto, Calif., to move closer to social media's epicenter. How will it make money? Totally unclear at this point, but look for some sort of mobile commerce or coupon play where merchants can entice Waze users with offers delivered only when those drivers are within a defined distance of the establishment, something that both Foursquare and Gowalla are starting to deliver.

No doubt, Waze has gone viral in a hurry. The number of registered users has soared from 500,000 in January 2010 to 2.2 million today. The company now has enough money to gun it for a long joyride.

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