Acquired - Acquired Episode 17: Waze

Episode Date: August 3, 2016

Topics covered include: Community Showcase: the Nexcast podcasting platform from listener Brian Sanders, along with their podcast chronicling the team’s journey building the company Waze���s origin in cofounder & CTO Ehud Shabtai’s desire to hack his portable GPS navigation unitWaze CEO Noam Bardin’s  retrospective blog post on the Waze journey  Waze’s Palo Alto office and the bizarre Silicon Valley phenomenon of tech companies being located in retail storefronts Apple’s  ill-fated launch of Apple Maps as part of iOS 6 at WWDC 2012, Apple’s subsequent apology letter, and  Scott Forstall’s ultimate ouster from the company The climax of the mobile platform wars… which it turns out Apple and Google  both won Apple, Facebook, and Google all vying to acquire Waze throughout 2013 Google’s renewed design ethos under Larry PageBen and David spontaneously agree (surprise) to create on a new category of acquisition for the show The increasing strategic value of data and data assets as technology enters the age of machine learning The coming mega trend of autonomous vehicles, and  the role Israeli startups are playing in it (including the globalization of startups & innovation)The disruptive power of network and data-based business modelsEmergence of native as *the* definitive advertising medium on mobile, including ability to close the advertising loop via location-based products and services Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!The Carve Out:Ben: Weezer’s “Summer Elaine and Drunk Dori” on Song Exploder David:  Simon Sinek’s “Start with Why” TED Talk  Followups: None this week… coverage of Instagram Stories to come next time!

We have a model where we take money from venture investors and we give it to engineers. That's how the business model works. Except for that, now that we're part of Google, everything's changed. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down, say it straight.

Another story on the way. We've got the truth. Welcome to episode 17 of Acquired, the podcast where we talk about technology acquisitions. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today, we're going to be talking about Google's acquisition of Waze. But first, we talked about in our last episode, we are going to be doing a community showcase. And this week, it's one of our listeners, Brian Sanders. He and his team are building

something called Nextcast. Nextcast is a next generation podcasting client that has a lot of interactivity baked into it. So they look at the existing kind of flat one-way medium of podcasting as it is today. And Brian and his team are looking at ways to make it kind of more of a two-way street. So you can have a relationship with a podcaster and click links and watch videos and things like that. The app's not totally built yet, but their customer development process and kind of their pitching for funding and things like that is being covered in a podcast

called Building Nextcast. So check them out at buildingnextcast.com if you're interested. It's really cool that we launched Community Spotlight and we did an episode about podcasts and it's like they were listening to the episode. This is perfect. Yeah, it's awesome.

So if anybody out there is building a social navigation app, please ping us. Yeah, if you would like to be on our next listener showcase and you're working on something that you want to tell people about, shoot us an email at acquiredfm at gmail.com or tweet at us at acquiredfm. Or hit us up in the Slack group, as always. Okay, listeners, now is a great time to tell you about longtime friend of the show,

ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation, and they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow platform puts AI agents to work across every corner of your business. Yep. And as you know from listening to us all year, ServiceNow is pretty remarkable about embracing the latest AI developments and building them into products for their customers. AI agents are the next phase of this. So what are AI agents? AI agents can think, learn, solve problems, and make decisions autonomously. They work on behalf of your teams, elevating their productivity and potential. And while you get incredible productivity enhancements, you also get to stay in full control. Yep.

With ServiceNow, AI agents proactively solve challenges from IT to HR, customer service, software development, you name it. These agents collaborate, they learn from each other, and they continuously improve, handling the busy work across your business so that your teams can actually focus on what truly matters. Ultimately, ServiceNow and Agentic AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees,

enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. All right, Ben, should we get into it? Let's do it. Let's do it. Waze. I would presume most of our listener base is familiar with Waze, but for those who aren't, it is a social navigation app, much like Google Maps or MapQuest going way back or Apple Maps. We'll get into that in a minute. But you drive with friends. Yeah. we'll get into that in a minute uh but you drive with friends yeah and uh so ways is you know magical insight is that um there's a whole bunch of data being collected on the road by other

drivers all the time that can indicate um things passively like oh there's a there's a traffic uh there's high traffic there because people are going really slow now google's been doing that for a long time they introduced that in 2009 based on data being fed back from Android. But what Waze does is it both plugs you in with a social network based on Facebook or importing your contacts. And you can, while you're driving, report things like red light cameras, like police officers, like traffic accidents. And you kind of get a real-time map when you're driving of the incidents on the road. And this is really cool because before Waze, there was kind of like all of navigation and mapping was this like top-down thing where like, you know, TomTom or Garmin,

like they had their data set that was like canonical. And then, you know then even Google was collecting it from Android phones. But before that, they were just buying it from these other companies. But the key insight in Waze was like, hey, people are driving around with this stuff. They should be sending data back about what's really going on in real time. So yeah, cool history about how this started. So Waze is actually an Israeli company, and this is our first acquisition that we're covering out of Israel. It was started in 2006 by five co-founders.

Ahud Shabtai was the main founder and CTO, and he was joined by Amir and gilly uh shinar uh uri yuri levine uh and ari uh gilan and hud had been given an old gps system well new at the time but now old to our view gps system by a friend um you know those things that like my dad still has one of these that you like the portable things like a garmin type thing yeah like in once a year or something you can download all the new map tiles yeah and you like you know plug it into your cigarette lighter in your car and like you know suction cup it to your uh to your windshield um so he'd been given one of these in 2006 and uh he thought it was super cool and he decided to write some

software for it that would allow people to share information uh about where speed cameras were located uh in on the streets in israel and it started to take off uh but the company that made the gps device that he had didn't like it and so they sent him a cease and desist letter. And I believe we read that they said, you know, they'd be willing to, you know, like integrate the software, but like he had to stop doing it. And so rather than just giving them the software,

he said, well, screw you. I'm going to take your mapping data out of this and I'm just going to create my own mapping data and I'm going to crowdsource it and build this through the user base socially. So he started a project called Free Map Israel. And the aim was just that to replace this sort of like top down map data set that this company had put in their GPS unit with a crowdsourced, living and social data set. And it started to take off. A couple of years later in 2008, things are going well and they changed the name of the project and the started to take off. A couple of years later in 2008, things are going well and they changed the name of the project and the company to Waze. And they changed the terms of

the map data from being open and being usable by anyone to being owned by Waze. So Waze now owns and can commercialize all of the mapping data that its users are generating. And so that was in 2008. And then in March of 2008, they raised their Series A, the first capital they raised. They raised $12 million, led by Blue Run Ventures, which is a U.S. venture firm, and Magma Venture Partners and Vertex Venture Capital, I believe, who are Israeli venture firms. And it's interesting later, you know, this comes to play after the acquisition. Noam Barden, who became joined later in 2009 as the CEO of the company, he writes a blog post and he said, one of Waze's mistakes was the valuation of its Series A,

which significantly diluted the founders. Perhaps had we held control of the company as the founders of Facebook, Google, Oracle, or Microsoft had, Waze might still be an independent company today. This was after the acquisition he wrote in a blog post on LinkedIn. Oh, wow. Yeah. So the company continues to grow after they raised the Series A, mostly in Israel, and then they start to add other countries as well. In December of 2010, by that point, they've reached 2 million users, and things are growing pretty well. They have over 250 million kilometers logged in the app, which is huge.

Again, compared to data that other mapping companies are using, which is not live real data, this is a huge amount of mileage that's on real city streets and routes that are getting uploaded to Waze. So at that point, they raise a $25 million Series B from the same investors plus Qualcomm. And that was at a $95 million valuation. This was all reported in a Wall Street Journal article after the acquisition. And at that point, they opened up their first office in the US in Palo Alto, which was really cool. I remember when I started at business school at Stanford and seeing the Waze office, just like on the street in

Palo Alto. Like, oh man, there's Waze. Like that's super cool. It was a little storefront. I had that same feeling. I remember when I moved out to California for a summer for an internship, walking up and down Castro Street and Mountain View and just seeing like all the different startups. The one that actually sticks out in my mind was Mebo. I remember it was like that web-based chat software that I'd used a lot. And it's like really strange when you see a logo in real life that you're used to seeing digitally, like a physical representation on a building and you're like, whoa, it's right there. Yeah. This is one of those like really strange things that when you live in Silicon Valley, you like get used to really quickly and don't think about,

but when you first like move there or you visit, um, is totally mind jarring. Like you see these storefronts and they're actually like storefronts in Palo Alto and mountain view. And sometimes even in San Francisco, that'll be next to retail shops and they're like, you know,

ways. Yeah. Um, so they raised the series B, they had about 2 million users that's december of 2010 fast forward not quite a year to october of 2011 and here the intrigue starts to begin october 2011 they raised their series c so less than a year later they raised 30 million dollars at about a 200 million dollar valuation um frominer Perkins and Horizons Ventures. And they announced that they have 7 million users at that point. So October 2011. At the end of

2011, beginning of 2012, they announced they have 10 million users. So in just a couple months, they had 3 million users. Halfway through 2012, in July, they announced that they have 20 million users so they've now doubled from 10 to 20 in six months um and uh and then later on by the end of 2012 they get to 34 million users but a really important thing happens in the life of this company and like i said where the intrigue begins in the summer of 2012 at WWDC. It's amazing how much Apple and WWDC ends up playing a role in our podcast here. Is this the Forrestal? Oh, yeah.

Oh, yeah. Scott Forrestal's last hurrah, last stand. It's like Custer's last stand. I was actually at- Wait, wait, say what it is. Well, so yeah, I'm burying the lead here um apple announces ios 6 at wwc 2012 and in it one of the marquee features is they're launching apple maps so they're ripping google maps out of uh the iphone so until then all previous versions of ios had had the native built-in map software was google maps that that was built by apple but with google's data and data google's you know

map tiles yeah and i think it was something like the uh the contract expired and it was such that Apple didn't want to renew the contract with Google because they were starting to kind of part ways and get into a little bit of a war between the two companies. And Apple had to ship maps early because they couldn't use Google's data anymore and they didn't want to re-up and they knew that re-upping would like come with a really nasty price tag for them and, you know, a lock-in to send Google a bunch of data that they didn't want to. And I think Google is also requiring that people sign in with their Google accounts, which Apple didn't want to do for privacy concerns, even all the way back then. So Apple kind of like, you know, obviously rushed Maps to market because that was the only choice. Well, and this is, you know, obviously rushed Maps to market because it was the only choice.

You know, I think there's even more context setting that needs to happen here, which is that like it's as we were doing the research for this episode, like it struck me like just how fast the technology world moves. Like this was only four years ago, but it feels like a lifetime ago. And I didn't I'd completely forgotten all this stuff so um this is in this like at this time the mobile platform wars you know quote unquote were like in full swing like apple and google are going at each other's throats and like everybody in the tech industry is like who's gonna win mobile is it gonna be ios is it gonna be android and you know the tide tide swinging one way or the other. And people think that this is going to be a winner take all market at this point in time. Um, and, uh, the other thing that happened is Tim Cook had recently taken over as CEO, uh,

of Apple. Um, uh, Steve Jobs had passed away. Uh, and, um, the, uh, uh apple was was really you know in a uh tim and apple they were figuring out like what was going to be the path path forward it was it was becoming clear that there was no way that they were ever gonna uh overtake or catch up to or overtake android on actual uh user numbers um but like the world hadn't come to the conclusion yet, which now we just accept as a given, is that nobody won the platform war. iOS and Android coexist peacefully. Yeah, everybody builds for both mostly.

And Apple kind of has the more valuable customers and Android has most of the customers. And that's just the way the world works now. And there are all sorts of tools now to make it easier to build for both. And, but that was not the world back then. And so this is the stage, you know, Waze had been operating for four years at this point and had been growing the user base nicely and riding the wave of mobile. But all of a sudden they are like at the center of this huge conflict between these these two behemoths yeah so in at wwdc apple announces apple maps and this has been years

in the making but as as ben as you were saying they had to rush the product to market when they actually shipped ios 6 in the fall um And it becomes super clear. Like there was a ton of hype for this product. This was like the tentpole feature of iOS 6. It becomes clear within a week that like it is hugely broken. And there are all these reports of like people getting sent to the wrong addresses, causing all sorts of problems and accidents. And like it is a disaster for Apple when this happens. Yeah. problems and accidents and like it is a disaster for apple when this happens yeah and the story

you know that apple is trying to tell is like it's it's um two-sided one is that you know we really messed this up and we apologize and that's kind of tim cook comes out with that public letter writes a writes a letter posted on apple.com apologizing this has never happened before in the history of Apple. People are saying, this is what never happened under Steve. Right, right. But on the other side, Apple's hedging. And they're saying, well, it takes a lot of time for the data to come in, for it to get better.

Apple Maps is only going to improve, which is true. Which is true. It's gotten dramatically better. And that's the exact same story they had with Siri. Yep. And going back to the Steveve jobs comment it's funny steve this feels like actually a tremendously steve jobs move because like steve is famous for you know saying he's going to go through thermonuclear on android and like when when he

gets into a tiff like they get into a tiff and like even if if it it is it has some fallout like we saw here i think that that that's a very Steve move. And that's actually, Scott Forrestal was largely responsible for this and he was Steve Jobs' protege. Yeah. And so closing the loop on the Apple intrigue here, this ultimately ends up in Scott Forrestal getting fired.

Scott refused to write the letter. Tim said, I'm going to do it personally. Refused to write it, refused to sign it. Only Tim Cook signed it, even though Scott had publicly introduced the MAPS product. It was clear it was his product. And before Steve died and Tim became CEO, the public talked about, hey,

is Scott Forrestal the next CEO of Apple? Right. This guy, he's not just like some apple exec this he was like steve jobs's protege yeah and it's amazing that in in this letter that that tim cook writes he lists some alternatives for people that um are dissatisfied with apple maps and says it's going to get better but actually alternative products lists ways as one of the products that that people should go and try out instead of apple maps in the in the letter uh which is um again this is like

uncharted territory for apple at this point um again because with the backdrop of they are locked in this feature war with android and another one of the reasons that people speculate about why Apple and Google couldn't come to terms to keep Google Maps within the native iPhone software is that Google had recently shipped turn-by-turn navigation in Google Maps for Android, but it wasn't available on Apple. And people were speculating that google was withholding that ability which is hugely compelling um you gotta remember again this is like more context like the like tom tom and garmin and all these guys had navigation apps in the app store at the time and they cost like a hundred bucks i think they were patented like apple for whatever reason i i remember maybe i was wrong about this but i remember the reason being that google maps for the iphone didn't have turn by turn is because those companies owned the patent to that could have been maybe apple was concerned about that

or something but it was it was bizarre like the official maps app on ios like you only just got a list of directions. Like you couldn't, it wouldn't talk to you and say like, turn right in 600 feet or whatever. Like you had to like scroll through the list as you were driving or walking or whatever. Um,

yeah, it was terrible. Now, like, you know, looking back on it. Um, but if you want to turn by turn directions,

a, you got crappy products with crappy data from companies like Tomtom and whatnot um uh but you had to pay 50 100 bucks for that just for the app like could you imagine paying 100 bucks for an app now right right right so the stage is set i mean the stage is set so in the middle of all this ways is free and ways provides pretty good mapping um uh data and application. So this was, it was kind of October, 2012. By the time the dust settles,

Apple's fired Scott Forrestal. And then rumors start swirling that Apple is looking at acquiring ways, which was actually never true that I believe it was, who denied it? Apple. Well, Apple denies everything. Yeah. Anyway, Apple denied publicly. Apple denied publicly,

but you got to imagine that in the wake of this, that they're looking around and saying, oh my gosh, what are we going to do? We just have this egg on our face and here's this free app that is pretty good in the store and has a really interesting data model. Maybe we should buy it. And the rumors were that they were talking about a $500 million acquisition with Waze. How far that went, we don't know, but it doesn't come together um at the same time in december of 2012 so a couple months later google launches a standalone maps app the google maps app on ios which many of us

myself included now use and love does include turn by turn directions but is just a regular app in the app store and it was was great. It was like this incredible, actually, I know there was a five person team that did the native code and they're actually in the Kirkland office here in Seattle. Oh, cool. Yeah. I didn't know that. Yeah. I think the backend was all down in the valley, but the actual iOS app, the Objective-C was written up here. Wow. And when it comes out like it gets huge praise and it was it was like better than the android app and and there's all these uh yeah that that was a big blow up there's all these articles written about google's new design

paradigm because it was uniquely ios but still familiar for people that that um love the google interface and they found this amazing way to combine the two design languages and there were pieces written there was a fast company piece that was written about how Google's new, Google had this like design studio in New York. And they would go and work with all these individual business units. And it was like, I mean, I thought that it was really well made. And I think the rest of the world did too. It was so well received.

And I think actually that moment looking back on it now is the beginning, the heralding of the end of the mobile platform wars. Like now I like, I think we can look back on that and say that was the moment when the world, at least Apple and Google both decided like, Hey, we can peacefully coexist here. Yeah. Yeah. And, and Google knew that they, they had a good product on their hands and if they released it, and I believe you still have to, when they released it, you had to sign in with your Google account. So that was at the end of 2012 going into beginning of 2013. Another piece of context here is that Facebook is now emerging as the big, giant, counter-balancing Google. Again, in you know, as the world is determining that, you know, Apple and Google can peacefully coexist. Like Google's main enemy shifts from being Apple

to being Facebook. Yeah. And it's funny that it was Apple. This is weird detour. Google's core competency is being the best search engine. And that turns out to be a tremendous ad platform. So, you know, 90 some percent of their revenue to this day still comes from search ads or search and display ads. And they shifted direction. It almost seems like Android was a little bit of a distraction to go to war. They needed Android for a variety of reasons, but it made them focus on Apple as the enemy

since Apple was also producing this rival OS that came with great hardware. But really, Apple wasn't after Google's core business of search queries that led to a tremendous ad marketplace. And nor was Google ever after Apple's core business of hardware sales. Google doesn't make money on hardware sales for Android. No, but they really went to bat

on trying to displace the iPhone. Yeah. And it's weird. Historically, Google and Apple had always had this great symbiotic relationship. Google does the services. Apple does the hardware and native software. And Eric Schmidt was on Apple's board steve jobs kicked him off after they launched android uh and really and but you know then at the end of 2012 when google launches google maps on

ios it's like the detente is reached and since then it's like i wouldn't say it's back to the good old days but like google and apple both realize hey, we're not each other's enemy here. Yeah, yeah. Apple makes hardware and software that are excellent, sells the hardware. They have services that differentiate them, but ultimately you can plug in Google's superior services on any of those devices.

And have a great experience and it's symbiotic. But you can see why Google felt so strongly that they needed to control the input pipeline it's the same reason that they make chrome it's the same reason they're distributing chromebooks anybody who's the front door to the user has the power to redirect that like apple shipping all these services associated with bing in siri and i maybe even the default search engine on ios uh it's still google but i know that's always back and forth but yeah it's you can totally see why google's like okay we need to make sure that we don't like lose you know billions of

people the front door right to the internet which is where we make our advertising money which is foreshadowing yeah yeah so facebook goes public you know the right around the same time as wwdc in 2012 the beginning of this maps drama, the real threat emerges to Google, and that's Facebook's IPO. Yeah, Google's castle is where are people going to spend their ad dollars digitally? And that's linked to where people spend their time and where people's front door to the internet is. And it's like, oh man, that's Facebook increasingly. Yeah, Apple's not going to eat Google's launch. They have no incentive to try and get that advertising pie. But Facebook sure is.

That's their core business. That's the real threat. Yep. So we've just gone through this wild ride. Apple was rumored to be circling around Waze, thinking about a half a billion dollar-ish acquisition to fix their mapping issue, falls through. But then a couple months later in the spring of 2013,

rumors start circulating that Facebook is not only interested in Waze, but is going to buy Waze and going to buy Waze for about a billion dollars. This was in the press for weeks. It reminded me of the Twitch deal about a year later in that everybody just thought this was a done deal that Facebook had bought Waze. Yeah. And in my research, trying to look and see how Google justified this acquisition and how Waze was doing as an independent business beforehand. So many of these articles that are all loosely titled,

why is Waze worth a billion dollars, were written before the acquisition. Yeah. Nobody even knew Google was in the mix at this point. This was about Facebook. Yeah. Yeah. So the Facebook deal falls through. And we don't know, you know, unfortunately, Waze was not a public company, so we can't go through all the SEC filings and do our usual magic. And to date, there haven't been any lawsuits for us to go through discovery.

So we may never know exactly what happened with Facebook. But in some of the comments that the Waze team has made after the acquisition, never know exactly what happened with Facebook, but, um, in some of the comments that, uh, the Waze team has made, uh, after the acquisition, uh, one of the key sticking points apparently was that Facebook wanted to move the whole company to Menlo Park, uh, to California. Uh, and the team really wanted to stay in Israel. So, uh, a couple of weeks keep going by and the world assumes Facebook has bought Waze, but it hasn't been announced yet. And then kind of out of the blue, June 2013, it's announced that Google

is buying Waze for right around a billion dollars, somewhere between a billion one and a billion three. Most of it was cash, but there were other stock and other considerations. And that the team is staying in Israel. Some of the Wazers who were in Palo Alto are joining Google in California, but the core team is staying in Israel. Yeah. And they had a pretty immature location-based advertising product right around this time. Do you know when they actually started having a business model other than- Wasted? Yeah. I thought you were referring to Google had a pretty immature location-based advertising

product at this point in time, which also might be an accurate statement. This was, I believe, when did Marissa Mayer leave Google to take over Yahoo? Topical as Verizon just bought Yahoo this week. But Marissa had been in charge of local and location-based advertising products at Google before leaving for Yahoo. So I don't remember. I think she had left for Yahoo at this point. But anyway.

What I was sort of getting at there is I don't remember. I think she had left for Yahoo at this point, but anyway. What I was sort of getting at there is this billion dollar valuation has very, very little to do with. Wherever Waze was in their monetization path, and they were doing things like they had sponsored gas stations and they had some, you know, like Safeway and other location-based advertising on the map. But, I mean, this was a, well, we'll get into acquisition category. Let's just get into acquisition category right now. I mean, this was not a business line acquisition. I will come down hard on that. No. What's your categorization been?

I want you to go first because I'm going to do something unorthodox. Oh, I'm going to do something unorthodox. That's why I turned the turn the ball okay i'll go first all right well i'm doing it so uh traditionally on this show we categorize either by people technology product business line or other and i don't believe this falls into any of them because this is a data acquisition i agree and david you were it's funny you were just bringing this up right before we talked about the show um i want to introduce for acquired going forward uh another category of of asset yep this is clearly an asset buy is that what was that that's

exactly what i was gonna say all right so apparently we are are we sharing notes or something no are you cheating on the test pen we actually started um like what five or six episodes ago david and i realized that uh it wasn't very fun when we like talked beforehand and then were of one mind when we got into the show and then we would refer to things like we were talking before the show, which is less fun for you guys. So we were like, okay, we're going to stop talking before the show, except for like a few things here and there to make sure we have all of our bases covered. And sure enough, here we both are again. Yeah. And it's like, this is so clearly what it is because if you run through all of our previous categories for acquisition. Like, this was not a people acquisition.

Like, the Waze founders were clearly very talented, but that's not, you know, Google had plenty of people who were great at mapping. A billion dollars is not a talent acquisition. Yeah, well, I mean, yeah, no, it's not. This was not a technology acquisition. The technology, as we were just saying, that was actually in the Google Maps asset

was arguably as good or better than Waze at the time. Yeah, they didn't have active reporting, but they had the passive reporting of traffic and had been doing it forever. And I actually had in my notes from real early research, why doesn't Google just do this themselves? Because this is exactly the kind of thing they're good at. Yep.

It wasn't a product acquisition. Like Waze still exists and lots of people use it and love it, but they didn't replace Google Maps with this. No, and it's, in fact, not even part of the Google suite. Google finally now is bundling it as one of the OEM options when you get to choose all the Google services when you're making an Android phone, but it's still not a Google-branded product.

No, Google Maps is still clearly the flagship location based product. Um, definitely wasn't a business line, but it definitely was an other, other slash asset, uh, buy. And the asset was,

you know, I think a couple of things in this case, which is really interesting. Like, um, I think this, we talked about this a little bit with LinkedIn, but like,

Hey, this was a data asset. Like ways generates so much, very, very valuable data for that would be valuable to lots of people, but especially to Google in terms of improving their maps product, their core maps product, in terms of their driverless car initiatives and everything they're doing with transportation, you know, having real time data and not just passive data being streamed back from the phone like they're doing with Google Maps, but things like, you know, where traffic stops are like user reported accidents, you know, controversially, but has always been part of ways, you know,

reporting where police officers are in speed traps and red light cameras and things like that. But also like super clearly, as we've just been talking about with this whole drama leading into the acquisition, this had huge defensive value for Google. Like they did not want Facebook to have this. Yeah, and even more than the actual asset of the data is they bought this data gathering machine.

And I think that's why we haven't seen them mess with it at all is because it had a great growth trajectory, particularly after the Apple Maps debacle. It was growing at like 100,000 new users a day. It was insane. And that obviously is short-lived, but they recognize that this thing is going to continue to feed us really great data and data about the real world. Mapping data is something that is in need of being constantly updated. And people like Waze has invented these great mechanics that people often complain about because they say they're distracting while they're driving. But they've really created mechanics that people reliably feed really up to date-date information in high fidelity. Yeah, both passively and actively.

Yeah. And the super high-value asset is nailing the creation of that machine and the user experience that compels people to continue to do that over and over again. Yep. Well, I don't know if I want to say I'm glad we're in agreement, but I think we should add this to our categories going forward because this is so usually in other, it's like, oh, it's a one-off, but this is very clearly a category that we just haven't come across before. Yeah, I agree. All right, listeners, our next sponsor is a new friend of the show, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today. It's purpose built for small to midsize businesses and provides enterprise grade security with the technology, services and expertise needed to protect you.

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this summer. Yep. So if you want cutting-edge cybersecurity solutions backed by a 24-7 team of experts who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired or click the link in the show notes. Our huge thanks to Huntress. Cool. So what would have happened otherwise? I feel like, you know, in a lot of ways, it's through what we were discussing in the history with the drama and all the different big tech companies circling around ways, you know, this company was going to get acquired by somebody. So I think that's what would have happened otherwise. Yeah. It's also interesting to think, though, I mean, you know, this was 2013.

Again, not that long ago, reminding me again how fast the technology world moves. I feel like Ferris Bueller here, you know, if you don't stop and look around once in a while, you might miss it. Um, nobody was thinking about driverless cars then. And today, like people think driverless cars are going to be the second coming and the, uh, you know, every tech company and their mother is, is going after it. And what's interesting is that Israel is actually really, uh, companies in Israel and talent in Israel are really well positioned in this. There's a company called Mobileye, which is a large public company now

that makes a lot of the sensors that go into cars that are used for autonomous and semi-autonomous applications. Is that the military influence that? Well, everything in Israel is military influenced, but so this is a yes but um you know it's interesting to think like would a is independent israeli-based transportation and um driving focused company software company combined with the hardware talent there um be a real player in

the race for autonomous cars today i don't know i mean clearly you know big asset to google right now yeah the hard part would be production i mean that's that's something that traditionally american manufacturing has been very good at making but you know japanese are probably uh forthcoming chinese cars um well it's interesting too i mean it's just like um that market is so still has so far to go to play out like do you actually have to make the whole car yourself could you make kits to put into cars that lots of people are trying to do you know can you just be a pure software platform yeah my I think if I'm the car companies right now and realizing that there's going to be this driverless future

i think you have to make the bet that people aren't going to want to buy your cars in mass but people might want to subscribe to your fleet yeah and it would be like a mercedes-based uber like a self-driving mercedes-based uber and the question is like you know would people rather subscribe to a individual auto manufacturer's fleet or the things you can do for lock-in there? Or would people rather subscribe to a more generic fleet, Google or Uber? You know, in terms of thinking about themes we've talked about on this show a lot, you know, in terms of Ben Thompson's aggregation theory and owning the customer and the user experience, you know, his ways, his Google Maps. Is that the user experience for driving now? And like then the cars are the back end.

I don't know. Maybe we should also spend a minute. I think it would be, because this is just pure speculation, as will this next topic. But what if Facebook had bought these guys? Like, what does the world look like now? Facebook has basically no play in transportation right now.

Did you see, this isn't quite transportation, but Facebook's doing some crazy cool drone stuff. Oh, yeah, super cool. So Facebook's core competency is delivering ads to people, and they've basically run out of people with internet. So to expand past their existing massively saturated user base, they're trying to get internet to more people. So there's a team, I think it london-based engineering team that um yeah it was a company

uh i believe it was a company they acquired yeah but they created this like gigantic drone that can is super lightweight and as like can beam internet down and can fly for like a month at a time and so it's like it's interesting like while they're not in the transportation space, they are in sort of the large scale manufacturing space for completely different reasons. Yeah, super cool. This thing is awesome. Like it is a giant drone that can stay in the air

for months at a time and beam internet down and probably do satellite uh, satellite imagery applications as well. Um, super cool. Yeah, it's, it is interesting. Like why, why you could see Facebook buying this just to more effectively deliver local ads. I mean, this feels like Facebook at this point is looking for, basically Facebook is buying digital social billboard space and that's what instagram is that i don't know if that's what whatsapp is that eventually is what oculus is right they create these experiences and facebook extends their core competency of of you know being an advertising company into that i think it's wildly speculative, but basically like, you know, ways fits into that category of,

of digital social billboard space where stuff comes up that is relevant to you or people want to show to you or your friends recommend. I think it makes sense in that context and it just doesn't get used, um, for the autonomous car stuff at all. Yep. It is interesting. Like to this point, until about two minutes ago we started we've been talking about ways in the context of the world when it was acquired and it is interesting now to start thinking about it in the context of the world several years from now that's much more focused on requiring a super high fidelity data asset for autonomous vehicles. Yep. Yep. Um, which is like,

you know, clearly Google, they'd already announced that they were working on self-driving cars as part of Google X at that point, um, when they acquired ways. Um, but very few other people were thinking about this at that point in time. You know,

how much did that play into this acquisition or not at the time you know hard to say but but it's um clearly like for them as a defensive move versus everybody else that's trying to get into it now i mean like facebook might have bought it but what if tesla had bought you know right right or what if apple had bought ways as they were trying to and apple is now as you know widely reported working on self-driving cars yeah did you just see they they put bob mansfield in front of that i saw that in charge of it bob mansfield is like their uh he's a senior vp of hardware and then like didn't agree with management or something when scott forestall was still there and then moved to like head of special projects and seemed

like he was like half retiring but now he's like really back in full force with Project Titan or the Apple, I think that's the code name for the Apple, self-driving car thing. Interesting. All right, should we move on to tech themes? Yeah, not that we haven't been in there for the last couple minutes. Well, I've got two here actually,

and one I'll just do quickly, which is we've mostly covered in this past section, but it's sort of the value of a data asset. But specifically the bent I wanted to talk about it is like, it's when you have the potential for a very valuable data asset, you can use that as like a way to upend the business model in in the industry that you're playing in and just give something away for free so in this case like turn by turn navigation apps you know cost 50 to 100 dollars you know but ways can just give it

away for free because they're going to get their value out of getting the data right and they don't have to pay to acquire it and they don't have to yeah right and they don't have And they don't have to pay to acquire it. Yeah. Right. And they don't have to pay. And I think we've seen this in various ways in other acquisitions, both that we've covered on the show and ones that we haven't yet. Like I'm thinking about Instagram, right? Like Instagram was a social network, right? But there was also this app called Hipstamatic that was out before Instagram that was basically just the same thing, but it costs three bucks and it gave you a cool photo filter for your photos. And Instagram came out and made it free. And like lots of people, I'm sure, tried Instagram because they're like, oh, cool. I wanted to use Hipstamatic, but I didn't want to pay three bucks, you know? And, you know, same with LinkedIn. Like if you wanted access

to people's resumes, you had to, you know, pay recruiters and like go through databases. And when I linked in was like, resumes are free, you know, Skype did the same thing with phone calls. WhatsApp did the same thing with text messages. So I think it's a. It's a really interesting way of looking at that, that I hadn't really thought of before. It's like all of these companies found a way to make something free that was previously expensive and then could upend that business model. And I think a lot of the initial users that came onto these platforms were probably just like cheapos who were like, oh, yeah, I was thinking about using Hipstamatic, but I really don't want to pay three bucks. Yeah.

Which is like everyone, right? Right. Like as much, I i do that you do that like we exactly like we're all cheapos in in various ways and um but that's the thing about like how you can get these winner take all markets and what you need to tip the market in your favor is you need to like i love the the jeff bezos quote at the code conference which was um this year which was one of our carve outs a while a while back you know he said he has this thing he says um i think it was either cara or walt was asking him about

uh prime and he's like i want it i want it amazon prime to get to the point where it would be irresponsible not to be a prime member because you're getting so much value out of it and like that's what that's what this is here is like it would be irresponsible to pay for hipstamatic because you get more value out of instagram and it's free right which especially with networks network effects of course you get more value out of it everyone's using it because it's free exactly network effects they're a beautiful thing yeah all right i'll uh i'm gonna do my two now that was just one of yours right you've another one coming uh yeah but it's it's fast so all right cool i'm gonna do both my next

are related one is bringing measurable online advertising into the real world google and facebook both have ad units around this now i'm trying to trying to attribute when you see ads online and when you go to physical retail stores and understanding where those places are tracking you either via gps or sensors when you're in the store trying to bridge transactions in the store and and really get some good measurement around the the holistic view of of you in the real world and you uh you online and you know ways totally does this you see a digital ad, you tap on it, you navigate to go there.

And people don't even think twice about the privacy because the main purpose of Waze is knowing where you are. So you hand that data right over. You say, I want to go to this place. You navigate there. They might have paid for that ad. Or it might be a place that you're kind of organically trying to go to.

And then Waze knows that you for sure went there which makes it a pretty valuable ad unit and kind of ahead of their time I think people were talking about doing this for a long time but the idea of putting it into an app where you very explicitly have said please track me yep is pretty interesting go there yep yeah and then this kind of falls out of uh um my my second piece which is or my my second tech theme which is banner ads totally failed on mobile like display ads were a thing on on websites and people tried to put banner ads on mobile but there's such a little screen real estate that even the display ad people on mobile have mostly fallen back to just putting a big freaking desktop square in the middle of articles. Remember when, this would be a fun episode to do at some point, but when Google bought AdMob and Apple bought,

was it Quattro Wireless? Everybody thought mobile display was going to be such a thing. Yeah. I mean, there's that slide every single year in Mary Meeker's deck that says that the mobile ad opportunity is still huge because the amount of minutes spent on mobile versus on desktop way outpaces the actual ad spend on mobile versus desktop and that's because like this is this is my my tech theme we're just now

seeing the emergence of effective native advertising on mobile and as it turns out it's not a banner ad it's not a square it's not an intersocial it's it turns out, it's not a banner ad. It's not a square. It's not an intersocial. It's none of those things. It's not Instagram. Yeah. Yeah. And it's Pokemon, right? Like it's, it's figuring out what the very specific tailored experience someone is in when they're, they're immersed in this, you know, single full screen application. And like in the Pokemon case, it's my God god they're so obsessed with finding that we are so obsessed with finding the poke stop or the gym and like businesses can pay for the right to direct like people to go places in the real world and and that's going to be in my opinion the way that mobile advertising succeeds is that it's native it's very specific

to the platform and it took us freaking 10 years of mobile to figure out what the right way to advertise to people on that platform is. It's such a classic case of the mobile display ads being the head fake that it was a faster horse, right? It was the totally wrong way to think about it. And we see this over and over again in technology that like, and we especially see it like being in, you know, the startup world. Like so many times people recognize an opportunity coming in a wave, but their mode of thinking is stuck in the old world. Right. And like, you know, it's the faster horse thing. Like, you know, it's like, you know, you need to build the car, you know, and like. Right.'s the faster horse thing like you know it's like you know you need to build the car you know and like right pokemon go is the car snapchat is the car instagram is the

car ad mob was the horse you know yeah it's a 750 million dollar horse but hey you know good for um good for them uh and uh uh omar i believe the ce CEO is at Sequoia now. So yeah, he's doing great. Everybody worked out for everybody. I'm going to do my second one real quick. We've also talked about this before, but I think this is a really, I put this in here because there was a great quote in that same blog post I referenced earlier that we'll put in the show notes from Noam Bardin, who was the ceo of ways and still is from 2009 onward uh and and the theme is that like entrepreneurship is a global thing now and like silicon valley is this incredibly special place and has its own network effect and is where

the vast majority of startups are going to come. But innovation is not a physical location-based thing anymore. And Noam puts this great in his blog post. He writes about how Waze was an Israeli company and the importance of that. He says, Growing up in Israel in the 80s and 90s, I lived in a radically different world than my American cousins. We had one channel of black and white TV, music and movies arrived 10 years later.

There was no fast food or American brands and we lived very differently. And then he talks about how, uh, cable television started flattening the consumer experience when that came out in the nineties, uh, and early two thousands. But then he says,

then the internet like accelerated this change as people globally used windows, PCs and explorers to surf websites. Social and platforms have pounded at it again. And today, most of the users have the same Facebook account or Gmail interface and use it very similarly. The final flattening of innovation in the world came from mobile. Anywhere you go in Israel today, you will see iPhones and Android phones the same as in San Francisco running the same consumer apps and delivering equal joy on a family vacation with Waze management it was amazing watching our kids both Israeli and American naturally communicate and share apps without the need to speak the same language like this is like a sea change that's happening in innovation

and we're seeing it with stuff like apps like Musicalically now that are getting big like it's based in shenzhen but like it's a big social network in america yeah i mean there's still something to be said for density of networks um like just the people you encounter and the people you work around and the speed at which information gets gets exchanged there absolutely but i think the nuance here though is like uh something like musically Waze, like it's in both places. Like Musical.ly is in Shenzhen and it's in Silicon Valley. Waze was in Palo Alto and in Israel. Yeah.

Yeah. Definitely the dual office thing. I would say like you still sort of need to have your finger on the pulse in the hub. Yep. Absolutely. Well, we talked about this with scott right like the importance on with in the exact target episode it was so important to scott and to indianapolis that they get the direct flight to san francisco yeah it's a great point um okay grading it let's grade it um

so it's interesting there's probably there's like two criteria to think through here there's we're three years out from this acquisition so we have a little bit of perspective we can see what they've done with it so far but then you also have to take into account the speculative view looking forward which is a lot around autonomous vehicles and you know i think they've done a pretty like it's really hard to figure out what the size of the ad business within ways is i predict it is nowhere near close to paying back um the the purchase like this as a product would be shocked yeah this as a product is not not going to pay for itself but the data asset has stayed really strong like people still use Waze all the time.

Many Uber drivers are using it and preferring it to Google Maps. In developing countries, it's used way more often because the crowdsource data is way more accurate. So as those countries really start to come online, their default experience is Waze. It would be not great for Google if that was out of their hands. And I think that that combined with Google's autonomous vehicle future and the great data that it develops, that it creates for itself, for its use in its own app, and that feeds into Google Maps, you know, I'm going to go A- only because the A's that we've

given out are just like wildly successful on a ridiculously fast scale yeah i mean to me it's almost like in some ways this is a cut like i am going to give it a grade but but how i really feel is and i know this is a cop-out in some ways but ways quote unquote um it's it's too early to tell like even though this happened three years ago and it's too early to tell because just like like three years ago and this whole ways story i feel like was really the closing chapter of the mobile platform wars quote unquote you know what's happened since then we're now at the emerging of the era of like machine learning is the really important thing in technology like we went from you know google's being very open and saying this

you know about themselves but we went from a world uh call it 10 years ago where companies were you know internet first companies we weren't software companies we were internet companies to you know from 10 to 5 years ago the world shifted to mobile-first companies. Companies aren't just internet. They're mobile, and they're not just building desktop websites. But now we're shifting to a machine learning-based. Companies are ML-first. Google is very explicit.

We are an ML first company now. And you see that across all of our products with Google Brain, with Maps, with TensorFlow. And the first, I think, like huge native ML application that industry that's going to happen is going to be probably autonomous vehicles. So... Already is. Well, yeah, it already is. I mean, Tesla's doing it. Like it was like, you know, this was the Trojan horse. Um, so how important ways, um, and the ways data becomes in that to Google, like, like I said, I think the value is still in the future. Uh, but that said, like, um, for the defensive reasons we talked about and for the value that they've realized even so far along that um yeah i mean i think it's an a minus because um like you said the bars our bar is is

very high for the a's um yeah it's like it's it's an a minus with low confidence that it's going to stay there right like there's going to be an a or it's going to not be an a minus yeah right um yeah uh it's interesting like compare that to cruise which gm bought for a billion dollars like right around the same amount of money um you know arguably uh there's a lot more value in um ways uh thus far that google has realized then you know cruise is still very much pre-product. So we'll see. That's part of why I say though, is that like, it's just, it's too early to tell. Yeah. Okay. Let's bring this one on home. So follow-ups, we got nothing for you this week, but maybe next time. Maybe we'll talk about autonomous vehicles um carve out uh what you got ben all right so i've got a podcast for us uh this week i um i've been i listened to one episode of this

because i got i got totally roped in actually a while ago uh to a podcast called song exploder by their first episode which uh which featured theal Service. And what the host does, Rishi K. Sharaway, he sits down with an artist, a musical artist, does an interview, and also gets them to provide the actual track, all the different tracks that make up that song. And he'll listen to each layer and play each layer individually and have a conversation with that artist about where did this individual sound come from and where did this instrument come from and who provided this and who did you collaborate with. And a lot of times they even come with early recordings and demos and songs that inspired that song. And he does a really

great job of kind of isolating these individual pieces. So go oh whoa i can totally see that and um one of my favorite bands is odeza i saw them this weekend in seattle capital hill block party their episode is is super super cool they talk about you know when they went over to bainbridge island to compose this song and um that that's super cool but the the best episode in my opinion and it's sort of dangerous to start with this one because it sets the bar high, is an interview with Weezer where the systematic approach to songwriting by this dude is absolutely amazing. And he has like spreadsheets full of lyrics that come out of his journaling that he highlights that he then puts in there and tags by the number of syllables and the on beat and the off beat. And then combining all these different ones after he writes a riff, it is like, uh, I'm not doing it justice. You gotta listen to this.

It's the Weezer episode of song exploder. It's so good. Dude, that's awesome. I've, I've heard about this podcast, but, and been meaning to check it out um but i really need to know that sounds really cool it's like they're doing two uh songs what we do to m&a deals they are and the production is so so high quality it's like a total treat to listen to each one and it's gotten me into bands i didn't like before and it's gotten me into songs where now when i hear some of these songs after I hear it get exploded for 20 minutes before it's like it that song that comes on that's like one of my favorite songs if it was if it was an episode that's awesome um so uh my carve out for the week is an oldie but goodie uh that was sent to me uh recently by a really good friend um and uh i'm so glad he sent it to me because i'd watch it's a ted talk um and it's uh simon uh cynics uh start with y uh ted talk um it's one of

the one of the top 10 um ted talks and it's interestingly it's a tedx talk done at TEDx Puget Sound here in, I believe it was in Seattle in 2009. And it's just such a cool concept. And it's called Start With Why. And then he ended up writing a book about this. But in the sort of more raw version of the TED talk, he talks about it as the golden circle. And it's, uh, you know, there are three levels of communication about, um, a company or a product or a person or a firm. Um, there's the, what you do, there's a, how you do it. And there's the, why you do it. And 99% of companies or firms or products or people say, hi, I'm David. I'm a venture capitalist at Madrona Venture Group in Seattle, Washington. And we do seed and Series A deals, invest in seed and Series A stage technology companies, largely in the Pacific how, and then maybe they do a little bit of why.

But if you actually want to inspire people and reach people and do something that has a much higher chance of success, a chance to have experience with their venture capital firm that's every bit as high quality as the best companies in Silicon Valley get. Yeah, that was a lot more. Do you want my money, right? Like, you know, then that like, it just comes across like you're you just by reversing about like talk about why you're doing something and what you believe in. It's going to be so much more powerful than starting with the what um and uh uh interestingly apple is the is the uh company that uh that he uses as the canonical example here uh we think

differently at apple uh we uh design uh beautiful uh we have beautiful intelligently designed products. And those products happen to be phones and computers, not we make computers and cars. Yeah. Not we make computers and phones. We design them beautifully and we believe in thinking differently. Yeah. Yeah. That wouldn't fit on the poster. It would not. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring.

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