Google Inc. is spending more than $1 billion to help it recover ground lost after its mapping tool was surpassed by Facebook Inc. as the most popular U.S. smartphone application.
Google said Tuesday that it's buying Waze Inc., maker of software that relies on user input to make digital maps more accurate and up to date.
The deal keeps Waze away from competitors such as Facebook, which too had considered a purchase, people with knowledge of the matter said last month. It also underscores the urgency of wooing users who increasingly access services such as driving directions and social networking on smartphones. The number of U.S. visitors to map applications in April grew 3.7 percent to more than 75 million in the past year, ComScore Inc. said.
"It is a lot of money, but at the same time it really does further Google's ability to really push into the local, mapping and mobile areas," said Ron Josey, an analyst at JMP Securities Inc. in New York, who rates Google market outperform.
Google paid about $1.1 billion for Waze, people with knowledge of the matter said. It's the fourth-largest deal for a company that has made more than 100 acquisitions since it was founded in 1998, according to data compiled by Bloomberg.
Even as Google slipped in mobile-app rankings last year, it remains the leader in mapping tools. Google Maps was accessed by 66 percent of U.S. smartphone users last year, ComScore said. Apple Inc. and Waze's map tools didn't make the top 10.
Just how crucial maps are to smartphone users became clear last year during a dust-up between Apple and Google. Apple was widely lambasted by consumers and reviewers after replacing maps using Google data. In its place came a home-grown app by Apple marred by unreliable landmark searches, routes that got users lost and a lack of public-transit directions.
Apple Chief Executive Tim Cook later apologized for the misstep, which contributed to the removal of Scott Forstall as the company's software chief. Google later built its own iPhone maps app that quickly became a top download.
Waze, which has offices in Israel and Palo Alto, Calif., is poised to help Google maintain its mapping lead. The company has amassed more than 50 million users with tools that help drivers get to their destinations quickly, said Chris Silva, an analyst at Altimeter in Melrose, Mass. It fared better than Google in some tests, he said.
Waze's app, which runs on Apple's iOS and Google's Android mobile operating system, alerts users to potential traffic slowdowns and suggests alternative ways to reach destinations.
The service also notifies drivers of road work, potential hazards and speed traps, using input from users.
"I've seen that the traffic data can be much more reliable," Silva said.
In a testament to the company's allure, Waze fielded expressions of interest from multiple parties, a person familiar with the matter said last month. Facebook held talks to acquire Waze for as much as $1 billion, said two people, who asked not to be identified because the talks were private.
While Google will keep Waze independent, it will also use data from Waze to improve its own services, Brian McClendon, a vice president at Mountain View, California-based Google, said in a blog post Tuesday.
"We're excited about the prospect of enhancing Google Maps with some of the traffic update features provided by Waze and enhancing Waze with Google's search capabilities," he said. "The Waze community and its dedicated team have created a great source of timely road corrections and updates."
Google has taken other steps designed to keep its mapping lead. The company last month gave a preview of the biggest overhaul of the map service since its inception, providing more context and recommendations, whether for a particular restaurant or museum. While the revamp is for desktops, the updates are likely to be rolled out to mobile users as well.
Apple, based in Cupertino, Calif., is striving to improve its mapping services. The company said this week it would add its mapping application to desktop computers, enabling users to send directions to their iPhones.
"Apple's been pretty aggressive," said Carl Howe, an analyst at the Yankee Group Inc. Google "didn't want Apple picking up Waze as a way to make their current maps product better pretty quickly."
Google will also need to ensure that the transaction can stand up to regulatory scrutiny. While the purchase might not be blocked for its potential to alter the competitive landscape, it could still end up being studied closely, according to Allen Grunes, a former antitrust attorney for the Justice Department in Washington.
Aside from helping Google make its maps more social, Waze also may contribute to sales. Waze provides advertising based on locations. For example, marketers can target users that have signaled they like a company with highlights of their businesses, Silva said.
Location offers a new way for advertisers to reach users when they are near a gas station, coffee shop or pizza place. Promotions tied to mobile maps could add $1.1 billion to $2.4 billion in revenue from local businesses in the U.S. by 2016, according to estimates by analysts at Barclays Plc.
Waze also shores up Google's push into social-networking through its Google+ initiative, according to Charles Golvin, an analyst at Forrester Research Inc. That bolsters its efforts against Facebook, the owner of the world's most popular social- networking service.
"What Waze would bring is the social aspect around location and getting more information from your social connections," he said. "Given Google's dominance in mapping and navigation this is really much more of a valuable addition to their social platform."