- Google has launched a new carpooling service in Israel, managed by its mapping subsidiary, Waze.
- The new app, named RideWith, is not meant to generate revenues for the tech giant but to allow experimentation of its uber-like software capabilities.
- Google will leverage the trial results to its future projects that contain location-based ads like driverless cars, Google Glass, and its in-car infotainment systems.
Under the radar and away from the big markets, Google (NASDAQ:GOOG) launched a new carpooling service this week in Israel named RideWith. The pilot is managed by Google’s social mapping service Waze, a fully-owned subsidiary that was acquired by Google in 2013 for $1.1B after competing neck to neck with Facebook (NASDAQ:FB) to acquire Waze. RideWith is described on its website (currently available in Hebrew) as an efficient, affordable way to get to and from the workplace with great social causes in mind, like reducing daily commute expenses, reducing the number of vehicles on the road, reducing air pollution, developing mutual assistance, and companionship.
Google and Waze will try to keep RideWith as a socially-focused app that offers a convenient, affordable ride to work and users have a number of limitations that prevents it from becoming a second income source for drivers, like limiting the rides to daily rush hour times, limiting trips to only 2 a day – to and from work, suggesting minimal compensation for drivers that should offset driver’s expenses, and maybe a small marginal fee. RideWith is currently available only on Android and should be available to iPhone users in the future.
The Real Story Behind The Launch
The social benefits of RideWith are numerous. The app will help decrease the number of cars on Israeli roads during rush hour, reducing air pollution and strengthening Israelis' sense of brotherhood. However, it would be very naïve to believe that Google (and its mapping service, Waze) has become so socially aware that it has neglected the financial and business aspects of this initiative.
In Israel, as in most countries, a driver cannot receive compensation from a passenger without meeting the regulatory requirements by the ministry of transportation and obtaining a taxi license and the proper authorization to operate a taxi. By offering a "ride-along" service in which passengers reimburse drivers for their ride-related costs only, Google overcomes the regulatory hurdles related to local taxi licensing that Uber, Lyft, and Gett face in every country they penetrate. I see three possible benefits for Google here:
- Testing an autonomous-car navigating system: By examining the RideWith app separately from the autonomous-car experiments, Google can isolate navigating software operation and improve its capabilities to pick up passengers along the route, planning pickups ahead for the rest of the week and adjusting the trip route to accommodate users.
- Testing Google’s infrastructure for an Uber-like service: It has been discussed at length in almost every instance that the driverless-car topic arises that Google will use it primarily as a driverless Uber-like service. To build the software infrastructure for such an initiative, Google has to experiment with an app that provides a similar service based on its internal mapping service. For such an experiment, revenue generation during the initial phase of the launch is less important than the result.
- Improving location-based display ad technology for the Android Auto system: Google released its first version of Android Auto this year in a first attempt to penetrate the automotive industry, to control the infotainment display panel on cars in the first phase, and to implement a mature, proven system into the autonomous cars at a later stage.
The business rationale behind all of these usages is the same — to increase Google ad revenue. This new service could be one of the methods of improving its core business and should help the gradual decline in ad revenue that the company has seen in recent times. When Google knows that 1,000 smart cars will go on a particular street in a few days, it could offer location-based ads and generate revenues from each trip. In my opinion, this is the big idea behind testing out RideWith in Israel.
Why Choose Israel For The Launch?
At first glance, launching the RideWith service in a market as small as Israel, which has only 200,000 employees currently using carpools, might seem odd. However, it might be just the ideal location. First, Israel is far enough from the Silicon Valley that it will not attract too much noise, and Google can run it quietly. Second, Israel is a technology-savvy community, and the pilot takes place at the heart of the high-tech industry of the start-up nation. Third, the Waze offices in Israel will allow for better monitoring, and the company’s employees could use it themselves.
Only time will tell how the service pans out. Going ahead if the pilot comes to an end, Google can either terminate it entirely or keep the service active as part of a Waze offering in Israel with a minimal budget. In each of the alternatives, the learning can be leveraged to generate greater ad revenue for Google either in the autonomous cars project or in the Android Auto initiative. As Google ad revenue is of primary interest to the company in contrast to the trip fares for the other cab-service providers, the search giant may pose a real threat to Uber valuations and the valuation of similar services by offering different business models to drivers that could be related to ad revenue instead of trip fares or some combination of the two. The traditional players in this market should be very concerned about a disruptive business model that offers better compensation to drivers, and that they will have a very hard time competing with moving to an ads-based compensation.
Google launched a new carpooling app that is currently available only in Israel for a limited period and managed by its fully-owned subsidiary, the social mapping service Waze. Google could leverage the results for some future projects that should drive higher display ad revenue. However, this launch should not impact a buy or sell decision in an Google Stock Analysis but is only an indicator of how Google will manage its more prestigious projects that contain location-based ads like Android Auto, autonomous cars, and Google Glass. I suggest that Google shareholders pay close attention to how the RideWIth service develops, as it may serve as an indication for future projects and revenues.
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