How to Make It in America, the Waze Way

Between a Mexican restaurant and a furniture store sits Waze's outfit in Silicon Valley. It looks like a Soho loft.

Outside the Silicon Valley offices of Waze, the day after Google purchased the Israeli navigation startup for over a billion dollars, two Japanese tourists celebrated having found one of the company's retail stores.

They could be excused for their confusion.

The company's offices – located in Palo Alto, California – are sandwiched between a Mexican restaurant and a furniture store. Down the block, the neighborhood turns high-class residential, featuring opulent homes with immaculately manicured yards.

It's not a place where you would expect to find a hot, young high-tech company. 

On the inside, the offices turned out to be even more out of step with stereotypical Silicon Valley culture. They were an open space about 650 square feet across, somewhat reminiscent of a one-bedroom Tel Aviv apartment.

A communications director, a young American woman named Julie Anne Mossler, agreed to show me around but said Waze wasn't granting interviews – maybe in a month or two. She pointed out the eight staff members in the offices, all American and working in either graphic design or sales, and said there were two more employees in New York. All of the product-development staff works in Israel and the CEO, Noam Bardin, who had an office in the back, was there at the moment, she said.

Despite Waze's blockbuster exit, which had happened just the day before, there were no signs of celebration. The offices were quiet and the employees were glued to their computer screens. Mossler said there were no balloons or champagne. The staff had celebrated at a nice restaurant after the announcement, she said, but now there was work to do.

Mossler said everyone was optimistic about Google's plans to move Waze forward while leaving it independent; she was unsure if the employees in the offices would be moved to the American Internet giant's grand headquarters in nearby Mountain View.

Hummus and high-tech

A block from Waze's offices, Oren's Hummus – founded by Israeli high-tech entrepreneur, Oren Dobronsky – attracts its fair share of Israeli clientele. Located on Palo Alto's main commercial thoroughfare, University Avenue, it's surrounded by shops, restaurants and bars full of high-tech types and aspiring high-tech types from the city's Stanford University. In the wake of Google's acquisition of Waze, it was a good place to gossip.

"They [Waze's employees] really scored big time, not only because of the price but also because they are looking after their employees and maintaining the company," said Eran, an Israeli customer who had worked for a Silicon Valley company that was bought out.

"It usually doesn't happen this way, definitely not in buy outs by big companies. When Facebook bought Face.com, [the Israeli-based face-recognition start-up], the folks there came here and were pretty down at first, especially because some of them were demoted in their positions and responsibilities."

He continued, "At a small startup in Israel, every programmer is also some kind of director of sales or business development. Here, it really doesn’t work that way, so some of them went back to being programmers and that's very hard at first. It's like starting at a new company. The identity of the company that you worked for no longer really exists. After a few months, people understand the reasons for this, and then you can just enjoy the life here."

Others were more critical of the deal.

"A lot of Israeli entrepreneurs didn't like their [Google's] insistence that all the operations remain in Israel," said one senior Israeli high-tech source in Silicon Valley. "It could be a problem and do harm to future acquisitions of Israeli companies. If we get a reputation as people who prefer that everything stays at home in Israel, companies may prefer not to deal with us and say they don't need this whole headache. Major companies usually want companies that they acquire close by."

A new standard

Google chairman Eric Schmidt's private investment fund, Innovation Endeavors, operates out of a tony loft overlooking University Avenue. The fund's interests include Israeli companies and entrepreneurs. It is managed by Dror Berman, an Israeli who served in an elite army unit before coming to California to attend Stanford. There, he took a course taught by Schmidt, who later offered him a job. The two men were together at a creativity camp in an isolated forest when the Waze deal was being finalized.

"I didn't talk about Waze with Eric," he said, reminding me that Innovation Endeavors is a private venture of Schmidt's and not part of Google. "I really don’t know what the plans are other that what is reported in the media, but what is certain is that it has a lot of potential and it's a good deal for both sides."

"The price for the deal is a function of time and momentum," Berman said in explaining Waze's high price tag. "Google bought YouTube for $1.6 billion and that was considered high. It's a strategic acquisition, so the price is not at all a function of revenues."

He predicted Waze's high-profile acquisition would help other Israeli firms and entrepreneurs.

"This is the first Israeli company [acquired] whose power is in its users, and in the Israeli context, that's a big thing because that's something that Israeli companies didn't know how to do up to now," he said. "Waze became an icon in the field here. At a conceptual level, that's very important. Silicon Valley frequently operates on momentum and prestige. When there are major acquisitions of Israeli companies, you are identified with success as an Israeli."

Sigal Admony Ravid, who heads Israel's economic mission in San Francisco and whose territory includes Silicon Valley, said, "Now our job as an economic office will be to take it forward and show that Israeli companies also know how to create value for users."

It's not every day, she said, that Internet giants like Facebook and Google compete to buy an Israeli company for a billion dollars.

"There have actually been bigger deals" she said, citing the $5 billion acquisition of Israeli high-tech start-up NDS by Cisco last year. "But this is still an unusually large sum."

Addressing criticism of the trend of Israeli start-ups being sold abroad, Admony-Ravid noted that Google will expand its operations in Israel following the acquisition.

"This deal proves how important the connection between Israel and the United States and Silicon Valley is," she said. Ultimately, Waze's main growth engine was here [in California]. True, the company was based in Israel, but its CEO was here, because they understood that the major market was here. Without being in Silicon Valley, it would have been very hard for them to achieve such dimensions."

Other Israeli companies, Berman said, can maintain their product-development operations in Israel but they need to come to the United States to understand the market. "In my opinion," he said, "it will continue to serve as a model."

Omer Shubert
Bloomberg
Nimrod Glickman