Can GPS startup company Waze map the perfect commute?

Very few things can trigger road rage faster than being told by your GPS device to exit the highway on an off-ramp barricaded by construction pylons or to turn left onto a nonexistent service road. So goes the reality of location-based services, with so-called intelligent maps that ostensibly enable GPS to chart an unimpeded path between you and your destination.

It's an industry that sprints from hype to hype, says Dominique Bonte, an analyst at ABI Research. Until now, no one has created dynamic "live" maps and real-time traffic on the back of a sustainable business plan. Is Israeli startup Waze the company that's going to reshape the industry? Created in 2008 by software engineer Ehud Shabtai, Waze uses GPS-enabled smartphones to distribute its free software, which maps out streets as you drive them and predicts traffic in real-time through crowd-sourced intel from commuters. No one else is doing all that at once and for free. Why now? The industry is at a turning point. The iPhone 3G S and Android platforms now support location, and smartphones finally have GPS chips good enough to compete with personal navigation devices that offer turn-by-turn directions.

The closest that the hype has come to reaching reality is Dash Navigation, located in Sunnyvale, Calif. The once-hyped PND maker won devotees when it, too, crowd-sourced traffic information through its Internet-connected device a few years ago. (Dash set a precedent by using the Internet—as Waze does—for two-way feeds to crowd-source traffic info through a server.) But Dash came with a hefty $400 price tag for the hardware and a monthly subscription fee. The company flat-lined. It was bought by Research in Motion (RIMM) last year, presumably as an engine to provide traffic services and navigation for BlackBerrys. For now, it is Waze's only serious competitor.

That's because other services rely on traffic alerts that are limited by data from static sources. Mobile phone operators, smartphones, and PNDs all source their traffic from suppliers like Inrix and mapmakers like NavTeq or TeleAtlas. These companies collect data from sensors built into roads and model traffic based on "historical data" you can predict, like post-game stadium traffic or congestion on the FDR at 8 a.m. But road sensors are expensive and sometimes inaccurate. TeleAtlas also pays truck fleets to carry a GPS device that reports speeds. "But the accuracy of the traffic info is limited to the main metro areas and the routes those trucks take," points out Bonte. "We get a use pattern much closer to the commuter," underscores Waze CEO Noam Bardin, "similar cars on similar roads going through similar patterns."

Waze's software works by pinging each car between every 30 seconds to three minutes to get its location and relative speed. While that's happening, the server crunches and sorts any new traffic data or map updates and dispatches it to other drivers in minutes. What you see on your map are little pink avatars that represent cars coursing along various roads—road speeds are shown in talk bubbles—and pop-up icons alerting you to cops, construction, or accidents. (Waze uses the U.S. Census Bureau's Tiger maps and auto-corrects them through the data it receives.) You also get an ETA and alternate route with turn-by-turn navigation if you need it.

A duopoly of digital-map makers, TeleAtlas and Navteq, controls the industry. (PND and smartphone makers, as well as Google (GOOG), source-map from TeleAtlas and NavTeq.) But both mapmakers are burdened with seemingly unsustainable labor costs. That's because the way they create their maps is by driving the world's roads. Millions of users also add GPS updates by plugging their PNDs into their PCs to upload the data that the PNDs record and make map changes. But months pass before all that data is verified and updated. Waze, by contrast, is virtually instantaneous.