Getting a map and directions in your car used to require a several-hundred-dollar investment in a GPS device. The popularity of this equipment led to fast growth for companies like TomTom and Garmin, the dominant makers of “personal navigation devices,” as well as profits for companies that supplied digital street maps, like Navteq and Tele Atlas.

Now, these lucrative businesses are facing new challenges from smart phones and free maps, some of which are being created by drivers themselves.

Take the case of Waze, a company based in Tel Aviv, Israel, that believes it has unlocked the key to turning maps and traffic data into a commodity so cheap that no one will be able to charge for it—not even them. Waze has created a combination of smart-phone apps and websites that lets users build maps and report traffic conditions within a Wikipedia-like system.

Traffic data, even about the existence of new roads, is gathered automatically from the routes and speeds of users, who also have the opportunity to submit data manually. The Waze app then provides turn-by-turn directions on a person’s smart phone, offering an experience similar to using a stand-alone GPS device.

Waze was born in 2006, when founder Ehud Shabtai coded an add-on for a commercial GPS system that let users map the location of speed cameras. Within three days, he says, users had mapped every camera in Israel.

Waze is now Israel’s dominant provider of navigation data, according to CEO Noam Bardin, and consistently ranks above Facebook as the most popular iOS app in the country. Bardin says his company’s goal is to reproduce that success worldwide. It hopes to make money through location-based advertising.

Most digital maps are based on public data provided by government agencies such as the U.S. Census Bureau. But companies then drive the roads with specialized vehicles that gather additional data from an array of sensors. Tele Atlas, for example, uses vans bristling with cameras. It’s this final step that allows companies to validate their data in ways that customers like regional transportation departments and automakers require.

The map business has already been hit hard by changing technology: the combination of smart phones and Google Maps has allowed many consumers to access real-time directions without buying a stand-alone GPS. As a result, sales of these devices are sliding. TomTom’s sales were down 10 percent during the third quarter of last year, leading the Dutch company to announce job cuts.

Garmin saw a similar drop-off in sales in its automotive division over the same period. While it supplies most car makers with in-dash GPS systems (it recently developed a customized mapping system for Chrysler), those sales now account for only a fraction of its business; its revenues are coming increasingly from wristwatch GPS units and devices for aeronautical and nautical applications.

As more geolocation-based smart-phone apps launch, including ones that help users locate restaurants or hail a cab, some businesses are looking to cash in. Google, which used to give its maps away free, has started charging some developers licensing fees starting at $10,000. Google Maps also seems to be seeking business from automakers: it has made its first appearance in an in-dash navigation system, in the Audi A7.

But Noam Bardin says no other mapping system can match the power of crowdsourcing. Waze starts with traditional sources of data, such as the public-domain maps generated by the U.S. Census. But it also has 11 million users worldwide, all of whom are automatically feeding travel and geographic data back to Waze’s servers as long as the app is running. That information is used to update maps and provide traffic information. Several thousand unpaid editors approve any changes to the map that users suggest.

“There have been many studies done on Wikipedia, and the rate of change is what makes it so accurate,” says Bardin. He says a similar effect is at work in Waze’s maps, which are updated every 24 hours rather than quarterly, like the maps in most personal navigation devices.

Waze is taking off in countries that don’t already have good digital maps, such as Costa Rica and Malaysia. Entire portions of the global street map are being filled in not by professionals, but by ordinary citizens with smart phones. If maps are subject to the same forces that have affected online encyclopedias, then the arc of history is clear: crowdsourcing isn’t just cheaper than expert-driven data, it’s also potentially faster and more accurate.