Uber, Waymo and the Future of Transportation-as-a-Service
With Google and Uber settling their lawsuit, there might yet be room for a partnership of competitors
By now, everyone has heard that the Waymo-Uber trial came to an abrupt close after the two reached a settlement. It was Waymo’s case to prove, and reports were their case was lacking a “smoking gun”. From the Verge:
So who gets what? Waymo gets 0.34 percent of Uber’s equity at the company’s $72 billion valuation, which works out to a value of around $245 million (…)
According to a source familiar with the matter, Uber cannot use any of Waymo’s hardware or software trade secrets as one of the conditions of the settlement. That’s interesting, especially since the trade secrets at the heart of the case were all related to hardware (emphasis mine).
Not enough attention has been paid to the ways in which the long-term business strategy may have impacted the litigation strategy on both sides. There are the obvious points: Uber wanted to clear the deck for its impending IPO, and Waymo (owned by Google/Alphabet) wanted to protect what many believe to be market-leading self-driving technology. But, the reality is both companies possess critical components of self-driving technology, leaving the field open for competition or collaboration in the future.
The Verge calls out perhaps the most important point: Uber cannot use any of Waymo’s hardware or software trade secrets. Given that the trade secrets at the center of the case were hardware related, protecting their software seems like a major win for Waymo. After all, Google is still a software company; they’ve shown limited ability to succeed in hardware of any type (No, selling 4 million Pixel phones doesn’t really do the trick).
Remember, Google Ventures invested in Uber in 2013, and owns about 7% of the company overall. Google also invested $1 billion in Lyft in late 2017. In addition, Google’s Waze is piloting a carpooling app in select geographies. In short, Google has its money (and technology) placed on multiple bets in the self-driving and ride-hailing market. It almost calls to mind the strategy SoftBank has taken on an international level, investing not only in Uber, but also in Uber competitors Didi Chuxing (China), Grab (Southeast Asia) and Ola (India).
This gets to the unifying thesis underlying SoftBank’s $100 billion “Vision Fund”: data collection. Ride-hailing companies are all collecting massive sets of location and logistics data, crucial in building the connected fleets of the future. The New York Times did an excellent write up on SoftBank’s strategy, calling out the enormous amounts of date they all its portfolio companies collect that will be needed to power the automated machines of the future. Google’s self-driving efforts similarly reflect an ethos of data collection; and which company better knows what to do with massive quantities of data than Google? Google is playing the long game: these various companies all provide potential routes to market for its self-driving technology. And while Google may provide both the hardware and software for this self-driving future, its expertise would seem to lie on the software side of things. In particular, Google’s mapping and image recognition capabilities are unmatched.
Through all this, it’s important to remember that as self-driving cars come to market, Uber’s business model will likely change dramatically. We’re currently experiencing Uber 1.0; at some point in the future, an Uber x.0 will be powered by a self-driving fleet of cars, always on call. It’s also important to remember that Uber (or Google) isn’t the only company pursuing this future: from Detroit to Silicon Valley, everyone in the car industry wants a self-driving play. How will consumers navigate the many options that may exist for us to get from point A to point B in a self-driving future? I’ll give you a hint: the same company that helps us navigate the internet now may just be the answer.
Right now, ride-hailing consists of a few components:
Uber, 2018. Right now, Uber’s “secret sauce” is its routing algorithms: Hard to copy and gathering more data as we speak, making them better and better. This has allowed them to build a platform serving drivers and riders.
Uber’s routing algorithms have allowed it to dominate this space (though Lyft has gained) and build a platform serving both riders and drivers. But, the fact that Uber’s been doing this for years now means it continues to improve, distancing itself from potential competitors.
But, the Uber of the future will be powered by self-driving technology, perhaps drastically changing the business model of companies in the space. Remember the five components of the current ride-hailing landscape, and who may own them in the future:
Cars (unclear — software and hardware components needed)
However, Uber isn’t the only company pursuing this future. So how will riders navigate the numerous options a self-driving future might offer? It’s become clear over the past few years that Google has a strong discovery strategy around Google Maps as more ride-hailing technologies come online. For instance, one can already see Uber and Lyft time and price estimates when they pull up Google Maps and ask for directions from point A to point B. Bigger still, now one can request and complete an Uber trip without ever leaving Google Maps. This is a clear strategy for Google to maintain ownership of the valuable customer relationship. As more options come to market, Google will continue to pursue this strategy, becoming the destination location for search and discovery of self-driving transportation that it has been for webpages for the past two decades.
In other words, the landscape of the future could look something like this:
In the future, consumers will open Google Maps, type in their destination, and then be presented with an array of options for getting there. Google Maps may essentially be a platform sitting on top of any number of other platforms. But, because Google Maps has the relationship with the end user (the rider), it can extract tremendous value.
Uber and Lyft will still have their platforms, connecting riders to drivers. But, Google Maps will give riders the all-important capability to shop and compare. In a world with many different options, this can prove critical (and valuable).
In the end, the Waymo-Uber settlement (mostly) sets aside the adversarial relationship between the two sides, allowing them to both continue pursuing self-driving technology. If Uber succeeds, Google’s additional 0.34% will be worth much more than the $235 million settlement value. But, if Google succeeds, the potential remains for a Waymo-Uber partnership. Both have components critical to a self-driving future, and with trillions of dollars up for grabs, there’s enough money to go around to make one forget what a silly little multi-billion dollar lawsuit was even about.