Waymo and Lyft’s deal to put autonomous cars on the road is a piping hot drama amid Google and Uber’s legal battle over intellectual property (Waymo is Google’s driverless car division). But this feud may be cold, bitter, and forgotten years down the line–because if driverless cars enjoy widespread adoption, Uber and Lyft will likely become mere cogs in the autonomous vehicle machine.
I’m not the first to say it, but as the self-driving car space solidifies, it will likely take shape around companies that are actually making cars–not ride-hailing platforms.
“Ultimately, I still don’t know if it makes sense for any stand-alone ride-hailing service to exist since the switching cost for users is essentially zero and anyone can build out that platform,” says Navigant senior researcher Sam Abuelsamid, adding, “I think Lyft, Uber, and others will probably get acquired in time.”
The other night, I sat down with Ford chief technical officer Raj Nair to talk through what it will take to get to a world in which cars drive us. He says he believes there are five components to building a successful framework for autonomous vehicle business: large-scale manufacturing capabilities to build a flock of cars; a virtual driver platform that routes a travel plan; autonomous technology that allows the car to drive; a team to safely redesign cars to accommodate self-driving technology; and a way of managing vehicle servicing.
The number of people who own cars is slowly declining, notes Paul Asel, managing partner at Nokia Growth Partners in a recent report for CB Insights. In the last 10 years, U.S. households without cars have crept up from 8.7% to 9.2%. To make up for the loss in car sales, car manufacturers want to sell rides in shared autonomous cars.
Nair sees autonomous technology’s main value as providing consumers with a travel option that’s cheaper than car ownership.
Carmakers already have access to large-scale manufacturing and a big servicing infrastructure, though Nair says Ford will have to change its car maintenance system to support a network of rented cars (rather than individually owned cars). The company has also been working on autonomous car technology for roughly a decade and recently agreed to invest $1 billion dollars into Argo AI over the course of five years. It appears carmakers at large are leading the way in creating self-driving cars, according to Navigant Research. Its report claims Ford, GM, Renault-Nissan, and Daimler make up the top four companies in the self-driving technology space. The ranking is based on a variety of criteria including go-to-market strategy, execution, and technology.
What these giants lack is their own widespread and competitive transportation services. General Motors is currently building a car-sharing service called Maven. Ford has Chariot, a group commuter platform located in two markets. Both of these efforts are too small in scale to really provide the critical insight that will help them build the massive autonomous fleets they envision. To get access to that data in bulk, Ford, like other car companies, is open to partnering with or acquiring a relevant company, Nair tells me. The question is when?
Syncing up with an entity like Uber or Lyft might give Ford access to data, but there wouldn’t be an immediate financial payoff until autonomous cars start rolling out of factories. “Eliminating the driver cost is key to making it profitable,” Nair says of the future of e-hail. While Uber-style ride-hailing data is key to developing the kind of on-demand transportation platforms Nair foresees, he isn’t concerned about being a part of the first available ride-sharing network.
“It’s not really about who gets there first. It’s about who gets there with the right use case that really matches the need and who can scale that,” says Nair, adding “Henry Ford didn’t invent the automobile.”
The argument against car manufacturers leading the revolution of cars that drive themselves is that carmakers may not be any good at running mobility services. Both GM and Ford have previously owned and sold stakes in car rental companies, unable to make those businesses work. But carmakers may have the most important component in the self-driving equation: the ability to make the cars themselves.
As driverless cars hit the streets, consumers are more likely to start off by borrowing them rather than immediately buying them in droves. Ride-hailing systems may provide the first avenue for self-driving cars to reach the masses, but it doesn’t ensure those platforms will own the market in perpetuity. Uber and Lyft have replicable technology and riders go where the quickest and cheapest rides are advertised. Uber CEO Travis Kalanick acknowledged as much in an interview with Business Insider last year. “What would happen if we weren’t a part of that future? If we weren’t part of the autonomy thing?” he pondered. “Then the future passes us by basically, in a very expeditious and efficient way.” The question of course, for Uber, Lyft, Gett, and all the other ride-hailing platforms, is: How do you maintain your value in the face of self-driving technology that will make your business irrelevant?
While Uber does have a partnership with Mercedez-Benz, it has largely approached this task through dumping money into building autonomous driving research labs. It has usurped researchers from Carnegie Mellon. It has acquired a contentious self-driving truck startup with roots at Google. Most recently it put together a lab in Canada headed by University of Toronto artificial intelligence researcher Raquel Urtasun.
Still, even if Uber were to create a compelling self-driving technology, what then? It could license the technology to car manufacturers or alternatively start making its own vehicles with the tech baked in. Manufacturing cars, however, is no easy feat, and Uber hasn’t provided much insight into how it will pull off owning its own fleet of self-driving cars. What that means is that even though Kalanick saw the tidal wave coming, Uber might still get wiped out.
Lyft, on the other hand, isn’t investing in building a driverless future, but it is working toward one. Lyft’s agreements to add GM and Waymo self-driving cars to its fleet could help it tailor its algorithm to better serve autonomous cars and the way that people use them–it’s a learning opportunity. “These partnerships will allow Lyft to work out how to distribute the vehicles for maximum efficiency and utilization,” says Abuelsamid.
A platform well-suited to self-driving cars may not ensure Lyft’s fate as a stand-alone company. Though its deals with car providers might not currently affect its bottom line, eventually self-driving carmakers will want a cut of Lyft fares. It will be their autonomous hardware that enables Lyft to offer cheap rides with an incredible upside–not having to pay drivers anymore. And ultimately, carmakers will just want to own the transportation service itself. In this way, with its multiple partnerships and its software finely tuned, Lyft could be an attractive acquisition target. Joining forces with another company also seems to be a route that Lyft is comfortable with. The company was at one point looking to be bought for $9 billion, according to a Recode report from last year.
Asel cleverly cited Amara’s law in his report. “Our tendency is to overestimate short-term impacts while underestimating long-term impacts.” Uber and Lyft may have multibillion dollar valuations bolstering them up, but that doesn’t guarantee their success. Autonomous cars still have many barriers to getting on streets, including a yet to be seen regulatory framework that allows them to operate. The technology is also not yet satisfactorily proven.
As the space evolves, it may turn out that car companies are the architects of the self-driving car ecosystem, while Uber and Lyft are just components. Even if driverless cars are what ultimately steer Uber and Lyft into sustainable profitability, they may only be able to hold on to it briefly as the companies that make autonomous cars tug away their users with comparable platforms or buy them outright.
These days, the attention is on the platforms, their battles for supremacy, and how they affect drivers and riders. Perhaps more attention should be paid, instead, to the companies actually building the cars.