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People constantly cite self-driving cars as Uber's salvation, but never really seem to think through the implication. Hypothetically, let's say that self-drivi

by Lavery 9y ago

People constantly cite self-driving cars as Uber's salvation, but never really seem to think through the implication. Hypothetically, let's say that self-driving cars are invented next year. Necessarily, these will start in high-end vehicles (as nearly all new car features do) before getting rolled out to the broader ecosystem. Now if you're Uber you face one of two choices: 1) You enter into perhaps the most capital-intensive business of all time and buy a fleet of these new self-driving cars. This would be a humongous cash raise; NYC alone would likely need $1B in vehicles to match current coverage levels. You'd also need service and maintenance facilities (or pay for someone else to handle it) 2) You wait for enough of these vehicles to be bought by consumers to create a ride share network akin to the current one, except without the drivers Option 1 is likely a non-starter. Uber-style businesses are popular with investors precisely because they avoid this business model. Buying the vehicles and facilities to maintain current US coverage would probably run $100B or more. That's not really feasible. Option 2 saves Uber from that awful capital raise, but means they're waiting for self-driving cars to reach high enough saturation within the broader vehicle fleet that they can use as rideshares during owners idle periods. Based on what Google suggests for a typical car upgrade cycle, this would be 5 years or more. It also probably doesn't improve their margins enormously, because they're still licensing the car from an owner who will demand a cut of fares (whether it be directly or as an hourly lease fee). The assumption is that fee is materially lower than what drivers want for their car and time, but there's no reason to believe that's true (especially given, as many studies have suggested, drivers in most markets currently lose money on a per-mile basis). During the initial period of self-driving adoption, owners fees will be higher, as there are fewer of these vehicles available and owners will have better bargaining power via their scarcity. But while Uber waits for adoption in scenario 2, their first-mover advantage in rideshare erodes. If you're GM or Mercedes, this looks like a pretty high-margin business, and it looks really tempting to use the self-driving tech you're already putting into these vehicles to spin-up a competitor, and right now there's nothing on the books saying you can't simply lock Uber out of it. Long-term, that's my expectation: that self-driving cars will exist and Uber will die to competition from OEMs (or some kind of alliance between OEMs and Waymo). [e]fixed some formatting.

anonetal 9y ago
Regarding (1), they could just lease the cars from the car manufacturers. As I recall, that was one of the reasons why GE invested so heavily in Lyft.
- smileysteve 9y ago
  *GM
stillsut 9y ago
In the short term, the autonomous vehicles are 5% of a large market fleets (like NYC). Uber plays around with how to deploy their literal robots (not unreliable contractors) in surge situations. Also they try new flavors of ride hailing: there's cross-country ubers, and wait-for-you-at-pickup-without-getting-mad ubers. These pilot programs give them a chance to learn how to maintenance the fleet with economies of scale. As the tech becomes cheaper and more available, some people do end up owning an autonomous car. They'll own them mainly for keeping a clean vehicle with their supplies packed into them. But in urban areas, most people chose to rent, which is a pretty tricky business: it's an unsupervised $50k asset you're renting at $5-$10 a pop without a deposit. Very few people are going to want to touch that business, especially when first mover already has a rating on everyone - meaning your first "customers" are the ones uber identified as troublemakers and already banned.
gringoDan 9y ago
Building on this analysis: Self-driving cars will DESTROY Uber. In the long-run, self-driving car networks will become a regulated utility. Uber's current business: Uber is the middleman in a two-sided marketplace. It connects drivers with passengers, and takes a cut for this service. Uber's competitive advantage is that it had the capital to attract drivers - with lots of drivers on its network, costs & wait times are lower for passengers, so passengers use Uber. And so on and so forth, flywheel metaphor, etc. Self-driving: Assuming self-driving car saturation, Uber's competitive advantage completely disappears. As a passenger, all I care about is getting from point A to point B safely, quickly, and cheaply. As a manufacturer of self-driving cars, why would I sell or lease them to a middleman (or if we're getting extreme, even to consumers!) to take the profits in this space? As Tesla, GM, etc. I am going to pump out a fleet of self-driving cars and have consumers pay for a subscription plan (X number of minutes / miles per month on my fleet). Because this is a very capital-intensive business, the government will then grant local monopolies to different providers and regulate the prices, much as it does today with telecoms. Uber provides no value in this scenario unless it can figure out how to develop the best self-driving software that is installed in these cars (and that seems extremely unlikely). The winners in this space are going to be car manufacturers and the developers of the self-driving tech that get legal approval. I'd imagine these software companies negotiate a great licensing deal to the car manufacturers. I suppose since the rollout of self-driving tech will be slow, Uber can continue to operate in a hybrid space with some self-driving cars and some drivers. Whether or not it will be profitable is a different question altogether. But I have no faith in the long-term viability of Uber's business model once we reach a saturation point of self-driving cars. We are going to look back on this time in 20 years and talk about how VCs subsidized a lot of cab rides.

by Lavery 9y ago

anonetal 9y ago

Regarding (1), they could just lease the cars from the car manufacturers. As I recall, that was one of the reasons why GE invested so heavily in Lyft.

smileysteve 9y ago
*GM

stillsut 9y ago

In the short term, the autonomous vehicles are 5% of a large market fleets (like NYC). Uber plays around with how to deploy their literal robots (not unreliable contractors) in surge situations. Also they try new flavors of ride hailing: there's cross-country ubers, and wait-for-you-at-pickup-without-getting-mad ubers. These pilot programs give them a chance to learn how to maintenance the fleet with economies of scale. As the tech becomes cheaper and more available, some people do end up owning an autonomous car. They'll own them mainly for keeping a clean vehicle with their supplies packed into them. But in urban areas, most people chose to rent, which is a pretty tricky business: it's an unsupervised $50k asset you're renting at $5-$10 a pop without a deposit. Very few people are going to want to touch that business, especially when first mover already has a rating on everyone - meaning your first "customers" are the ones uber identified as troublemakers and already banned.

gringoDan 9y ago

Building on this analysis: Self-driving cars will DESTROY Uber. In the long-run, self-driving car networks will become a regulated utility. Uber's current business: Uber is the middleman in a two-sided marketplace. It connects drivers with passengers, and takes a cut for this service. Uber's competitive advantage is that it had the capital to attract drivers - with lots of drivers on its network, costs & wait times are lower for passengers, so passengers use Uber. And so on and so forth, flywheel metaphor, etc. Self-driving: Assuming self-driving car saturation, Uber's competitive advantage completely disappears. As a passenger, all I care about is getting from point A to point B safely, quickly, and cheaply. As a manufacturer of self-driving cars, why would I sell or lease them to a middleman (or if we're getting extreme, even to consumers!) to take the profits in this space? As Tesla, GM, etc. I am going to pump out a fleet of self-driving cars and have consumers pay for a subscription plan (X number of minutes / miles per month on my fleet). Because this is a very capital-intensive business, the government will then grant local monopolies to different providers and regulate the prices, much as it does today with telecoms. Uber provides no value in this scenario unless it can figure out how to develop the best self-driving software that is installed in these cars (and that seems extremely unlikely). The winners in this space are going to be car manufacturers and the developers of the self-driving tech that get legal approval. I'd imagine these software companies negotiate a great licensing deal to the car manufacturers. I suppose since the rollout of self-driving tech will be slow, Uber can continue to operate in a hybrid space with some self-driving cars and some drivers. Whether or not it will be profitable is a different question altogether. But I have no faith in the long-term viability of Uber's business model once we reach a saturation point of self-driving cars. We are going to look back on this time in 20 years and talk about how VCs subsidized a lot of cab rides.