6 ms·

1) With this move, Alphabet is basically saying they a) don't want to continue funding the autonomous moonshot on their own, and b) want some partners to come o

by rsp1984 7y ago

1) With this move, Alphabet is basically saying they a) don't want to continue funding the autonomous moonshot on their own, and b) want some partners to come on board for various reasons They need external investors to provide validation to the business and its valuation. Those $2.25B would have been a piece of cake for Alphabet (sitting on > $100B in cash). But if it is Alphabet that's funding Waymo, everyone else (and in particular Alphabet investors) are left to guess what a fair valuation for Waymo would be.

xmprt 7y ago
Potentially also trying to take funding away from other self-driving tech companies?
mxschumacher 7y ago
Just because they have the money, doesn't mean they would take any deal. Think of all the companies they could buy with a $100bn+; they prefer to hold cash at -2% real return. Expected returns are the crucial factor here. Alphabet is sharing risks, waiting for better opportunities to deploy the cash. There's a realization that beating services like Uber and Lyft on cost per ride (to undercut on price) will be hard and require significant capital without a clear path to sustained profitability. The economics aren't hard to understand: You can either pay one person (out of a - growing- pool of tens of millions of willing drivers) ~$15 an hour (depending on geography) in a $20k car or you can pay very little per hour in a 250k for the car + a gigantic engineering team + compute infrastructure. It can make sense on a large scale, but it'll be hard to do. Alphabet is sitting on a golden goose: their ad & search business (and the network they've built around that) is the perfect monopoly. Close to unbreakable and getting stronger over time (you won't be able to build a better search engine than Google unless you have as much data as Google). Why would they dilute their superb EBIT margins, rapid growth and extreme salability with the low-margin, ultra-high competition ride-sharing market? Think of paying a driver as renting compute on a extremely capable vision processing, decision making, robotic driver that costs you very little. As unemployment (eventually) increases again, the market will be flooded with unbelievable amounts of idle human minds. There's a general theme here: It's not enough to teach a computer to do something as good as a human, you have to undercut on price as well. For this reason, I believe that hair dressers have less to fear from automation than Radiologists. The "we need to sell to a third party so that our shareholders can figure out the valuation of this division"-argument is mute because it isn't applied to the countless other parts of Alphabet (or any other company). E.g. Youtube and Google Cloud can be valued based on financial data given to the SEC, though I admit, sometimes spinoffs do unlock value.
- jnathsf 7y ago
  Mute or moot? I thought it was moot
  - TecoAndJix 7y ago
    Grammarly says “moot”. I love learning these things! https://www.grammarly.com/blog/moot-point/ https://www.grammarly.com/blog/moot-point/
- smallgovt 7y ago
  >> You can either pay one person (out of a - growing- pool of tens of millions of willing drivers) ~$15 an hour (depending on geography) in a $20k car or you can pay very little per hour in a 250k for the car + a gigantic engineering team + compute infrastructure. It can make sense on a large scale, but it'll be hard to do. I believe this $250K figure will end up being off by a multiple of 2. As an example, the cost of LIDAR (the most expensive piece of many SDC's) has dropped by an order of magnitude over the past couple years. (A quick google search for a source on this claim yields: https://qz.com/924212/what-it-really-costs-to-turn-a-car-into-a-self-driving-vehicle/ https://qz.com/924212/what-it-really-costs-to-turn-a-car-int...) The biggest questions around SDC's seems to really be around safety & feasibility. If these criteria are met, I can't imagine the overall cost per mile driven will be higher than manual labor. And, even if autonomous driving doesn't undercut on price, they will beat human drivers on both quality & convenience. Most people don't enjoy having a human driver who sometimes smells bad and tries to talk to you (not to mention the uptick in assault reports). And, since the cost of under-utilization will be much lower for SDC's, you can bet the average wait time for SDC's will be lower than Uber. >> There's a general theme here: It's not enough to teach a computer to do something as good as a human, you have to undercut on price as well. I think the more apt statement is: Consumers care about price, quality, safety, and convenience. A winning solution has to be significantly better in at least one of these categories (price being only one possibility).
  - mxschumacher 7y ago
    Uber does 40m rides a month with human drivers, I don't believe people are generally turned off by the smell of their drivers. The rating system is pretty brutal. I've certainly never had this problem. Uber doesn't pay for the downtime, its the drivers that take all the losses. I find the security question interesting: Would you rather have a human in the car to potentially protect you from outside attackers, or is the general fear that the driver him/herself with assault you? I think with cameras and identity checks the risk from the driver can be reduced. Regarding your last point: Yes, do the same for less or something better for the same, both are possible paths to winning in the marketplace.
deleted 7y ago
[deleted]
twistedpair 7y ago
Investment rounds are also about strategic alliances. It's important to get skin in the game from relevant industry players. You also tie said players up from making similar deals with Uber and Lyft (depends on the terms).
- sjtindell 7y ago
  Agreed, you get more buy in from existing deals as well because it’s no longer just a contract to use X it’s a partnership so you get better support, back channels for feature requests, etc.
- cma 7y ago
  Strategic alliance with Canada’s pension plans?
  - ameen 7y ago
    Self-driving for the retired.
  - NicoJuicy 7y ago
    That's misleading: led by Silver Lake, Canada Pension Plan Investment Board, and Mubadala Investment Company. Additional investors in this initial $2.25 billion close include Magna International, Andreessen Horowitz, and AutoNation, as well as Alphabet.
JumpCrisscross 7y ago
> They need external investors to provide validation to the business and its valuation To whom does Alphabet need to validate Waymo to? It's too small relative to the ad business to move the needle. What Alphabet does need is (a) strategic alliances and (b) the pressure of outside investors.
- njarboe 7y ago
  If Alphabet gets a monopoly on self-driving cars, like they have on search and video ads, I would think it would be bigger than the ad business
  - tmpz22 7y ago
    Similar business proposal: I have a great bridge to sell you. You’ll have exclusive rights to toll travelers and you’ll make a fortune off it. Just don’t read the fine print. Deal?
- jartelt 7y ago
  Validation of Waymo's valuation provides data for Alphabet stockholders and (hopefully) shows that all the money Alphabet has poured into Waymo has generated significant value. If you never show this validation, some shareholders become angry and demand you stop pouring cash into other bets that just chew up cash.
deleted 7y ago
[deleted]
oldgradstudent 7y ago
> They need external investors to provide validation to the business and its valuation. What happened to the old fashioned way of validating a business and its valuation by selling products or services profitably?

xmprt 7y ago

Potentially also trying to take funding away from other self-driving tech companies?

mxschumacher 7y ago

Just because they have the money, doesn't mean they would take any deal. Think of all the companies they could buy with a $100bn+; they prefer to hold cash at -2% real return. Expected returns are the crucial factor here. Alphabet is sharing risks, waiting for better opportunities to deploy the cash. There's a realization that beating services like Uber and Lyft on cost per ride (to undercut on price) will be hard and require significant capital without a clear path to sustained profitability. The economics aren't hard to understand: You can either pay one person (out of a - growing- pool of tens of millions of willing drivers) ~$15 an hour (depending on geography) in a $20k car or you can pay very little per hour in a 250k for the car + a gigantic engineering team + compute infrastructure. It can make sense on a large scale, but it'll be hard to do. Alphabet is sitting on a golden goose: their ad & search business (and the network they've built around that) is the perfect monopoly. Close to unbreakable and getting stronger over time (you won't be able to build a better search engine than Google unless you have as much data as Google). Why would they dilute their superb EBIT margins, rapid growth and extreme salability with the low-margin, ultra-high competition ride-sharing market? Think of paying a driver as renting compute on a extremely capable vision processing, decision making, robotic driver that costs you very little. As unemployment (eventually) increases again, the market will be flooded with unbelievable amounts of idle human minds. There's a general theme here: It's not enough to teach a computer to do something as good as a human, you have to undercut on price as well. For this reason, I believe that hair dressers have less to fear from automation than Radiologists. The "we need to sell to a third party so that our shareholders can figure out the valuation of this division"-argument is mute because it isn't applied to the countless other parts of Alphabet (or any other company). E.g. Youtube and Google Cloud can be valued based on financial data given to the SEC, though I admit, sometimes spinoffs do unlock value.

jnathsf 7y ago
Mute or moot? I thought it was moot
- TecoAndJix 7y ago
  Grammarly says “moot”. I love learning these things! https://www.grammarly.com/blog/moot-point/ https://www.grammarly.com/blog/moot-point/
smallgovt 7y ago
>> You can either pay one person (out of a - growing- pool of tens of millions of willing drivers) ~$15 an hour (depending on geography) in a $20k car or you can pay very little per hour in a 250k for the car + a gigantic engineering team + compute infrastructure. It can make sense on a large scale, but it'll be hard to do. I believe this $250K figure will end up being off by a multiple of 2. As an example, the cost of LIDAR (the most expensive piece of many SDC's) has dropped by an order of magnitude over the past couple years. (A quick google search for a source on this claim yields: https://qz.com/924212/what-it-really-costs-to-turn-a-car-into-a-self-driving-vehicle/ https://qz.com/924212/what-it-really-costs-to-turn-a-car-int...) The biggest questions around SDC's seems to really be around safety & feasibility. If these criteria are met, I can't imagine the overall cost per mile driven will be higher than manual labor. And, even if autonomous driving doesn't undercut on price, they will beat human drivers on both quality & convenience. Most people don't enjoy having a human driver who sometimes smells bad and tries to talk to you (not to mention the uptick in assault reports). And, since the cost of under-utilization will be much lower for SDC's, you can bet the average wait time for SDC's will be lower than Uber. >> There's a general theme here: It's not enough to teach a computer to do something as good as a human, you have to undercut on price as well. I think the more apt statement is: Consumers care about price, quality, safety, and convenience. A winning solution has to be significantly better in at least one of these categories (price being only one possibility).
- mxschumacher 7y ago
  Uber does 40m rides a month with human drivers, I don't believe people are generally turned off by the smell of their drivers. The rating system is pretty brutal. I've certainly never had this problem. Uber doesn't pay for the downtime, its the drivers that take all the losses. I find the security question interesting: Would you rather have a human in the car to potentially protect you from outside attackers, or is the general fear that the driver him/herself with assault you? I think with cameras and identity checks the risk from the driver can be reduced. Regarding your last point: Yes, do the same for less or something better for the same, both are possible paths to winning in the marketplace.

deleted 7y ago

[deleted]

twistedpair 7y ago

Investment rounds are also about strategic alliances. It's important to get skin in the game from relevant industry players. You also tie said players up from making similar deals with Uber and Lyft (depends on the terms).

sjtindell 7y ago
Agreed, you get more buy in from existing deals as well because it’s no longer just a contract to use X it’s a partnership so you get better support, back channels for feature requests, etc.
cma 7y ago
Strategic alliance with Canada’s pension plans?
- ameen 7y ago
  Self-driving for the retired.
- NicoJuicy 7y ago
  That's misleading: led by Silver Lake, Canada Pension Plan Investment Board, and Mubadala Investment Company. Additional investors in this initial $2.25 billion close include Magna International, Andreessen Horowitz, and AutoNation, as well as Alphabet.

JumpCrisscross 7y ago

> They need external investors to provide validation to the business and its valuation To whom does Alphabet need to validate Waymo to? It's too small relative to the ad business to move the needle. What Alphabet does need is (a) strategic alliances and (b) the pressure of outside investors.

njarboe 7y ago
If Alphabet gets a monopoly on self-driving cars, like they have on search and video ads, I would think it would be bigger than the ad business
- tmpz22 7y ago
  Similar business proposal: I have a great bridge to sell you. You’ll have exclusive rights to toll travelers and you’ll make a fortune off it. Just don’t read the fine print. Deal?
jartelt 7y ago
Validation of Waymo's valuation provides data for Alphabet stockholders and (hopefully) shows that all the money Alphabet has poured into Waymo has generated significant value. If you never show this validation, some shareholders become angry and demand you stop pouring cash into other bets that just chew up cash.

deleted 7y ago

[deleted]

oldgradstudent 7y ago

> They need external investors to provide validation to the business and its valuation. What happened to the old fashioned way of validating a business and its valuation by selling products or services profitably?