Uber – Fleeting charms

Uber falls for Waymo’s fleeting charms. 

• Uber is in discussions with Waymo to add its vehicles to the Uber network in what I think is a dangerous development for Uber.
• Uber is already under massive pressure having lost most of its overseas territories and is facing a resurgent (Google and Waymo backed) Lyft at home.
• Furthermore, its autonomous driving offering has been ranked last by RFM in its last two assessments (see here) which is somewhat evidenced by its unfortunate fatal accident in March 2018 (see here).
• For the ride sharing companies, autonomous driving is incredibly important because of how their businesses will change when drivers become obsolete.
• As they exist today, there are market places where buyers and sellers come together to transact.
• In that regard, market share and dominance are crucial as it is only by dominating a market can money be made because the barriers to competition are so low.
• This is why I have been so concerned with Uber’s market share losses to Lyft in USA (see here).
• However, with the advent of autonomous driving, the supply side of the market place vanishes and ride sharing companies are likely to become fleet operators.
• This means that the driver of their businesses moves from market share and dominance to quality of service.
• With autonomous vehicles the drivers of quality of service are: the performance of the autonomous system, prediction usage patterns to maximise utilisation and availability of supply.
• All of these factors are driven by data and AI where to date, Uber ranks pretty poorly against Waymo which currently leads the industry.
• I have long believed that Waymo exists to collect data on behalf of Google so that it has both a better understanding of its users as well as more opportunities to target them with relevant marketing.
• This means that letting Waymo onto its network could very easily compromise its long-term outlook especially when Waymo / Google is the biggest backer and supporter of its arch rival.
• For example, if Waymo’s AI, data and service is better (as it is today) than Uber’s own in house offering then everyone will prefer to use Waymo meaning that Waymo would have effectively sucked all the value out of Uber.
• Should Waymo then leave Uber and set up on its own or become exclusive to Lyft, then Uber would have no further reason to exist.
• Instead, Uber should be concentrating on making its service the best such that it maintains its market share in an autonomous world making Lyft uneconomical to run.
• Fortunately, Uber has time to lick its effort into shape as RFM predicts that autonomous driving will not be a market reality much before 2028.
• By that time, I expect that there will be a range of autonomous driving offerings available all capable of piloting vehicles with high level of safety and reliability.
• If its own efforts fail to come fruition, I think it will be able to buy one off the shelf.
• In the meantime, Uber must concentrate on keeping its market share above 60% because if it falls below that level, I think it will have real trouble turning cash flow positive.
• With Lyft now being backed by Google, it too has access to deep pockets and is in a position to fight Uber for as long as it takes.
• Hence, I do not see any upside for Uber to allow Waymo onto its network and in fact it could very well be its undoing.
• I remain very uncomfortable with a valuation for Uber at around $60bn – $70bn.

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