Uber, Google and the Future of Ride-sharing

Uber made a pair of major announcements last week: First, the acquisition of Otto, a company that develops self-driving technology kits for trucks. And second, the launch of Uber’s first self-driving car fleet, which will be available for customers in Pittsburgh starting later this month. Even with safety drivers in the front seat, the latter is an industry first, and clearly shows that Uber is highly motivated to make autonomous ride-sharing a reality.

This is a major investment, even for a start-up with Uber’s resources (total funding currently sits at $8.71 billion), which brings up a key question: Why is Uber so interested in autonomy when its current dominance is built on the existing ride-sharing paradigm? It is true that autonomous cars remove the operational cost associated with a driver, but drivers are also a key component of the defensibility of Uber’s business model. On the demand side, consumers are attracted to Uber because of service reliability (pick-up time), which is partly a function of the number of drivers on its network. On the supply side, drivers are attracted to Uber because it has far more users than other ride-sharing apps in many regions. This network effect between drivers and riders makes it very difficult for new entrants to compete with Uber.

However, with autonomous ride-sharing, the supply side of the network (the driver) goes away and pick-up time purely becomes a function of the size of the autonomous fleet. This opens up the ride-sharing market to competitors that have access to the following assets:

1. The requisite machine learning and mapping expertise to create safe and reliable self-driving technology
2. The financial capability and partnerships to acquire a sizeable fleet of autonomous vehicles
3. A direct channel to the consumer in a transportation context to quickly build traction for a new autonomous ride-sharing service 

I can think of at least one company that meets these requirements — Google. It clearly has the capability and has made no secret of its ambitions with autonomous cars. Most importantly, it also has a direct and transportation-relevant channel to the consumer with Google Maps (and, for now, Waze). Earlier this year, it even added a new ride-sharing tab to its transit options by aggregating services like Gett, Ola Cabs, mytaxi, and even Uber. While this presents a strong case, it is also important to study the nature of user engagement on Google Maps to gauge Google’s ride-sharing prospects.

According to App Annie Intelligence, recency and frequency metrics for both apps were comparable on Android phones — on average, Google Maps was used on more days while Uber saw slightly higher sessions per user in July 2016. In addition, with over one billion users, Google Maps is the only transportation-related service that is more widespread than Uber (pre-installation on Google-compatible Android devices give it an inherent advantage). This shows that Google has the assets in place to compete with Uber in the ride-sharing space if and when autonomous vehicles become a reality.

Looking at this argument as a whole, it becomes clear that autonomous ride-sharing is not just an experiment for Uber. It is a critical part of maintaining its leadership position in an industry it has pioneered. Uber’s CEO, Travis Kalanick, said as much in the following quote to Bloomberg:

“The minute it was clear to us that our friends in Mountain View were going to be getting in the ride-sharing space, we needed to make sure there is an alternative. Because if there is not, we’re not going to have any business.”

Google can be a formidable competitor and as Google Duo’s launch has shown, it has the ability to quickly gain relevance even when it is late to a market. However, the ability to look beyond past successes and recognize new challenges is a key trait of successful leaders and bodes well for Uber in this new battleground. This was evident in the recent Didi-Uber deal as well, which many viewed as the end of the ride-sharing wars. As it turns out, things are just starting to get interesting.

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