A Contrarian View: Uber Will Thrive With Self-Driving Cars, Even More So If Others Get There First
The buzz in the press is that self-driving cars could destroy a lot of business models and companies. As the Sage of Omaha said during his annual shareholder conference a few days ago, insurance, rail, and car production could suffer in the long term.
Ride-hailing companies, such as Uber, Lyft and Gett, are also considered at risk. In a recent WSJ article Christopher Mims suggests that self-driving could mean the end of Uber. If the technology is available, the author posits, ‘transportation-as-a-service’ could mean ‘end of wide-spread vehicle ownership.’ For Uber to compete, it would need to invest in owning and maintaining a car fleet — a further drain on the cash-burning company. Pair that with the GM/Lyft alignment, Musk’s autonomous Tesla, and Ford’s investment in the area and the future might not look so optimistic for Travis and Company. He has even called out being second in the race to self-driving software an existential threat.
I disagree with the doom’s day scenario. The self-driving model, as described, seems to mimic the hotel business where a chain owns properties that it manages. In that sense, GM would own the vehicles, Lyft will make them available to their customers and the high CapEx related to purchasing and maintaining the vehicle will remain with car manufacturer, most likely driving even a higher cut than the 20% that current drivers pay to Lyft/Uber for the access to the platform. In our travel world, the GM/Lyft relationship would seem like Hyatt or Marriot’s relationship with Booking or Expedia.
If we are to look into the future models and technology, though, we cannot use the typical owner-seller paradigm. If we apply the model of AirBnB to a transportation-as-a-service world, Uber’s potential threat from vehicle ownership disappears. In a funny way, it almost shows an exponential opportunity, far bigger than having the vehicles owned and managed by the company.
2 reasons and one threat.
My Car Becomes My Investment
Let’s say that I buy a Tesla as an investment, rather than as an object to satisfy my driving needs. If the technology works, I will just plug in my vehicle into Uber’s network and ensure that I earn money when I don’t use the car, instead of just having it parked in the garage. When the car needs to get maintenance or recharge, it will automatically go to the dealership for service or come back home for a top up. Whenever I need it, I will call it in advance — in fact, with today’s advances in AI, most likely it will pick up my habits like a Nest thermostat and show up at the door ready and charged when I leave for work. The model is not necessarily foreign — in Portugal, for example, a lot of entrepreneurs buy cars to rent out to drivers, who then use them to drive for Uber. Soon, they will buy them and put them to work right away.
Comparison and Choice Wins Over Single Product Offering
Even if GM, Ford, Mercedes, and all other car manufacturers introduce their own version of Uber or Lyft, users would most likely choose the platform that has the most choice. A GM app is like our single hotel brand app — you will have your loyalist, but to reach the bigger market, you will need to distribute the car to many others. In that sense, Uber will act as an aggregator as it is today. In this scenario, it will deal with car manufacturers rather than fragmented drivers.
Watch Out for the Software, Not Hardware
The threat is not coming from the car manufacturers or the potential cap ex, but rather from competitors in the software business. Google’s efforts for ride-sharing through its arm Waymo could easily have the same, if not deeper, reach to both riders and car-landlords. If the autonomous driving software is achieved by the manufacturers, then even Facebook could play a role — after all, you might be able to rent your car only to friends or verified profiles. Why not even AirBnB — they do that successfully today with homes, competing against hotel properties, without owning any of the real estate themselves.
