Two years ago, Google Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) and ride-sharing/taxi-hailing startup Uber looked like they were going to be the best of friends.
Google Ventures invested more than a quarter of a billion dollars in Uber in exchange for a seat on the board of directors of the privately-held fledgling outfit.
The arrangement was a seemingly amicable one, too, right up until two weeks ago when Google announced it was toying with the idea of driverless taxis, and even tiptoeing into the ride-sharing app business — a decision that stepped directly on Uber’s toes.
The informal announcement from Google sparked some understandable feelings of shock, frustration, and even betrayal. Fans and followers of Uber, however, may be looking at the situation from the wrong perspective.
The fact that Google is already involved in driverless cars — not to mention offering a route-mapping tool through its Waze app (more on that below) — may well mean Uber investors have an “out” that almost certainly wouldn’t exist were Google not already waist-deep into these waters
Just for the Record, Uber Hit Google First
While it would be easy to jump to the conclusion that big bad Google is once again squeezing out the little guy just trying to carve out a niche business, this situation deserves a closer look. Uber declared war first, back on February 2, officially unveiling a partnership with Carnegie Mellon University “to do research and development, primarily in the areas of mapping and vehicle safety and autonomy technology.”
Translation: Uber is trying to figure out how to get into the driverless car business, and presumably, the driverless taxi business, which would only be a minor step forward from the business it’s in now. It’s an inexplicable jab at Google, which has been anything-but-secretly working on such a technology for a couple of years now.
The buzz is, Google made a point of informing Uber later that very same day it was going to be exploring making a play in the taxi-booking and ride-sharing game that Uber is already in, utilizing its technology to produce the same kind of driverless taxi Uber has decided to develop with Carnegie Mellon University.
Google Has Waze, and Driverless Cars, Ready to Roll
For the sake of clarity, Google is a heck of a lot closer to entering the taxi business than Uber is to debuting driverless cars.
One reason Uber should fear Google more than the other way around is the simple fact that Google already has a tool called Waze. The app currently plots the best driving routes at any particular point in time of based on the pace (or lack thereof) being made by other drivers using the app. By avoiding bottlenecks, users of Waze can get from point A to point B faster.
This platform could be easily leveraged to become the navigation backbone of not just a single driverless vehicle, but a whole fleet of driverless taxis that need to maximize geographical coverage while also being time-efficient.
Another reason Google could unveil driverless taxis soon — its driverless cars work.
Meanwhile, Uber is just now starting to think about doing the R&D required to build driverless cars, which took Google years to piece together.
Like It Or Not, They’re Better Together
So, knowing Google already has far more of the needed technology in hand than Uber will anytime soon, and knowing Google has the financial wherewithal to see such a project, why in the world would Uber not simply turn to Google with the idea? There are two possible reasons:
Google’s presence in the Uber board room may have been less amicable than it superficially appeared, or…
Uber thinks it’s better off doing its own thing its own way than it is being beholden to Google in exchange for more funding.
If it’s the latter, that’s an understandable sentiment, but likely a naive one. If Google didn’t think it could trounce Uber in the ride-sharing and driverless taxi market, it could simply buy Uber. In fact, such an acquisition may well be the outcome many current Uber investors are still hoping for.
Although the current initiatives from both companies point to a split between Uber and Google, the fact of the matter is, this is a situation where both organizations would be better served by working together rather than working separately.
Kudos to Uber for building a disruptive business model. It can’t afford to keep expanding though without a lot more fund-raising, though, and it certainly can’t afford to design and build a fleet of driverless cars to serve as taxis. It’s only estimated to generate $10 billion in gross revenue this year though, and will only keep about $2 billion of that as net revenue.
From that $2 billion, the company must pay enormous expenses that still greatly exceed the top line. Spending on the R&D of driverless cars is only going to push back any potential profits Uber might produce someday … and net profits aren’t really on the horizon to begin with. The name, though, is still well-entrenched in commuters’ minds.
Google, meanwhile, doesn’t have a ride-sharing play in place yet, but it has the technology it needs through Waze and proven driverless cars, and it has plenty of capital — $64 billion worth — to get its effort off the ground. If nothing else, Google could spend Uber into submission. And it will, if need be.
But why reinvent the wheel?
The current at-odds ventures may be ego driven. If so, both sides of the table should back down sooner or later, allowing both parties to recognize they have a potential partnership that is truly synergetic. Hopefully that acquisition is still on the table, as it would be the smart move for both companies … particularly for money-burning Uber, whose current shareholders don’t otherwise have much else in the way of an exit strategy.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
