Seeking Alpha
, Twitter (44 clicks)
Tech, alternative energy, software, long/short equity
Profile| Send Message|
( followers)  

Google + Uber

Google's (NASDAQ:GOOG) self-driving car technology is headed in a new direction after last week's $258M investment into Uber. Up until now, Google had been focused on developing the software behind self-driving cars, not the hardware. That may be about to change.

The investment was made by Google's VC arm, known as Google Ventures. It's particularly notable because at $258M, the investment is 86% of Google Venture's previously announced $300M per year budget.

Why would Google make such a large commitment to Uber? The only way this makes any sense is if Google plans to heavily integrate Uber into some of its services or technology. Clearly this is a market where Google has identified an incredible amount of potential for disrupting the current status quo.

Google Building Its Own Self-Driving Car

On August 23, Jessica Lessin reported that Google is designing its own self-driving car.

Is Google designing a business model very similar to its Android/mobile approach? It appears so. This would mean allowing other manufacturers to use its software, while also building its own hardware (in this case, a car).

Reuters recently published this piece, which stated that Google is working on a deal with Continental AG, the world's second largest automotive supplier. This helps confirm that Google is actually trying to assemble its own cars and brand them under its ever expanding umbrella of tech gadgets.

On August 25th TechCrunch published an article entitled "Dispatch From The Future: Uber To Purchase 2,500 Driverless Cars From Google." This satirical piece dated July 25, 2023, will most likely wind up being remarkably accurate. Google's investment in Uber makes a ton of sense when speculating in tandem with the idea that it may be building its own cars. A partnership between the two companies would benefit both parties tremendously. Implementing its own fleet of self-driving robo-taxis, would take Uber's service to the next level, while giving the company an incredible advantage over its competition.

Self-Driving Car Market

The self-driving car market, is something still in its infancy.

Piper Jaffray's Gene Munster recently came out with a report stating that the self-driving car market represents a $200B opportunity.

The $200B number is based on the assumption that there are 60 million cars sold worldwide, and each self-driving system is worth between $3000-$5000 per unit.

It's also worth noting that Munster went on to make a prediction about the market, saying it "will be one of the next truly game changing mass technologies."

The economics behind self-driving cars are extremely attractive from both vehicle safety and efficiency standpoints.

  • Safety: In 2011 it was estimated that there were 32,000 deaths caused by auto accidents. Almost all of these can directly be blamed on human error. In theory, a well designed self-driving car would never crash, or do so far less often than anything controlled by a human.
  • Efficiency: In 2012 American consumers spent 5.5 billion hours in traffic, costing $121B in time and fuel. With reduced accidents and the potential of ride-sharing, these costs could fall dramatically.

Growing Popularity of Taxi Alternatives

As shown by the Google Trends graph below, Uber has been gaining major traction in 2013. With queries for the term "uber app" up 51.5% year over year (July '12-July '13).

(click to enlarge)

Another ride sharing app, Lyft, has also seen rapidly rising search data in 2013.

(click to enlarge)

Hailo, the 3rd player in this quickly emerging market raised $30M to expand in February of this year.

These recent developments show that ride-sharing is much more than a fad, and is here to disrupt urban transportation permanently.

Conclusion

Google appears to be rapidly headed towards an entrance to the auto market. Whether this ends up being with its software via Uber robo-taxis, or hardware with a mass market consumer car, is yet to be determined.

There are tons of possibilities for self-driving technology when combined with ride-share because of higher vehicle safety, and improved traveling efficiency.

As Piper's Munster stated, this is a "game changing mass technology," and Google is the clear market leader. The recent investment, and future potential partnership between itself and Uber, means Google has deemed its self-driving technology as increasingly viable.

If Google can execute its vision of revolutionizing inter-urban travel, the results will show up in its top-line. In the future it's likely that every car will have some sort of self-driving feature. We've already seen the first iteration of this technology with cars that can park themselves. If Google can effectively capitalize on this trend and be a market leader, it has the potential to lead to billions in future revenue.

Source: Google's Uber Investment Has Huge Future Implications