Sunday, July 26, 2015

Driverless cars as a service: $16B+ for Google?

This past Friday four UCLA Anderson EDGE student teams competed in a case competition involving the future of autonomous vehicles (AVs). Teams were assigned to Google, Mercedes-Benz, Tesla, or Uber and were tasked with how each company should innovate in order to enhance its position in the battleground for the future of the automobile.

The Google team won, recommending that Google should enter the AVaaS (autonomous vehicles as a service) market. The team estimated that this initiative (which they code named GOOSE) could yield $16 billion in direct, transportation-related annual revenue for Google starting in the year 2020. The team assumed pricing for on-demand car services would fall by 50%, given that the "driver dude" would no longer be needed. (Of course, this analysis assumed that regulatory and other issues can be resolved.) In addition, the team estimated that Google could earn up to $7 billion in additional advertising related to this service.

The team argued that Google should "go to war" against Uber and become the leader in next-generation on-demand vehicle services. This possibility of  this battle has been widely reported on in the press. For example, in February, Business Week reported that Google was developing its own Uber competitor. Google was coy about its future plans, tweeting "we think you will find that Uber and Lyft work quite well. We use them all the time."

In 2013, Google Ventures (GV) invested $258 million in Uber at a reported post-money valuation of $3.8 billion. Since GV operates largely independently of Google with a prime directive of generating capital gains, it's not unheard of for GV to invest in potential competitors of its parent.

Uber, given the possibility of having to go head-to-head with Google, has not stood still. In March, Uber acquired DeCarta, a map-tech company. Then in May, Uber lured 40+ robotics researchers away from Carnegie Mellon University to significantly enhance the capabilities of its own robotics research center in Pittsburgh.

If the EDGE team is correct in estimating this market opportunity for Google, fasten your driverless seat belts.

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