Uber – Annus horriblis

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Even at $54bn, no shortage of sellers.

  • While attention is focused on SoftBank’s moves to take a 13-15% stake in Uber, the deterioration of Uber’s fundamentals is a warning that its dominant position may already be slipping.
  • Q3 17A revenues were $2.01bn up 21% compared to $1.66bn in Q2 17.
  • However, net losses grew faster with Q3 17A net losses at $1.46bn, up 38% from the $1.06bn it lost in Q2 17A.
  • This represents a deterioration in net margins to a loss of 73% from a loss of 64% in Q2 17A.
  • Given the year that Uber is having (see here) it is possible that the losses have been increased by non-operational items such as compensation payments and restructuring.
  • However, these headline figures come from an investor communication (via Bloomberg) which typically will exclude costs and benefits that come from non-operational sources.
  • Hence, I suspect that the 870bp decline in margins is operational in nature and represents a deterioration in the company’s underlying performance.
  • This should be of huge concern because if its home market is going to descend into a bloodbath of cutthroat competition, then Uber is going to be raising a lot more money and most likely at much lower valuations.
  • I am quite surprised to see such a deterioration as despite Lyft’s recent increases in share, Uber is still hugely dominant in its home market, USA.
  • So far in 2017 Uber’s lack of focus has led to Lyft being able to confidently expect to improve its market share to 33% from 20% at the beginning of the year.
  • This leaves Uber on 66% which based on my rule of thumb for network based businesses, is still enough to eventually win the market, but its margin for error has been substantially reduced.
  • This rule of thumb states that a company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making profit (see here).
  • Coming into 2017, Uber had a 20% cushion before Lyft could really start causing it some problems, but this cushion has now been reduced to just 6%.
  • Uber’s figures are implying that Lyft is beginning to impact Uber’s ability to make money which I think is a real problem.
  • Google is now Lyft’s biggest backer as it represents the best way for it to get its self-driving technology (Waymo) to market.
  • As of Q3 17, Google has $100bn of cash on its balance sheet giving Lyft potentially much deeper pockets than Uber.
  • This combined with how much it has closed the gap on Uber over the last 9 months, means that Lyft is now a real threat.
  • To me, this is a much more important issue because if Lyft is able to impact Uber’s financials, it means that its hallowed status of market dominance has already been lost despite my rule of thumb.
  • This is critical because Uber’s $70bn valuation compared to Lyft on $11bn is based on its dominance of the market and the unassailability of its network effect.
  • Consequently, I feat that the real valuation of Uber may be far lower than even the $54bn that SoftBank is offering existing shareholders to purchase some of their stock.
  • These investors include Benchmark and Menlo Ventures who may have already have arrived at this view and concluded that $54bn is a great exit price.
  • Hence, I still expect there to be no shortage of sellers at this lower valuation.

Uber vs. Lyft – Blood in the water

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This is Lyft’s best chance to catch Uber. 

  • With yet another skeleton emerging to hinder Uber, Lyft is increasing its recent fund raising by $500m as I think it has realised that now is its best chance to reel in Uber.
  • Lyft has increased its recent $1bn round that was led by Google and CapitalG by another $500m bringing the total post-money valuation to $11.5bn.
  • The extra money will be invested in passenger and driver products which I think basically means reducing the fares and increasing driver take-home in a bid to gain market share.
  • 2017 has been a great year for Lyft but only because Uber has pretty much had the worst year imaginable.
  • Constant turmoil, management turnover, bad press, unhappy drivers and a series of scandals has led to the company focusing on anything but its core business in 2017.
  • This has taken another downward lurch with the disclosure that it suffered a data breach on 57m users and failed to make the users aware that their data had been compromised.
  • This is exactly the kind of bad press that Lyft can capitalise on when it comes to tempting existing Uber users to consider trying Lyft.
  • So far in 2017 this has been very successful as Uber’s lack of focus has led to Lyft being able to confidently expect to improve its market share to 33% from 20% at the beginning of the year.
  • This leaves Uber on 66% which based on my rule of thumb for network based businesses, is still enough to eventually win the market, but its margin for error has been substantially reduced.
  • This rule of thumb states that a company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making profit (see here).
  • Coming into 2017, Uber had a 20% cushion before Lyft could really start causing it some problems, but this cushion has now been reduced to just 6%.
  • Furthermore, with Google is now backing Lyft as the best way for it to get its self-driving technology (Waymo) to market, this gives Lyft much deeper pockets than it had previously.
  • This combined with how much it has closed the gap on Uber over the last 9 months, means that Lyft is now a real threat.
  • If Lyft can take another 6% or more of market share from Uber, Uber will have lost its hallowed status and as a result I would expect its financial performance to deteriorate materially.
  • All of this plays in Lyft’s favour as Uber’s reputation is now in such a bad state that it has to tread very delicately wherever it goes.
  • This means that the aggressive expansionism that gave Uber its dominant share is no longer possible handing all the initiative to Lyft.
  • I have been very negative on Lyft to date as its position looked hopeless but with Uber constantly shooting itself in the foot has given it a fighting chance.
  • There is no way I can justify a $70bn for Uber given this outlook, and if Softbank is offering this to shareholders to build its stake, I think this represents a great opportunity to exit.

Google – The colour purple.

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Fuchsia could replace Android Auto and Android Wear.  

  • Google’s mysterious operating system Fuchsia is starting to take shape with the addition of a user interface as well as support for programming languages that are used to create both Android and iOS apps.
  • What was first noticed as a few lines of script is gradually reaching the point where it could be suitable to run a large range of digital devices leaving me wondering whether this is its answer to the endemic Android fragmentation problem.
  • Fuchsia was first noticed on GitHub in August 2016 and differs from Android in that it is not based on Linux but on a kernel called Magenta which looks more like a kernel that is typically used for embedded systems such as vehicle infotainment units, white goods and so on.
  • Fuchsia is also a real-time operating system (RTOS) which tend to be used for smaller systems which are typically embedded where response time is critical to the user experience.
  • Windows, Linux, Unix and so on are less time critical and are designed to run multiple tasks at the same time on much more powerful hardware.
  • This is the one thing that makes me question the suitability of Fuchsia to replace Android as other factors make it look a lot like an Android replacement:
    • First, user interface: the user interface (Armadillo) that has been added looks a lot like what one would expect from a smartphone with a touch-based input system and card-based user experience design.
    • Second, Swift support: Recent code contributions by Google indicate that it is working to include support for the Swift programming language which can be used to create apps for all of Apple’s operating systems.
    • This is a significant step as it implies that Google is working to make it as easy as possible for developers to have their apps running on Fuchsia.
    • Developers often develop for Apple before turning their attention to Android due to the better economics that exist for them on iOS.
    • This support could allow them to publish on Fuchsia at the same time with no incremental effort.
    • This kind of support has been promised many many times in the past but no one has really delivered it in practice.
    • Third, obsolescence: looking at the history of Symbian, it became unusable 12 years after its creation as the core upon which it was built become obsolete and impractical to upgrade.
    • Android will be 12 years old in 2019 raising the possibility that it, too, may become obsolete requiring a complete rewrite from scratch.
  • My take home from this analysis is that Fuchsia looks most suited to be used in embedded systems such as vehicles, white goods, machinery, wearables and so on.
  • Consequently, this could be a single replacement for Android Auto and Android Wear, both of which are not ideally suited (because they are Android forks) for the use cases for which they were designed.
  • Hence, I think that it is unlikely that Fuchsia will replace Android on smartphones and tablet, but the possibility is there should Android start to struggle with obsolescence.
  • Given, its current stage of development, I would expect Fuchsia to make a real appearance in 2019 rather than 2018.
  • In order to solve the Android fragmentation problem Fuchsia would need to be closed down by Google and used to replace Android on smartphones which at the moment looks like a big stretch.
  • Therefore, I still think that a complete closing down of Android to become a proprietary OS is how Google will solve the fragmentation and updating problems that are crippling the user experience on Android.

Softbank & Uber – Sellers’ paradise

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At around $70bn, there should be plenty of sellers.

  • Uber has approved a deal where SoftBank will lead a $1bn fund raising and at the same time buy around $9bn from existing shareholders which should give SoftBank a stake in Uber of around 14%.
  • Softbank is investing at a valuation of $70bn and while the purchase of existing shares will be done at a lower valuation, I think that it will have to be pretty close to the price being paid for primary shares to keep sellers happy.
  • The deal also goes hand in hand with agreements to restructure Uber’s corporate governance in a bid to draw a line under the disastrous 2017 that Uber has had.
  • This is badly needed as management turnover, bad press, unhappy drivers and a series of scandals has led to the company focusing on anything but its core business in 2017.
  • This has resulted in a meaningful deterioration of its market position and outlook in my opinion.
    • First, in its home market, lack of focus has led to Lyft being able to confidently expect to improve its market share to 33% from 20% at the beginning of the year.
    • This leaves Uber on 66% which based on my rule of thumb for network based businesses, is enough to eventually win the market, but its margin for error has been substantially reduced.
    • This rule of thumb states that a company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making profit.
    • Coming into 2017, Uber had a 20% cushion before Lyft could really start causing it some problems, but this cushion has now been reduced to just 6%.
    • Furthermore, with Google is now backing Lyft as the best way for it to get its self-driving technology (Waymo) to market, this gives Lyft much deeper pockets than it had previously.
    • Second, following its ignominious exit from China (see here), Uber has also lost the Russian market to Yandex (see here).
    • It is increasingly looking like Uber will end up with USA and a host of smaller markets where there has been no particularly strong local competitor.
    • India is still in play and I think could be a source of conflict as when this deal closes, SoftBank will have a meaningful position in both Indian rivals (Ola (see here) and Uber).
    • Third, RFM research concluded that of all the autonomous driving technologies being tested, Uber’s is the worst (see here) where Google’s offering is 5,000x better.
    • Autonomous driving will be critical for the ride sharing companies as when the supply side of their marketplaces disappears, they will become service companies or fleet operators.
    • At that time the quality of their autonomous driving technologies will be a major factor in determining market share and profitability.
    • With Lyft going with market leader Waymo. Uber has everything to do.
  • The net result of this series of misfortunes and own goals is that the outlook for Uber has deteriorated materially over the long-term.
  • I think Uber could easily lose every large market that it is trying for resulting in it ending up being pretty much US only ad even here Lyft is looking increasingly threatening.
  • On this basis, I think that a valuation of $70bn is a big stretch
  • Consequently, if SoftBank is offering around $70bn for secondary shares, I think that there will be plenty of supply as I think many people now have a materially lower valuation in mind.

Tokyo Motor Show – Not invented here.

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Existential challenge ahead.

  • The star of the Tokyo Motor Show is an electric sports vehicle designed by Toyota which has at its heart an assistant that I think neither Honda nor any other automaker has any chance of ever creating themselves.
  • The best hope is for automakers to licence or buy an assistant from elsewhere meaning that it is unlikely to provide them with an exclusive, differentiating product.
  • The problem is that digital assistants require a high level of AI in order to function properly which is a skill that none of the automakers, not even Tesla, posses.
  • RFM has defines three stages of speech recognition (see here):
    • First: High word accuracy.
    • This has largely been achieved by most speech recognition systems, but it is one thing to know what the user said but quite another to know what he meant.
    • Second: understanding what it is the user is asking for regardless of word order or manner of speech.
    • Third: the ability to understand context and circumstance.
    • I think that it is quite clear that not until machine understanding reaches this third stage that voice can have any hope of providing a user interface that would obviate the use of a screen and be really useful in a vehicle.
    • The two leaders in this space (Google Assistant and Amazon Alexa) both rely heavily on screens and both have products with screens either in the market or in development.
  • This is particularly relevant in the automotive industry where for the foreseeable future, the driver will have to have both his hands and his eyes occupied elsewhere.
  • Furthermore, it is clear that all of the user interfaces designed by the car makers, Apple and Google are not appropriate for use in the vehicle.
  • This is a main reason why I think that users still predominantly use their smartphones for digital services in the vehicle meaning that the best infotainment unit is still the one in the driver’s pocket.
  • In my opinion this represents a very serious risk for the car makers long-term.
  • This is because all of the value-added services that they are hoping to provide are likely to be delivered via embedded systems in the infotainment unit.
  • Consequently, unless the vehicle’s embedded infotainment unit can compete effectively with the smartphone, there is a real risk that all of their digital aspirations will come to naught.
  • In this case, the net result is likely to be the big ecosystems taking over the digital experience in the automobile causing the automakers to become little more than handsets on wheels.
  • This is a bleak outlook because I think that the automakers badly need revenue from digital services to help offset the weakness in their traditional business likely to be caused by the migration to electric vehicles.
  • Failure is not an option for those that wish to survive.

Ola vs. Uber – Turntable

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Ola has one chance to turn the tables on Uber.

  • Ola has secured $2bn in funding from Softbank and Tencent which it must immediately put to good work if it is to wrest the advantage from Uber in India.
  • I think that this is an excellent time for Ola to receive a large cash injection as it is almost neck and neck with Uber in India and has the advantage of focus while Uber fights endless fires elsewhere.
  • This advantage will not last for ever and if Ola can push its share back to 60% it will stand a chance of doing to Uber what Didi in China and Yandex in Russia have done before it.
  • Car hailing is one of the best examples of a networked economy and, just like classifieds, it is extremely difficult to make money until one of two criteria are met:
    • First: one must have at least 60% market share or
    • Second: one must have double the market share of the next largest player.
  • Data in terms of market share has been somewhat unreliable but it looks as if Ola has been able to cede only a small amount of market share in the last 12 months.
  • Research by KalaGato Pte shows that Ola’s share in July was around 44% with Uber on 50% with everyone else fighting for the scraps.
  • In October, Ola’s market share was around 50% (see here) and it looked to me like Ola would only survive with state intervention.
  • During March 2017 Ola’s rides per customer stood at 2.95 while Uber were 4.38 with 40.9% of Uber customers paying less than Rs100 per ride while only 31.4% of Ola’s customers paying less than Rs100.
  • While not definitive, this data indicates that Uber has been gaining share through aggressive pricing and the good user experience offered by the app.
  • However, I think that Uber’s troubles have had a massive ripple effect right the way through the organisation resulting in the eye coming off the ball.
  • It is this that has given Lyft a new lease of life in USA and now offers the same chance to Ola.
  • This turmoil has only intensified with Transport for London denying Uber a licence to operate necessitating even more diversion of attention away from India.
  • This $2bn investment and Uber’s focus elsewhere gives Ola a chance to halt its recent losses and turn them around.
  • What it has to do appears to be quite clear:
    • First: cut prices and
    • Second: improve the usability of its app and service.
  • If Ola can get back to 60% share then it will have reached the hallowed status at which it will be able to generate cash and Uber will not.
  • It is at that point it will be in a position (as long as it holds onto 60%+) to eject Uber from India (probably through acquisition) but not before.
  • Now it all comes down to Ola management’s ability to execute and upon this, everything depends.

Automotive Ecosystem – Dyson C5?

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Not convinced Dyson has what it takes.

  • Vacuum cleaner maker Dyson has announced that it will be producing an electric vehicle that has more hallmarks of the Sinclair C5 than the Model S.
  • Dyson intends to produce a fully electric vehicle by 2020 which will feature:
    • First: Solid state batteries. This is one of the holy grails for battery technology as lithium batteries can be extremely dangerous when exposed to physical trauma, overcharging or excess heat.
    • This has been a focus of Dyson for some time but whether it has cracked this thorny problem remains to be seen.
    • Second: Electric motors. Given Dyson’s history with household products, there would seem to be a natural progression into electric vehicles.
    • Third: Premium price. Dyson is sticking to what it knows in positioning its vehicle at the high end but in this segment, it will face fearsome competition.
  • I think that there are two critical attributes that will be required to succeed in a world of electric vehicles and Dyson has neither:
    • Automotive experience. As Apple has found (see here), making cars is extremely difficult and requires a lot of upfront investment.
    • Dyson plans to invest $2.6bn in developing its vehicle which is not that much compared to everyone else investing in this space.
    • Consequently, it has a lot to learn and not much money to invest which I think will leave it wanting.
    • Digital data. RFM research (see here) has concluded that understanding the importance of data generation in vehicle is likely to be critical for the success of the OEMs in the long-run.
    • Players such as Google, Apple, HERE and TomTom are pushing hard in this space with OEMs such as Tesla and BMW already working hard to improve their differentiation using sensor data.
    • Dyson’s current product line up does not have any data collection nor does the company have any real experience with regard to using data to make its customer experience better.
    • I see Dyson as firmly in the ship and forget category rather than the ship and remember that I think is essential going forward.
  • Furthermore, most of the money in the automotive industry at the moment is made through the financing of vehicles and here Dyson also has no experience.
  • Consequently, I think that Dyson is pinning its hopes on differentiating via its battery.
  • Range anxiety and charging are two of the biggest limitations of electric vehicles today and if Dyson can offer differentiation by fixing either of these two problems it may have a chance.
  • That being said, I think that the secret to solving these problems most quickly lies in making lithium batteries safer rather than using another substrate entirely.
  • According to Amionx 50-80% of the weight of an electric car battery is made up of packaging to protect the battery against the kind of trauma that will cause a battery fire.
  • If the battery can be made resistant to physical trauma, overcharging and heat then the weight of the package can be substantially reduced.
  • This would enable a much higher capacity battery to be used for the same weight giving a big increase in range.
  • My research leads me to believe that this solution is going to come before solid state batteries meaning that range will not be something with which Dyson will be able to differentiate.
  • Consequently, I am struggling to see how Dyson will compete effectively in this market as it lacks almost all of the core competences that I think are required.
  • Furthermore, it will be up against the biggest automakers which are already shipping in big volumes as well as the biggest ecosystems who have tens of billions of dollars to invest.
  • It has been 32 years since arguably the biggest disaster in British innovation (Sinclair C5) but perhaps we are due for an upgrade.

Google Auto – Lyft to market

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Google and Lyft can really help each other.  

  • An investment in Lyft makes a lot of sense given that Waymo’s autonomous driving offering is likely to face a lot of problems getting into production vehicles.
  • Furthermore, with the possibility of autonomous driving being central to its future, Lyft badly needs a solution and the partnership with Waymo puts it in pole position.
  • Google is considering putting up to $1bn into Lyft in a move that would see it become one of Lyft’s biggest shareholders at a crucial time.
  • This is because I see Lyft as still being subscale compared to Uber and when it comes to market places that can be fatal.
  • My rule of thumb for market places is that for money to be made, one player needs to have 60% share or be twice the size of its nearest competitor.
  • In the US, Uber has already achieved this hallowed status and in theory should be able to crush Lyft simply by applying sustained competitive pressure until Lyft runs out of money.
  • However, the current run of bad publicity and executive turmoil has meant that Uber’s eye has not been on the ball and has allowed Lyft to gain some share.
  • Furthermore, the problem that all the ride hailing companies face is that if all cars become autonomous, then their current businesses become obsolete as, while there will be riders, there will be no drivers.
  • In effect one half of their market place will have evaporated meaning that they will become simply a purveyor of a service that requires best in class robot drivers.
  • This is why they must have an autonomous offering as it will give them the ability to migrate from human to robot drivers as the technology comes to market.
  • However, while I see a freight train of electric vehicles coming to market (see here), I think it will be a very long time before autonomy really arrives giving the ride hailing companies plenty of time to fix their shortcomings.
  • From Google’s perspective, I think that it needs to get its ducks in a row now because the advantage it has over its competitors is now as great as it is ever likely to be (see here).
  • It is ahead now but because the technology is likely to be ready before the market is, competitors will have time to catch up meaning that there is likely to be plenty of choice when crunch time comes.
  • By cementing a deal and now an investment in Lyft, Google is giving itself a route to market which the vehicle makers have largely declined to provide.
  • Google’s self-driving solution is by far the best available today but without a way to deploy it in the market, it is useless.
  • This is why an investment in Lyft makes a lot of sense as Uber has already declined to play.

Electric Vehicles – Extinction level event.

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EVs could trigger a huge decline in vehicle demand.

  • Vehicle makers are queuing up to announce their commitment to electric vehicles (EVs) but at the same they may be cheering for their own demise.
  • Volvo began it by committing to an EV line-up in 2019 followed by Chinese plans to ban all sales of fossil fuel vehicles and now Mercedes-Benz will offer a hybrid or electric version of its entire line-up by 2022.
  • Unlike the optimists, I do not see EVs as the beginning of a new golden age for the vehicle makers but instead the trigger for a potential collapse in demand from which most of them will never recover.
  • RFM research (see here) has concluded that owning an EV could easily halve the amount of money that the consumer spends on private transportation.
  • This is because:
    • First: EVs should last much longer than internal combustion vehicles allowing them to travel 2-5x more miles than vehicles that use fuel before they need to be replaced.
    • Assuming that EVs cost the same, they will be much cheaper to own when considering the cost to drive each mile.
    • Second: EVs have many fewer moving parts than internal combustion vehicles meaning that there is much less to go wrong and hence they will be cheaper to maintain.
  • Most vehicles are driven to destruction meaning that assuming total miles driven does not increase, a vehicle market that is 100% EVs will be just 20%-50% of the size of the same market with internal combustion vehicles.
  • In USA, this means a market of 3.4m – 8.5m light passenger vehicles compared to the 17m that are sold today.
  • It is important to note that these estimates are extremely sensitive to small changes in long-term assumptions meaning that these forecasts are purely an indication of a scenario for which I think all players should be prepared.
  • For the large, bureaucratic and slow vehicle makers (almost all of them), this represents an existential change in the market that most of them will not survive.
  • What is likely to then happen is a massive consolidation of the global market in to 5 or 6 vehicle makers down from the 26 or so that there are today.
  • However, it is not all doom and gloom as from this shift, substantial opportunities are likely to emerge.
  • EVs are all likely to be connected to the cloud with a myriad of sensors detecting events within the vehicle and its immediate vicinity.
  • This data should enable a series of highly valuable services for which users will be willing to either pay for or consume advertising.
  • As it stands today, the OEMs have a lock on this data and as long as they don’t let it slip to Google or one of the other digital ecosystems, they should be able to make a good return from it.
  • I very much doubt that it would make up for the revenue lost from lower vehicle demand but it will be much higher margin than selling vehicles which should soften the blow.
  • Of the vehicle makers, I continue to think that BMW and Tesla have the best chances of survival but I think even BMW might struggle to survive a decline in demand of this scale.

Google Auto – Greek gift pt. III.

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Waymo’s time is now.

  • Google’s self-driving division, Waymo, is currently by far the best option for anyone looking for an autonomous driving offering with two caveats:
    • First: It is likely to come at a heavy price in terms of data and long-term differentiation
    • Second: By the time autonomous driving is critical, many of the other solutions may have caught up.
  • Waymo is currently on a charm offensive trying to assuage the fears of automakers who have seen what Google has done to the smartphone industry and are fearful that the same could happen to them.
  • One of the few assets that car makers are likely to have left as the world moves to electric vehicles (EVs) is the sensor data that these vehicles generate.
  • RFM research has concluded that combining Digital Life data generated by the smartphone with the sensor data gives scope for substantial revenues to be generated (see here).
  • There is no doubt that Waymo is currently by far the best at autonomous driving but in order to work, the system has to have full access to the entire vehicle.
  • For any vehicle maker deploying Waymo, this means opening up the entire vehicle to Google thereby putting at risk the only real differentiating asset these companies are likely to have in the long-term.
  • Android Auto has proven to be ineffectual because while it displays apps running on the smartphone on the infotainment unit screen, it has no access to any of the sensor data that the vehicle generates.
  • This is why the announcement by Audi and Volvo at Google i/o that they will deploy full Android in their head units is so significant.
  • By using Android instead of their own proprietary code, they may be letting Google gain access to the sensor data over which I think they must maintain control.
  • Google did announce that the code will be “manufacturer tweaked” Android which I hope for their sake means that all access to the sensor data remains under the vehicle manufacturer’s tight control.
  • Waymo’s argument is that vehicle makers make no money on cars that have already been shipped and that with Google / Waymo there would be some kind of revenue sharing deal.
  • Waymo has not said how much it is willing to give away but should it become dominant, I am pretty sure that the share will be very small.
  • The good news for vehicle makers is that I don’t think that they need to rush into any alliances for self-driving systems just yet.
  • This is because I still think that the technology will be mature long before the market is ready to accept it which gives those that are far behind Waymo today a lot of time to catch-up.
  • Consequently, by the time that autonomous driving becomes a vehicular requirement, I think that the playing field will be far more even with a good array of choices that do not necessarily include the sharing of sensor data.
  • I suspect that this is why Waymo is pushing its wares now as its chances of getting automakers to give Google access to their sensor data are at it their peak.
  • Hence, I think vehicle makers should wait before making a deal for autonomy that they will not need for many years.