There’s a battle brewing between Uber and Google. Here’s why Google will win.
Racing to win the future of transportation, two companies appear to be heading for a pretty big crash: Google and Uber.
Both firms appear to be crossing into each other's territory. Uber on Monday announced a partnership with Carnegie Mellon that could enable it to get into driverless cars -- a major project in development at Google. And Bloomberg reported that Google is preparing its own ride-hailing service. Both bits of news raised eyebrows in Silicon Valley because Google is a big investor in Uber and one of its top executives sits on the ride-sharing company's board of directors.
But if the two tech companies are going to go at it in this space, it won't exactly be a fair fight.
Uber depends on Google's tech now, using Google Maps to help drivers navigate. And Uber's business model is much more easily replicated -- as evidenced by the hoard of competitors including Lyft and SideCar who run essentially the same business.
But Google's research into the development of self-driving cars has the potential to upend Uber and its peers just as they upturned the taxi industry.
The majority of an Uber riders' fare currently goes to the driver, with Uber taking its cut off the top. Imagine a world in which the company owned a fleet of self-driving vehicles instead -- paying only for the vehicles and their maintenance.
Uber chief executive Travis Kalanick certainly has.
"The reason Uber could be expensive is because you're not just paying for the car — you're paying for the other dude in the car," Kalanick said at the Code Conference last year. "When there's no other dude in the car, the cost of taking an Uber anywhere becomes cheaper than owning a vehicle."
In fact, he said, this shift could result in the end of private car ownership as we know it. "So the magic there is, you basically bring the cost below the cost of ownership for everybody and then car ownership goes away."
But Uber, which declined to comment for this story, is just now starting to invest in that future. On Monday, the company announced it is partnering with Carnegie Mellon University to create the "Uber Advanced Technologies Center," which will "focus on the development of key long-term technologies that advance Uber’s mission." According to Tech Crunch, that means self-driving cars.
Google, on the other hand, has already invested years of research into driverless cars -- first modifying a Toyota Prius and now creating their own prototypes. That gives it a healthy head start over competitors that are preparing to enter the autonomous vehicle race -- not counting the considerable advantage it has from being one of the largest and well-heeled tech companies in the world. (Google declined to comment for this story.)
Uber also may find it more difficult to navigate the legal headaches associated with getting self-driving cars on the road. The company has a notoriously tense relationship with many cities and state governments due to its tendency to launch services rather than ask permission first. Uber brought on Obama campaign adviser David Plouffe to help wage a multi-front campaign for its services last year, and has tried to curry goodwill by offering to share some of its rider data with cities to some success.
But Uber's lobbying efforts are no match for Google's prowess in the policy space. The search giant is among the top lobbying spenders in the country and has a sophisticated approach to getting its way with those in power, both at the federal and the state level. Four states and the District of Columbia have regulatory approaches in place to support the testing of autonomous vehicles, though a long battle remains before the technology can be widely deployed.
Google and Uber have long been intertwined: The tech giant's venture capital arm, Google Ventures, invested over $250 million in Uber in 2013 -- while Google's chief legal officer David Drummond sits on Uber's board of directors.
Many observers assumed Google's initial investment in Uber signaled that it might at some point acquire the company -- much as Google Ventures investments in Nest previewed the company's $3.2 billion purchase of the company. But Uber's skyrocketing valuation, above $40 billion in December of last year, may have made it a less attractive candidate for a take-over.
It's Drummond who alerted Uber to Google's possible interest in starting up its own service, according to Bloomberg. Now, the board is reportedly weighing whether to remove Drummond -- a situation that bears striking resemblance to when Google chief executive Eric Schmidt resigned from Apple's board while the the two companies waged a battle for control over the smartphone market.
But Uber, even with a $40 billion dollar plus valuation, is no Apple. If Google takes on the ride sharing space with its driverless car tech in tow, Uber may find itself spinning out.