Why Uber Needs Their Autonomous Vehicle Project to Succeed
With a current private market valuation of $68 billion and projected revenue of $5.5 billion in 2016, Uber’s revenue continues to grow as the company continues to lose billions of dollars.
To overcome the significant losses each quarter, it is imperative that Uber’s autonomous vehicle project succeeds as Uber is facing a crucial test that could ultimately determine the company’s long-term success — product consistency.
Uber’s lack of product consistency is partially a result of the overwhelming success of uberX. uberX is an inconsistent product where some rides are good, some are OK and some are bad. This inconsistency stems from a variety of factors including vehicle condition and driver attitude.
This is a widely known problem that consumers turn a blind eye to for the sake of price and convenience. In the future, consumers will not settle for product inconsistency as traditional car manufacturers and Alphabet’s Waymo launch product and value-consistent on-demand autonomous vehicle services.
If Uber’s autonomous vehicle project does not scale and succeed, the company’s achilles heel – product consistency – will be exposed, which will lead to further losses and further complicate an already complicated businesses.
Today, we are starting to see the early building blocks of this roadmap with the Waymo and Fiat Chrysler Automobiles NV partnership. According to Bloomberg, Waymo plans to use Pacifica Hybrid autonomous minivans to launch a commercial ride-sharing service. When this service launches it will be a consistent product with only one type of vehicle, whereas Uber has thousands of different types vehicles with unpredictable drivers.
Taking notice, GM is hedging their investment in Lyft against product inconsistency with the introduction of BOOK by Cadillac. BMW is following suit by scaling ReachNow, while Porsche is working on their upcoming Porsche Chauffeur service.
While the product offerings from Cadillac, BMW and Porsche are not autonomous yet, they will soon become autonomous. These companies are using these on-demand services to model user behavior and perfect an on-demand autonomous ride-sharing software platform.
Uber has the platform and a head start on autonomous vehicles compared to Cadillac, BMW and Porsche, but Uber does not have a consistent product offering. These car manufacturers have a consistent product and loyal brand customers. Waymo has a consistent product and significant autonomous driving data advantage, but does not have Uber’s scale or brand recognition yet.
To offset this threat to their core business of ride-sharing, Uber should expand their partnership with Volvo to deploy more self-driving XC90s around the world.
As the self-driving XC90 scales and Uber is able to achieve Level 5 autonomy, Uber should replace the uberX tier with what I would refer to as the uberA tier. uberA would be a consistent product comprising only self-driving Volvo XC90s (or a future autonomous Volvo model).
The uberA tier would ensure that every single time an individual summons an on-demand autonomous Uber, the product is consistent. No more bad drivers, no more vehicles that have not been cleaned and no more inconsistent experiences.
The uberXL tier could be replaced with autonomous SUVs that are all the same make, model and year. All of the current tiers of Uber could be replaced with a single autonomous vehicle model from a single manufacturer.
This model would save the traditional car manufacturers who choose to partner with Uber billions of dollars in research and development costs. While this might sound farfetched, in theory it is not. Manufacturers are in the business of selling vehicles, not operating fleets of vehicles.
The question is, would Uber adopt such an approach? Uber is currently buying the XC90s from Volvo, separate from the $300m Volvo has invested in the partnership.
Understanding Uber’s achilles heel will be one the keys for investors going forward. With a burn rate of billions of dollars a year, at some point Uber will have to start to generate a profit and offer a consistent product.
This is why we will continue to see Uber push for regulatory changes and invest billions of dollars in autonomous vehicle technology and artificial intelligence. Autonomous vehicles combined with artificial intelligence will allow Uber to scale a consistent product, generate a profit and avoid exposing their achilles heel.
It is truly the only way for the company to succeed in the long-term.