Google is suing Uber, alleging that the company recruited a former Google exec who had secretly offered to give them access to trade-secrets from Google's self-driving car project.
On its face, this looks like just another intercompany spat, but because it involves Uber and self-driving cars, the potential implications are rather wide-ranging.
Uber is something like a Ponzi scheme in which investor billions and drivers' bad calculations about wear-and-tear on their vehicles are used to subsidize fares at unsustainable rates. But while Uber is showering travelers with subsidies, they are also driving out their competitors: with the billions that Uber has raised from its investors, it is betting that it can stay irrational longer than its competitors can stay solvent.
But what then? If Uber were to simply jack up the prices, many of those competitors would come roaring back. As rideshare nonprofits like Ride Austin have shown, making a hailing app and some dispatch software isn't rocket science: add some help wanted ads (because Uber's driver don't like the company and will jump ship given half a chance, which is something else we've learned from Ride Austin) and voila, Uber's competition reappears, like dormant desert flowers blooming as soon as the market provides some long-missing resources.
The consensus is that Uber plans on beating this trap with self-driving cars. The fare subsidies provided by its investors and drivers are a stopgap to get it to the point where it can replace drivers altogether, along with their general-purpose cars, and replace them with efficient, cheap, long-lasting fleet vehicles purpose built and optimized.
But what if Uber loses all its self-driving car research to Google, ordered by a court to go back to square one because it's been caught stealing trade secrets? At that point, it falls behind all the different autonomous driving players, including the auto manufacturers, Google, and various and sundry suppliers. Maybe it can buy up one of the little guys, but it'll be bidding against all those other big players -- players with a better story about how they will transition self-driving cars from a flashy R&D project to a daily operation.
At that point, Uber isn't just at square one, it's at square minus one million, having to find an exit for the investors who gave it billions to subsidize our rides in a winner-take-all bet on self-driving cars that the company has lost. Like the fiber companies that overbuilt during the dotcom bubble, Uber's only remnant would be its bankruptcy-tarnished assets, folded into the portfolios of its successors at 10 cents on the dollar while its investors lose everything.
The worst case for Uber would be:
* Uber gets dealt an injunction on their self-driving car project. They have to start again, a long way behind other companies.
* Uber’s name is mud, they struggle to raise more money from investors, especially on good terms. Uber has raised at least $15 billion at a $68 billion valuation.
* Uber is currently losing money at $2-3 billion/year. Uber passengers only pay 41% of the cost of trips, with investor capital making up the difference. Update: I was wrong about Uber passengers only paying 41% of the cost of trips. I can’t find a publicly available number on how the trips are subsidised. Regardless, “Lose a billion here, a billion there, pretty soon, you’re talking real money.” Update 2: See the appendix for more details on this.
* With significant negative margins, no way to become profitable in sight, and a terrible media narrative after the Alphabet lawsuit, sexual harassment, aggressive/illegal behaviour, e.t.c., they cannot IPO.
* Because their self-driving car plans are still so far off, they can’t lower their costs to become revenue neutral.
* I suspect that a large part of Uber’s appeal is their low pricing. If they were to raise prices to cover their driver costs (not even covering the significant costs of their own operations), demand would dry up.
* Without any way to raise more money or reduce their costs, Uber runs out of money and folds.
The Uber Bombshell About to Drop [Daniel Compton/Daniel With Music]
(Thanks, Fipi Lele!)
(Image: Tombstone, Joel Bradshaw, PD)