Ride Hailing and Driverless Cars - The Future of Transportation


Uber waves a white flag in China

Chinese ride-hailing giant Didi Chuxing acquired Uber's China business, ending the fierce, two year long battle between them. The total value of the deal, $35 billion, is made up of Didi's $28 billion valuation and $7 billion value of Uber China. Uber Global obtained a share in the combined entity, which is equivalent to a 17.7 percent stake. Baidu and other shareholders of Uber received a stake of 2.3 percent, becoming the largest shareholder in Didi by owning a total of 20 percent. In return, Didi made an investment of $1 billion in Uber as part of the deal. Uber-Didi alliance is an absolute monopoly. Without any competition in China, Didi could set its own prices, maintain the market and expand beyond china by developing an effective international strategy. Apple Inc., China Life insurance Co Ltd, Ant Financial and other shareholders invested $7.3 billion in Didi during recent rounds of fund raising. Didi has $10.5 billion in available funds with Chinese internet giants Alibaba Group Holding Limited and tencent Holdings Limited on its side. Ride Hailing

Ride-Hailing Dynamics

Uber, a $68bn company, lost around $2bn in competing against Didi Chuxing over a period of two years, shelling out money to drivers and free rides in an attempt to gain hold of market share. Although Didi was doing the same, it owned 85% of the market share compared to Uber’s measly 8%. But Uber secured a strong negotiating position in the merger, gaining an investment fund of $1 billion and a 20% stake in Didi while still maintaining its brand in China. Uber can now stop worrying and wasting its resources in China, and instead focus their efforts on taking on other ride hailing companies like Ola in India and pretty much every other company around the world. The Apple investment might be one of the factors that influenced this merger. Didi received an investment fund of $1 billion from Apple Inc. Uber and Apple have been partners for a period of time, so the investment of Apple Inc. in Didi could indicate that things weren't working out well for Uber. Considering the whole merger, Apple Inc. might be the most profited party in this deal. Lyft, the second-largest ride-hailing company in the U.S., in recent months, approached tech companies, automotive manufacturers and internet competitors like Apple, Amazon, General Motors, Google, Uber and Didi Chuxing over a potential sale, but failed to find a buyer. General Motors' recent 500 million dollar infusion increased Lyft's valuation to $5.5 billion. Before Didi-Uber merger, Didi considered having partnerships outside China by choosing to work with Lyft in the US. That deal meant that when Didi’s Chinese customers were travelling in the US, they could summon a car through Lyft’s app, and vice-versa for Lyft’s customers in China. The merger puts this arrangement of theirs in jeopardy and might compromise Lyft's standing amongst the Chinese demographic. Apple was recently in talks to gain a stake in Lyft, discussing about possible partnership with them, primarily focusing on forming a competitive and operational alliance. This could pose just a slight threat to Uber, as there was no sign of merger or acquisition. There was no interest from Apple or Lyft in an acquisition. These talks with Lfyt shows a situation escalating to a global battle as both companies expand into self-driving car technology.

What Markets to focus on now?

As the competition in China ended, Uber’s next target might be Ola which has the highest market of 46% in India compared to Uber’s 16%. Ola has an estimated valuation of $5 billion, Key investors Softbank and Tiger Global have invested a sum of $210 million and $5million respectively in Ola. Didi chuxing also made an investment of $30 million in Ola. It’s biggest backers SoftBank Group Corp., which has invested in Didi Chuxing and GrabTaxi. This implies that the rivalry between Uber and Ola is unlikely to end anytime soon. Mostly Uber has now a great chance to acquire Ola. Uber has become a dominant player in the ride-hailing game, providing appreciable service in 445 cities in around 70 countries.

Driverless – Automating Driving

Every startup banks on automation to achieve gains as well as scale that is not possible through traditional methods. The source of all of the challenges for Uber is the drivers. They turned the business into one which could have startup scale by signing the drivers as contractors. Today, their success has resulted in Uber being a victim of its own success. Suddenly, drivers are seeking to be treated like employees. Uber can continue to fight or remove the drivers from the equation. 2016 might go down as the year the auto industry got self-driving religion. Driverless vehicles are no longer science fiction. The technology is here. Private companies working in auto tech are on pace to attract record levels of deals and funding’s in 2016, with autonomous driving start-ups leading the charge. As expectations around self-driving vehicles have risen, major corporations have ramped up their own initiatives, racing to deploy technology onto public roads. Not all of these vehicles are fully autonomous today. Many are considered partially automated and still require some driver intervention.

Efforts across the world

Since 2009, Google has been developing its self-driving technology in Toyota Prius and Lexus models on the streets of California. Google has made big progress since it first started testing. The technology can now recognize pedestrians and cyclists, detect hundreds of objects simultaneously and even read stop signs. Apple’s Titan reports suggested the project was targeting an advanced electric vehicle, but rumors and hiring’s since have increasingly pointed towards self-driving development. Hundreds of engineers working on car design and targeting a release by 2020. That goal has been affected by multiple departures, technical delays and confusion regarding the direction of the project, according to people with knowledge of the efforts. Apple’s team is said to have grown to over 1,000 employees, poached from sources including Tesla, Carnegie Mellon, Volkswagen, and Nvidia. In the public view, Tesla has become the flag bearer for advanced driver assistance and self-driving technology. It pushed its Autopilot software update to properly equipped Model S vehicles last October, enabling auto steering, parking and lane changing features. Tesla’s deployment strategy and messaging has also been criticized following a series of crashes and its first Autopilot-driven fatality in summer 2016. Tesla promises to bring semi-autonomous and autonomous features to the mass market with its Model 3, which has already attracted over 350,000 pre-orders. Separately, the automaker’s proposed acquisition of SolarCity factors heavily into the Musk’s master plan of creating an entirely sustainable transport ecosystem. Mercedes-Benz has been testing driverless vehicles on public roads in California since September 2014. In fact, back in August 2013 the Mercedes-Benz S 500 Intelligent Drive drove fully autonomously for 100 kilometers between the German cities of Mannheim and Pforzheim. But the latest achievement for Mercedes-Benz was revealing the F015 Luxury in Motion driverless car in January at the 2015 International Consumer Electronics Show, in Las Vegas. Nissan plans to commercialize autonomous driving technology in stages, but its vehicles could have the ability to navigate busy city intersections without a driver by 2020. Plus, Nissan and NASA just announced a five-year research and development partnership to advance autonomous vehicles and prepare for commercial application of the technology. For about three and a half years, Bosch has been developing and testing automated functions and automated-driving features on BMW 3 Series. In May 2013, the engineering and electronics company started testing its automated driving technology on the streets. Improved safety, traffic management, reduced greenhouse gases and reduced burden on older drivers are just some of the possible benefits of autonomous vehicles. The Chinese search giant Baidu also partnered with BMW to release a semi-autonomous prototype by the end of 2015. The partners tested their technologies on highways in China. Aside from its partnership with Baidu and Bosch, BMW has also been aggressively pushing its autonomous strategy in 2016. It showed off an autonomous i8 concept at CES, under the banner - BMW iNEXT. Hyundai sounded more conservative, stated that autonomous driving would only be possible after 10 or 15 years. Nevertheless, but intensifying its efforts to compete in 2016, ramping up investments in AI and setting up to develop “hyper-connected” and self-driving cars in the near future. In July 2016, JLR formalized plans to deploy at least 100 research vehicles over the next four years to test self-driving and connected car technology on roadways in Britain. It is also a part of $7.9M UK program to further autonomous driving R&D, aiming to gather data on driving habits and test vehicle communications technology. In March 2016 VW Group CEO Matthias Muller announced that the board had just signed off on a huge autonomous driving initiative, boldly claiming that their goal was to bring the technology to market faster than the competition and asserted that self-driving cars will on roads by 2025. Volvo named its autonomous vehicle “Intellisafe” with the goal of making Volvo cars immortal when the company fully rolls out these features to the public. For now, Volvo is planning to give 100 Swedish customers early-access to an autonomous XC90 SUV in 2017. The Company has stated that it will accept full liability when its vehicles are in autonomous mode, and has announced plans to expand its pilot program to China and the United States. Volvo has followed rivals like BMW in setting 2021 as a target deployment date. Volvo has also partnered with Microsoft to expand its research. With all these collaborations happening all over the world, automakers have become increasingly concerned about those technologies, and their potential to help people travel easily and cheaply without owning a car or even without knowing how to drive.  

How does this change a 100 year old industry?

Cars have been around for a long time. Car manufacturers create a lot of job and they keep the wheels of the economy moving, figuratively and literally. In the US, historically, the automobile industry has contributed 3 – 3.5% of the economy. This piece is about to take a big hit. People buy cars mostly for functional purposes, but also for the pleasure of driving the car. In a world where the car is going to be driving itself, what is the point of owning a car? There is no way to say for certain, but car sales will drop. As the younger generations arrive they would be used to a world where Uber shows up within 5 minutes, anywhere. Why would they take a quarter to half a years income and invest it on buying a car? Not to mention the maintenance and other expenses that it brings along with itself. Google knows how long it is going to take for you to reach your next appointment. You can ask it to prompt you to leave at a certain time based on that. Combine this with Uber; with existing technology it is possible to have a car at your door when you need it without you even asking for it! The future of city transportation is going to be some combination of a driverless car and a ride hailing technology. Now the reason behind the nuclear arms race to build a self driving car becomes clearer!

The future

Ride Hailing is going to be a monopoly or at best a duopoly. Uber has made sure that it has its fingers in all of the jars by cutting a deal with Didi. So, with Uber owning most of the ride hailing market across the world, what happens to car companies? Cars will become commodities with relatively little hope for any upside through differentiation. They would be doing little more than renting time on their hardware. Car App Relationship Ride hailing apps have a direct relationship with the customer and this will not change. But the car companies which currently enjoy a direct relationship with their customers may not continue to. This puts an industry equivalent to 3% of the GDP at peril. They will be subservient to the ride hailing companies.
So the pertinent question is - If driving is going to be disrupted how can car companies not be?
The critical question we need to be asking is how the car industry will stack up in the future. There is going to be a hardware component to it, which I suppose many people would be able to do; just like anybody can get a mobile phone made today. To launch the phone you need an operating system which bring everyone back to Android or Windows. The self driving software is going to be the critical piece that not everyone would be able to produce. If you own the software part of it, it would be possible to build an entire service eco-system around it. Who will win this battle? How will this end up being defined? I do not know the answer to this question. But it going to be fascinating to watch this unravel over the next decade. An entire industry is about to undergo change which is not going to be pleasant. Nokia had no clue when the smartphone became the regular phone. This is not the case with car manufacturers. Many of them see it coming, but remain quite unsure about the tectonic shifts that this will bring about. How we move things around is at the verge of great change. This change is going to probably be similar to the change that the introduction of the car brought along. The motor car had to spend a decade as a toy before being taken seriously. The same would not be true for driverless cars. The wave is coming. Startups can work on the fundamental pieces that will be part of this wave. Or they could work on the value added segments that may emerge in this industry. In 1990, if someone had said a business could exist in just selling ringtones, people would have laughed. Imagine the possibilities that will open up as the old incumbent players are forced to make way for the new. As far as the car industry is concerned… Winter is Coming