Why Uber has to be first to market with self-driving cars
That’s true, especially if the company wants to IPO in the next two years.
The race to get the first network of self-driving cars on the road is off to a lukewarm start.
Uber recently launched a limited test of its self-driving cars in Pittsburgh, as part of a partnership with Volvo. Singapore-based self-driving startup nuTonomy launched its own limited pilot a few days before that and struck a partnership with the Southeast Asian ride-hail company Grab.
It’s all exciting — how can robot cars at your beck and call not be? — but it doesn’t yet mean much.
The true test of the viability of the self-driving technology will come down to which company will launch a fully operational network of self-driving cars and when.
While it would be advantageous for any of the companies attempting to develop a shared network of self-driving cars to be first or near first to market, it’s a near necessity for Uber.
Valued at a lofty $70 billion, Uber has a lot more at stake than its competitors. As Uber CEO Travis Kalanick said in an interview with Bloomberg developing self-driving cars are “basically existential for us.”
That’s because the second another ride-hail company or automaker launches its own network of self-driving cars, the marketshare Uber has poured time and money into dominating is at risk.
Without that marketshare, Uber may not be able to provide the returns on investments the company’s portfolio of backers expected. And without those returns and that scale, it’s unlikely Uber can uphold its valuation.
The key to operating a ride-hail service efficiently is having enough drivers to meet rider demand. If a competitor — let’s use Lyft in this example — rolls out 100 self-driving cars in a city, a decent portion of the marketshare Uber spent countless time and money attempting to capture is now up for grabs.
A self-driving car could easily perform 100 rides a day or around four rides an hour while Uber drivers typically perform somewhere between one and two rides an hour depending on the city and can only drive up to 12 hours a day. At most, Uber drivers would typically be doing 24 rides a day.
That means 100 Uber drivers would only perform at most 2,400 rides a day compared with a self-driving network that could turn 10,000 rides a day. That’s without accounting for the fact that Uber can’t tell its drivers how long they have to drive. In fact, Uber takes pride in how flexible driving is. As of 2015, 52 percent of Uber drivers were part-timers, according to a study the company commissioned.
With Uber’s valuation, holding on to that marketshare is crucial to its survival. Especially since, in pursuing its ambitious goals, Uber has lost $1.2 billion in just the first half of 2016, according to reports.