What would you call a company with billion of dollars in valuation on a revenue close to zero? Back in late 90s, that usually reserves for companies that has dotcom at the end of its name and some questionable business model, as well as using all kind of marketing gimmick just to get an attention from users. We all knew how it ended up, so no need a refresher.
However, this particular company doesn’t need to use dotcom persona, no marketing gimmick needed, already got attention from few hundred users (and financial analysts) and not having a questionable business model. Furthermore, it’s a subsidiary of one of the most valuable company in the world.
That company is Waymo. Yes, the one under the giant umbrella of Alphabet (formerly known as Google). And it already gained billion dollar valuation (varies from $75 billion to $250 billion, depending on analysts) although they have yet to commercialise their services globally like Uber. If that’s a valuation before proper commercialisation, imagine how much Waymo’s worth once it’s up, running and conquering the whole world, like its sister company Google.
But how on earth Waymo gets that kind of eye-watering valuation?
A Moonshot Idea
Google’s autonomous vehicle project was started in 2009 as part of their secretive Google X’s project, ran by Sergey Brin. Started with a modified Toyota Prius and Lexus SUV in 2012 to merely test its technology in the real world, Google took a step further by revealing a truly autonomous car (albeit not for commercial use) called Firefly in 2014 which has no steering wheel, brake pedal, accelerator or even a mirror. Who needs them when those cars are running fine on its own and relying on army of sensors instead of mortal human being? And in 2016, this autonomous vehicle unit was renamed to Waymo and reorganised as part of Alphabet, Google’s parent company.
And no, you won’t be able to buy one of those Firefly, as it’s not actually sold at any of your local car dealer. The vehicle was set up initially to test the technology underneath and the road and traffic conditions everytime it breeze through San Francisco Bay Area. No news yet if Alphabet or Waymo will ever auction it, if ever.
Compared to traditional automotive companies like BMW or GM, Waymo (or Alphabet) never set their sight to build an actual vehicles in the future. Rather, it’s about allowing their technology to be adopted and used on any vehicles developed by any manufacturers interested to integrate such system under the hood. In other words, Waymo will only license their technology to anyone interested, rather than building their own.
And based on the design of their Firefly, I’m forever thankful that Waymo is not interested to actually build those vehicles themselves. No trying to insult anyone, but I don’t think they have a good taste in designing a vehicle, but I admit that they do have great brains to come up with great algorithm. And if their plan works, you can expect a car company like Toyota or Nissan/Renault/Mitsubishi to manufacture their new vehicles with Waymo’s technology underneath to power the intelligent and autonomous part of it.
And this is where things could get interesting in the next 20 to 30 years. A vehicle version of Android. And they already created a partnership with the likes of FiatChrysler and JaguarLandRover.
Billion Dollar Valuation. Zero Dollar Revenue
But Waymo isn’t Uber or Lyft. Since the start of the project, Waymo has never offered their products, technology or transportation services to a meaningful number of public users (they only started one in April 2017 with around 400 users under their test program) . Obviously 400 users won’t be enough to generate revenue and profits that can justify a minimum of $75 billion valuation. Even Uber only managed $69 billion valuation at its high, and that’s after 5 billion trips since its founding.
The answer lies on the fact that the notion of valuation itself. Waymo wasn’t valued based on historical profitability and potential P/E ratio (no earnings to start with anyway), but rather its potential future growth, especially how Waymo’s technology could disrupt current transportation business and its potential contributions to this sector. In other words, it’s about how the technology and data gleaned from all those tests and can be used by Waymo (and Alphabet) to create new business model and opportunities.
Yes, how indeed?
Let’s start with some basic statistics, as compiled by TechRadar here (as of May 2018) :
- 6 million: number of miles driven on public roads
- 600: number of minivans in the Waymo fleet
- 25: number of US cities where Waymo has driven
- 2.7 billion: number of virtual miles driven
- 20,000+: number of driving scenarios in Waymo’s database
You don’t need to be a rocket scientist to see that Waymo has collected a gazillion bytes of data since the start of the project. From a road to traffic condition, even a human behaviour whilst driving could be already saved somewhere in Waymo’s server to refine their service on a continuous basis. Not to mention that since they never offered ride-sharing service until recently, they managed to escape and learn a lot from ride-sharing fiascos like whatever happened at Uber. In other words, instead of offering ride-sharing services from the beginning and then collecting the data, Alphabet/Google/Waymo took an opposite path of collecting data and offering the service only after they have collecting all the data and ready to serve their customers.
But will Waymo crushed Uber, Lyft or Grab by offering ride-sharing services? I doubt it.
Future Android On Wheels
Alphabet/Google/Waymo wasn’t a ride-sharing company to start with. They are a data company. And based on their past strategy, I doubt that they will look at ride-sharing business as one of their main source of revenue. A large revenue yes, but not to an extent of another cash-cow for Alphabet. They have a bigger fish to fry with autonomous vehicles technology and the data it will be collected.
Waymo, for all its intent and purpose, will most probably follow the path of Android, a platform for smartphone. Yes, it does make money from the OS itself, but Alphabet/Google is milking it more from offering things like Google Search results, in-app purchase and offering other Google’s products like productivity and storage suites. And following the same template with Android, Waymo will be offered with very minimum fees or costs to any vehicle manufacturers, and Alphabet are ready to offer their products to the users of those vehicles, whether personal or commercial and regardless whether the vehicles are manufactured in Spartanburg or Rayong.
And that’s why it may not crushed Uber or Didi Chuxing. But obviously Waymo will make them just another company that rides on their underlying technology (that is, if Uber or Didi Chuxing is using Alphabet’s AV technology, as they are still refining their own), similar to Samsung or Huawei that rides on Android’s technology to offer their own flavours of smartphones. This strategy allows Android to be OS of choice for smartphone users and manufacturers, reaching close to 90% of worldwide users by the end of 2018 (statistics here).
And other vehicle manufacturers with their own AV technology like GM, Tesla and Daimler would be wise to watch closely to Waymo, as Waymo could be their strongest competitors to their own AV technology. And I’m pretty sure Alphabet/Google/Waymo holds more data about us than those vehicle manufacturers combined. And sharing more data between different vehicles and platform could potentially make future AV systems better and safer.
And when it happens, those vehicle manufacturers may either have no more incentive to develop their own AV technology any further or slowly being crushed by Alphabet/Google/Waymo’s technology and how they integrate other data and product offerings to their users.
So Waymo is just another weapon for Alphabet to cement their leadership as a data company very much like Android, minting more data and money to them and realising the advantage that they have with petabytes of data. And without building a vehicle on their own.
Big Data = Big Money
According to analysts from Jefferies (article excerpt from Business Insider here), they forecasted that Waymo will have several business models in the future like :-
- AV technology sale
- Transport services (private and commercial)
- Ongoing AV tech support
- Incar services (advertising, entertainment, business)
- New type of vehicles
In all honesty, I agree with those analysis except one. The transport services like ride-sharing. I doubt Alphabet/Google/Waymo will seriously take that path in the long run. As I said earlier, Alphabet/Google/Waymo is a data company, not a car or ride-sharing company like GM or Uber. Moving to become a car company requires a lot of CAPEX and moving into ride-sharing or transport companies could expose Alphabet/Google/Waymo to bunch of lawsuits if and when things go south like passengers getting murdered or mugged while using such services.
Concentrating on areas other than offering transport services directly to users (or logistic companies) are already a huge gold mine for Alphabet in collecting data to further refine their technologies. Alphabet will eventually let transport services exists as a small niche very much like their Google Pixel smartphone, where it’s more of a showcase of how things should be done with Android, rather than competing with their own partners like Samsung or Huawei.
So in Waymo’s case of their Waymo One, it probably just a showcase of how things could be done better both in AV technology and ride-sharing services, while still working with their partners like Ford and Chrysler, as well as other potential partners in the future.
And by working with various vehicle manufacturers to better refine refine their AV technology, Alphabet/Google/Waymo could learn various data about vehicles as well, thus probably providing an advice on how to develop a better and safer vehicles in the future. Just like what my mentor used to advise me ‘the more you give, the more you get back’. Seems the mantra works nicely with Alphabet/Google/Waymo. By providing how their partner’s vehicles behave on the road, it will be a two-way traffic for Alphabet/Google/Waymo and their partners on how to tweak their vehicles in the future. Barring confidential information of course, as I don’t think Ford would love their IP to be shared with Chrysler or any other competitors.
In the end, it’s the data that Alphabet/Google/Waymo wants, and if they can get it by doing the least amount of heavy-lifting, things will unravel nicely for them. Who needs a (car) factory when you can add just few servers to collect and analyse your data?
First Mover vs. Winner
So by spending years and years on refining their AV technology, Alphabet/Google/Waymo has actually made a leapfrog by offering their Waymo One to select few (although I doubt it will be a strategy that fits Alphabet’s empire) and start showing off the fruits from their years of investment. Alphabet probably realise that they don’t have to have a first mover advantage like Uber in ride-sharing services, they only need to make it better. Alphabet only concentrates a lot of their resources to make AV technology better and better until one day they announced their own ride-sharing services with a minivan filled with their own AV technology and in this smart move, will probably one day relegated Uber and other ride-sharing companies as their clients instead of competitors.
Nice move Alphabet. Now we’re waiting when (or if) Apple release their own iCar, Tesla will succeed in proving that an image recognition is better than LIDAR and whether those vehicle manufacturers like GM would realise that their own technology might be inferior to Waymo’s and what are they going to do with their investment. Not to mention whether or not Uber will finally succeeded in their self-driving technology effort. They might have money & investors, but I doubt they have reams of data like Alphabet/Google/Waymo.
Let the driverless-vehicles competition begin. And let no one gets hurt.