With a couple of weeks of retrospection, Waymo, Alphabet’s self-driving technology unit, will be even more satisfied with the $2.25 billion of cash outside investors poured into it at the very beginning of March at a $30 billion valuation. Within just over a fortnight, financial markets have been decimated in way last seen during the ‘Black Monday’ crash of 1987.
Many expect the aftermath of what is now happening as the global Covid-19 coronavirus epidemic to present a new reality for high growth technology companies. One in which investors are far less willing to throw cash at loss-making businesses with promise, lavishly funding their development and then an aggressive market entry.
Self-driving technology companies, and divisions of larger tech companies, certainly fall into that category. They eat up cash quickly, make no money and are targeting a theoretical future market that doesn’t yet even exist.
But executives at Waymo, and its parent Alphabet (owner of Google), will be breathing a huge sigh of relief they look to have caught the last train out of the station before the era of easy money pulled down its shutters. Waymo was already widely considered to be at the front of the race between the companies vying to lead the driverless revolution.
Now, with a significant cash injection and valuation way ahead of the $19 billion assigned to its closest rival, Softbank-backed Cruise, the driverless unit of General Motors, when it last raised money, Waymo should find itself in an even stronger position when the dust finally settles.
Waymo – Leading The Autonomous Driving Revolution
Waymo was first spun out of research lab Google X, renamed Development X after Alphabet was established as an umbrella holding to better manage Google’s growing sprawl of spin-off companies, in 2009.
The unit was one of the earliest efforts to seriously attempt to develop autonomous vehicle technology and has since built up the largest fleet of driverless cars in the world, currently more than 600 and growing quickly. It has also driven far more test miles than any other player in the autonomous vehicles field and established a limited commercial, driverless taxi service in the Phoenix East Valley region of Arizona.
Waymo Still Hasn’t Decided On Its Future Role In The Coming Autonomous Vehicles Landscape
But Waymo is still unclear on how it will choose to position itself in the market. Shortly after the early-March cash infusion, Waymo boss John Krafcik, previously an experienced auto industry executive and president and CEO of Hyundai Motor America, told the Financial Times that “all options are on the table” as the company considers what it wants its future role to be. The choice seems to be between choosing to “just focus on the Driver”, which is how Waymo refers to its driverless technology system, or operating services such as the trial robo-taxi operation in the suburbs of Phoenix.
In other words, does Waymo want to be the Android of the driverless car industry and simply license out its operating system to car manufacturers in the same way Google licenses Android to smartphone makers from Samsung to Huawei? Or will it become more of an Apple, which sees its iOS hardware operating system and iPhone hardware as a single amalgamated product and brand.
Will we be ferried around by a Waymo? Or by a Nissan powered by Waymo?
Are Driverless Tech Licensing Partnerships With Car Manufacturers Waymo’s Long Term Future?
Mr Krafcik suggest that the alliance between Waymo and Renault Nissan that was announced last year but scant on details, could see the French-Japanese auto-manufacturing giant launch robo-taxi services under its Renault and Nissan brands, powered by Waymo’s driverless tech stack, in France and Japan:
“It’s possible the branding isn’t Waymo One.”
That would see Waymo sitting in the background with the customer facing brand of driverless services those of the carmakers. There was also a hint a similar path could be taken with Fiat Chrysler in Italy – another car manufacturer Waymo has an existing partnership with, having supplied minivans Waymo will fit out as driverless vehicles.
The approach of working with carmakers, only providing them with the technology, would theoretically offer advantages when it comes to Waymo scaling its technology. As wealthy as Alphabet is, setting up driverless fleets around the world would represent an unprecedented level of investment and require tens of billions in capital outlay. Licensing the technology to selected car manufacturers, who use their own fleets would both allow for a broader market entry while keeping costs under control.
That would, however, see the business model of car manufacturers change significantly. As Mr Krafcik outlined:
“The world is changing. Soon the metric people will be focused on will not be the number of cars that are sold each year, but the number of trips taken or miles driven.”
Driverless Players Scaling Back Ambitions
Waymo’s assessment of its future long-term business model comes at a moment of reckoning for the nascent autonomous vehicles sector. Even before the coronavirus pandemic devastated financial markets, ushering in what looks like it will inevitably be a deep, though hopefully short-lived, global recession, the industry was entering a period of consolidation.
The scale of the cost that bidding for a place at the top table has become increasingly apparent and smaller players have realised that they will not be viable as stand-alone concerns.
In early March, FiveAI, the UK driverless tech start-up announced it was narrowing its focus to developing parts of the AI that will support driverless systems. CEO Sam Boland admitted the relatively modest $41 million investment the company has raised would not be enough to put even a small dent in the kind of sums needed to actually offer a full commercial driverless transport service.
He reflected on the “simply huge” cost of both capital outlay on fleets of cars, integrating driverless technology into them and gaining licensing approval from cities and regulators. That reality, he believes, means that the autonomous vehicle services that achieve commercial launch will each be made up of “consortia of players or have unfettered access to large pools of capital”.
That precisely describes the kind of alliances Waymo is establishing with partners such as Renault-Nissan and Fiat Chrysler. Other players that fall into that category are General Motors’ Cruise, Argo, the driverless group jointly owned by Ford and Volkswagen and Uber. They have all brought in multi-billion-dollar investment in recent months.
Josh Wolfe of venture investor Lux Capital, a backer of driverless tech start-up Zoox, commented:
“All of these companies are going to have to raise hundreds of millions, billions of dollars. The good news is enthusiasm is high and the field is narrowing.”
Waymo sees the partnerships it has been carefully establishing as just as important as the raising of a couple of billion worth of investment. The direction is also one that will offer a degree of relief to the traditional automaking industry, which has long been casting nervous glances over its shoulder in the direction of Google’s driverless sector ambitions. Mr Krafcik reportedly sees breaking down that distrust to establish strategic alliances as a win-win.
Does Waymo’s Future Mirror Android’s Present?
Narrowing its own focus to the core OS technology of driverless systems would see Waymo evolve into a pure tech company offering services to carmakers. That would, on the surface, seem to match with Alphabet and Google’s historical approach, with Android and the Google Cloud Platform the obvious examples. The company’s culture is to be comfortable working in the background.
But it will be some time before Waymo reaches any definitive decision and it is keeping its options open. Mr Krafcik does not rule out getting out of the B2C end of the business but is also keen to impress that staying in it is equally still on the table. An investment from car retailer AutoNation indicates the company’s vision of supporting the transport of good as well as people. It already carries parts for the car retailer, has established another partnership with UBS and a few weeks ago announced Waymo Via, a new service to ship goods.
Whichever business model Waymo does finally opt for, what is clear is that the Google spin-off will be one of, if not the, major players in the future automated vehicles sector. There are hundreds of billions of dollars to play for. And as Mr Krafcik says:
“The future is very unclear. One of the things we hold dear is to maintain optionality.”
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