Wednesday, 1 February 2017

Uber Hedging Self-Driving Technology Bets With Daimler Deal


Uber Hedging Self-Driving Technology Bets With Daimler Deal
Ride-hailing pioneer Uber is expanding its approach to eventually eliminating the human driver component from its platform. A new deal announced this week will eventually add automated Mercedes-Benz vehicles to the Uber platform. This will mark the first time that an automaker effectively becomes an Uber “driver.”

This new move seems to be a recognition that buying or building its own self-driving cars to move people around may not necessarily be the best business approach for Uber in the long run. Uber is by far the leader in ride-hailing in most of the markets it participates in including the U.S. Despite its commanding market position, privately-held Uber is estimated to have lost more than $3 billion in 2016.

The company’s biggest expense is believed to be the money it pays out to drivers which is big part of why it wants to automate the driving process. However, Uber and other ride-hailing providers currently don’t have to purchase any of the vehicles used by its independent contractor drivers. These companies also don’t have expenses such as insurance or maintenance on vehicles.
Uber Hedging Self-Driving Technology Bets With Daimler Deal

As of October 2015, Uber had more than 327,000 in the U.S. alone, a number that has grown significantly since then. If Uber, Lyft and others had to purchase vehicles and operate them, they would likely be spending tens of billions of dollars per year on additional capital expenses. As Uber discovered in December, when it attempted to start testing its automated Volvos in San Francisco, it would be facing a great deal more regulatory scrutiny as well potential liability.

With the Daimler deal, Uber has not given up on developing its own automated driving technology. The deal with Volvo that was announced last August to develop custom vehicles for the service based on the Swedish brand’s platform architecture also remains in place.

The new deal represents a hedging of its bets by allowing an automaker to operate its own fleet of automated vehicles just as if it were an individual driver. Mercedes-Benz will retain ownership of vehicles that it develops and operate them using Uber’s dispatch platform to connect riders with its vehicles. Daimler and Uber haven’t revealed the financial details of the deal, but the revenue split will presumably be different from that offered to individual drivers.


Uber spokeswoman Momo Zhou confirmed that the company is open to allowing other automakers to also operate their own automated vehicles on its platform. The OEM programs are not white label efforts and will be available to riders directly through the standard Uber mobile 

While many OEMs are investing in other ride-hailing providers or even developing their own platforms in-house as Ford seems to be doing, they too may decide to hedge by leveraging the name recognition of Uber along with their own brands.  Since the barrier to entry in the market by developing a platform similar to Uber's is relatively low, this approach may also help Uber maintain its leading position in the market regardless of who comes out on top in developing autonomous technology. 

For automakers, retaining control of automated vehicles is likely to prove appealing in the coming decade. These vehicles will need to be properly maintained and serviced with the correct sensing and actuation systems to ensure that they operate safely. The manufacturers will also likely be liable for the performance of the automation systems and will be making regular updates as the technology evolves.


Having access to Uber and similar platforms will enable that retention of control over the vehicles while having a path to generate recurring revenue from these vehicles. For Uber and its competitors, it will provide a path to eliminating drivers even if internal development efforts or the costs don’t pan out.

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