Forecast | The big business future behind self-driving cars: Future of Transportation P2

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By David Tal, Publisher, Futurist
@DavidTalWrites
Jul 08, 2015,  7:06 AM

The year is 2021. You’re driving down the highway on your daily commute. You approach a car that’s stubbornly driving at the max speed limit. You decide to pass this overly law-abiding driver, except when you do, you discover there’s no one in the front seat.

As we learned in the first part of our Future of Transportation series, self-driving cars will become publicly available in only a few short years. But due to their component parts, they will likely be far too expensive for the average consumer. Does this mark self-driving cars as an innovation that’s dead in the water? Who’s going to buy these things?

The Rise of the Carsharing Revolution

Most articles about autonomous vehicles (AVs) fail to mention that the initial target market for these vehicles won’t be the average consumer—it will be big business. Specifically, taxi and car sharing services. Why? Let’s look at the opportunity self-driving cars represent to one of the biggest taxi/rideshare services on the planet: Uber.

According to Uber (and almost every taxi service out there), one of the biggest costs (75 per cent) associated with using their service is the driver’s salary. Remove the driver and the cost of taking an Uber would be less than owning a car in almost every scenario. If the AVs were also electric (as Quantumrun’s forecasts predict), the reduced fuel cost would drag the price of an Uber ride further down to pennies a kilometer.

With prices that low, a virtuous cycle emerges where people start using Uber more than their own cars to save money (eventually selling their cars outright after a few months time). More people using Uber AVs means a greater demand for the service; greater demand prompts a larger investment from Uber to release a larger fleet of AVs on the road. This process will continue over years until we reach a point where the majority of cars in urban areas are fully autonomous and owned by Uber and other competitors.

That’s the grand prize: a majority ownership over personal transportation in every city and town the world over, wherever taxi and carsharing services are permitted.

Is this evil? Is this wrong? Should we be raising our pitchforks against this master plan for world domination? Meh, not really. Let’s take a deeper look at the current state of car ownership to understand why this transportation revolution ain’t such a bad deal.

The Happy End of Car Ownership

When looking at car ownership objectively, it seems like a bum deal. For example, according to research by Morgan Stanley, the average car is driven just four per cent of the time. You can make the argument that a lot of the things we buy are rarely used all day long—I invite you to one day see the layer of dust collecting over my collection of dumbbells—but unlike most of the things we buy, they don’t represent the second largest slice of our annual income, right after our rent or mortgage payments.

Your car drops in value the second you buy it, and unless you buy a luxury car, its worth will continue to drop year-over-year. Inversely, your maintenance costs will rise year-over-year. And let’s not get started on auto insurance or the cost of parking (and the time wasted looking for parking).

All in, the average ownership cost of a US passenger vehicle is nearly $9,000 annually. How much savings would it take to get you to give up your car? According to Proforged CEO Zack Kanter, “It’s already more economical to use a ridesharing service if you live in a city and drive less than 10,000 miles per year.” Through self-driving taxi and ridesharing services, you could have full access to a vehicle whenever you needed it, without having to worry about insurance or parking.

At a macro level, the more people using these automated ridesharing and taxi services, the less cars there will be driving on our highways or circling blocks endlessly searching for parking—less cars mean less traffic, faster travel times, and less pollution for our environment (especially when these AVs become all electric). Better yet, more AVs on the road mean less traffic accidents overall, saving society money and lives. And when it comes to the elderly or people with disabilities, these cars further improve their independence and overall mobility. These topics and more will be covered in the final part to our Future of Transportation series.

Who Will Reign Supreme in the Coming Ridesharing Wars?

Given the raw potential of self-driving vehicles and the massive revenue opportunity they represent for taxi and ridesharing services (see above), it’s not hard to imagine a future that includes a good deal of not-so-friendly, Game-of-Thrones-style competition among those companies vying to dominate this budding industry.

And who are these companies, these top dogs looking to own your future driving experience? Let’s run down the list:

The first and obvious top contender is none other than Uber. It has a market cap of $18 billion, years of experience launching taxi and ridesharing services in new markets, owns sophisticated algorithms to manage its fleet of cars, an established brand name, and a stated intent to replace its drivers with self-driving cars. But while Uber might have the initial edge in the future driverless ridesharing business, it suffers from two potential vulnerabilities: It’s dependent on Google for its maps and will be dependent on an auto manufacturer for its future purchase of automated vehicles.

Speaking of Google, it might very well be Uber’s toughest competitor. It’s a leader in the development of self-driving cars, owns the world’s top mapping service, and with a market cap north of $350 billion, it wouldn’t be hard for Google to buy a fleet of driverless taxis and bully its way into the business. In fact, it has a very good reason to: ads.

Google controls the world’s most profitable online ad business—one that’s increasingly dependent on serving local ads next to your search engine results. A clever scenario posed by writer Ben Eddy sees a future where Google buys a fleet of self-driving electric cars that drives you around town while serving you local ads via an in-car display. If you opt to watch these ads, your ride could be deeply discounted, if not free. Such a scenario would substantially grow Google’s ad serving ability to a captive audience, while also beating competing services like Uber, whose ad serving expertise will never match Google’s.

This is great news for Google, but building physical products has never been its strong suit—let alone building cars. Google will likely depend on outside vendors when it comes to buying its cars and equipping them with the necessary gear to make them autonomous. 

Meanwhile, Tesla has also made substantial inroads into AV development. While late to the game behind Google, Tesla has gained considerable ground by activating limited autonomous features into its current fleet of cars. And as Tesla owners use these semi-autonomous features in real world conditions, Tesla is able to download this data to gain millions of miles of AV test driving for its AV software development. A hybrid between Silicon Valley and a traditional automaker, Tesla has a strong chance winning a considerable slice of the AVE market over the coming decade. 

And then there's Apple. Unlike Google, Apple’s core competency lies in building physical products that are not only useful, but also beautifully designed. Its customers, by and large, also tend to be wealthier, allowing Apple to charge a premium on whatever product it releases. This is why Apple now sits on a $590 billion war chest it can use to enter the ridesharing game just as easily as Google.

Since 2015, rumors swirled that Apple would come out with its own AV to compete with Tesla under the Project Titan moniker, but recent setbacks indicate that this dream may never become a reality. While it may partner with other car manufacturers in the future, Apple may not no longer be in the automotive race as much as early analysts may have hoped.

And then we have the auto manufacturers like GM and Toyota. On the face of it, if ridesharing takes off and reduces the need for a large chunk of the population to own vehicles, it could mean the end of their business. And while it would make sense for auto manufacturers to try and lobby against the AV trend, recent investments by the automakers into tech startups show the opposite is true. 

Ultimately, the automakers that survive into the AV era are the ones that successfully downsize and reinvent themselves by launching various ridesharing services of their own. And while late to the race, their experience and ability to produce vehicles at scale will allow them to out-manufacture Silicon Valley by building fleets of self-driving cars faster than any other ridesharing service—potentially letting them capture huge marketplaces (cities) before Google or Uber can enter them.

All that said, while all of these competitors make compelling cases for why they could end up winning the self-driving Game of Thrones, the most likely scenario is that one or more of these companies will collaborate to succeed in this grand venture. 

Remember, people are used to driving themselves around. People enjoy driving. People are suspicious of robots managing their safety. And there are over one billion non-AV cars on the road globally. Changing societal habits and taking over a market this large may be a challenge that’s too big for any one company to manage on its own.

The Revolution is Not Limited to Self-Driving Cars

Reading this far, you’d be forgiven for assuming this transportation revolution was limited to AVs that help individuals move from point A to B cheaply and more efficiently. But really, that’s only half the story. Having robo-chauffeurs drive you around is all well and good (especially after a hard night of drinking), but what about all the other ways we get around? What about the future of public transit? What about trains? Boats? And even airplanes? All that and more will be covered in third part of our Future of Transportation series.

FUTURE OF TRANSPORTATION SERIES LINKS

A day with you and your self-driving car: Future of Transportation P1

Public transit go bust while planes, trains go driverless: Future of Transportation P3

The rise of the Transportation Internet: Future of Transportation P4

The job eating, economy boosting, social impact of driverless tech: Future of Transportation P5

Likelihood of happening rating 
Large (4/5)
importance rating 
Large (4/5)
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PREDICTION WILL IMPACT SOCIETY AT LARGE BY 2016 to 2032
Next scheduled update for this prediction
March 1, 2018. Last updated March 1, 2017.
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