Cleantech Market Intelligence
Automated Driving Space Threatens to Follow App Store Revenue Model
Ride-hailing provider Lyft has shifted course and decided to develop its own automated driving system, joining most of the major automakers, suppliers, technology companies, and hundreds of startups in Silicon Valley and elsewhere. If the smartphone app economy is any example, this is not a good thing for any of the new players. The land rush into this space seems eerily similar to what happened in the years after Apple began allowing third-party apps onto the iPhone. Lots of early players made some money and many of them got healthy buyouts, but the vast majority never made a dime.
As of 1Q 2016, studies of Apple App Store revenue showed that the top 1% of publishers took home 94% of the more than $1.4 billion generated. The vast majority of apps in the stores of Apple, Google, and other companies have never earned anything. A 2014 analysis of the more than 1.2 million apps then available in Apple’s store showed zero downloads.
And the Automated Vehicle Market?
Most of the startups jumping into the automated vehicle space are focused entirely on developing the control software while using off-the-shelf hardware. Unfortunately, for most of these new entrants, the software side is quickly maturing. It seems increasingly unlikely that anyone is going to make a huge algorithm breakthrough that is going to justify a high purchasing or licensing price as these vehicles start coming to market in the next few years. A few more big acquisitions like Cruise Automation may happen, but it is rapidly becoming a buyer’s market for automated driving startups.
While the software will continue to evolve as engineers learn how to make it deal with edge cases, the real effort now needs to be focused on the hardware side. The cost of sensors and compute platforms must come down along with power consumption. Sensors must get more robust to withstand the rigors of daily use in the real world outside the mostly perfect weather bubble of Silicon Valley. Everything has to be integrated into the rest of the vehicle and made to work in all climates. These are expensive and time-consuming activities that startups are ill suited for.
The Right Moves?
Companies like Waymo are making the right moves in developing both the hardware and software as well the mobility services component for deployment. They are also forming partnerships with automakers to provide vehicles, rental companies for servicing, and network companies like Lyft for additional deployments.
Until now, Lyft has focused on partnerships with vehicle providers, including General Motors (GM), Waymo, nuTonomy, and Jaguar Land Rover. For Lyft to decide to develop its own automated driving stack seems like a needless waste of resources for a company that has yet to approach profitability.
Too Many Players?
Navigant Research’s Leaderboard Report: Automated Driving ranked incumbent OEMs such as Ford, GM, Nissan, and Daimler, along with suppliers like Delphi and newcomers like Waymo, at the head of the pack. There are already too many players in a transportation ecosystem that is likely to see significant consolidation in the next 2 decades. Anyone entering now is far more likely to be the next Color than the new Instagram. Venture capitalists considering putting money into self-driving startups that will probably part of the 80% with zero downloads are probably looking at a race to the bottom as that technology becomes commoditized. They should instead be focused on interesting new kinds of services that build on the data emanating from those vehicles.