Alphabet’s CapitalG Leads $1B Round in Lyft
blog.lyft.com
blog.lyft.com
For riders, it's great, as prices should remain low. Interested in seeing Softbank's next move.
However you may look at it, I just don't believe this is a winner takes all market.
https://stratechery.com/2017/the-uber-disaster-round-up-waym...
There many links to more information on why it might be winner take all and the upside of Lyft.
Although, while looking for that article, I also found this: https://www.theverge.com/2017/7/21/16005636/lyft-self-drivin...
So I'm not really sure what's going on, now.
Not to mention their historical relationship with GM.
The thing is there is no reason that companies could not be, at least theoretically, profitable charging rates that are actually less than it would cost for an individual to own a car. Without a driver their only overhead is the maintenance/insurance on the car itself. And that's something owners have to pay as well -- with the major difference that thanks to economies of scale the taxi monopoly could pay substantially less for. The company that has the most cars will be able to offer faster rides and offer them cheaper.
The potential profit here is really quite incredible. Last year there were 3.2 trillion miles driven in the US alone. Imagine a taxi company is able to snag about 1/3rd of those or about 1 trillion miles. Their profit margin translates to $10 billion net per penny/mile of profit.
So if they can, through economy of scale, operate their vehicles at $0.05/mile less than an individual owner could. And they then sell their service at a $0.01/mile less than what it would cost if you owned the car, then they're turning $40billion/year net. And that's again with 1/3rd the driving market. When you can offer taxis at below ownership prices, who would still own a car?
Tesla seems to be flirting with the possibility of taking this one step further will full vertical integration of production itself. It's already in their license that you're not allowed to use their vehicles (in what will be full autonomous mode) for any ride sharing service except for their yet-to-be-launched one. Interesting future coming up fast!
With software and services encompassing more of everyday life (like self driving cars), at some point the Supreme Court may very well re-interpret it.
Like, where do people get this kind of argument from? I see it a lot around here.
Those are two highly contestable premises, neither of which are at all supported.
Especially the first one. Why on earth would autonomous taxis be a monopoly? There will always be a more profitable segment of the market and a less profitable one, and thus always an incentive for a new entrant to cherry pick the most profitable segment. And the most important capital investment, the roads, by definition will be open to new users.
There's so much magical thinking around self-driving cars. You guys are aware that the only difference between a self driving car and not is the person driving right?
It's just replacing people. And people aren't particularly expensive or hard to come by. It's not like we've never invented a machine to replace people before.
Once you've solved self-driving taxis, you've also solved a large chunk of self-driving commercial transportation. AI trucks could kill off rail, in addition to manned semis.
From there, it's a small leap to becoming the backbone of an ultra-efficient on-demand national distribution network.
All without the massive operating overhead of human labor... No sleep, no breaks, no weekends, no healthcare, no HR, no wages, just the price of electricity and the low/infrequent maintenance costs of electric vehicles.
Eventually. I think the taxis are 5 years away from 24/7 availability in NYC, maybe 3 for San Francisco, and the grand vision is probably 10 years out.
But... Yeah... This is going to be huge.
How many technological barriers to entry have survived very long?
The industry may be huge, but it's not clear that only one company will crack self-driving. I think it's far more likely every major autocompany will develop good enough versions of self driving.
Plus, these companies won't be able to hide their software behind algorithms. Someone is going to reverse engineer anything put into the open market.
lol
That's another amusing point of view I see here a lot. The use case of taxis in a major city is by far the most challenging use case for autonomous driving. Mark your calendars for 5-10 years after you first see an actual autonomous vehicle having any type of real world application at all. Which you haven't.
The whole idea that taxis are the vanguard of autonomous driving is obvious patent nonsense, why it persists remains a mystery to me.
What's your criteria here?
Because I have the same opinion as you... Except I've literally seen experimental autonomous cars driving on the street... Hence +3 years for SV, and +5 for NYC.
Taxis are not the vanguard, they're just the most visible. Autonomous trucking is underway and will likely see mass adoption before taxis.
The revolution is close - we're seeing disruption everywhere. I could empathize if this was an isolated Google vaporware experiment... but every class of vehicle has promising automation, researched by dozens of companies around the world, and implementing multiple approaches.
Most will fail, of course, but we are on the cusp of success.
It's also unclear that why there would be one vertical-integrated company in an industry built on outsourcing. There's a lot of room for collaboration at building different parts of a car. And why wouldn't a company that builds a self-driving taxi sell it to multiple operators?
I'll bite. First, there's the entry point. If it's a taxi, you as the rider don't own it, which means you have to summon it. The most ubiquitous company here has a significant advantage, because they own the app or phone number that you have on your phone. You won't have to learn a new trick every time you go to a new city. It's similar to Google's monopoly on search.
Being driven around is also somewhat of a commodity. People don't have strong preferences that can't all be satisfied by a single company. You want a nice car or a cheap one? A solo ride or a group one? Easy enough to do in a single app. Whereas an industry resistant to monopolies — say restaurants or productivity apps — are subject to a variety preferences and whims.
There are also economies of scale. Major players like Uber and Lyft have the marketing budget to drive far more growth than competitors. They have the budget to invest in the latest technologies. They have the budget to outright copy or buy competitors, like you see Facebook doing. They have the budget to form partnerships and integrations with other big and powerful companies.
Network effects can play into this as well. Pretty much everyone has Uber and Lyft, which enables things like ride-sharing (Uber Pool and Lyft Line), or splitting the cost of rides with friends, etc.
This is all just off the top of my head. I'm sure others who are better versed in business than I am can think of more reasons for why autonomous taxis are well-suited to monopoly, and counter-arguments as well. But it's certainly not a ridiculous presumption.
Autonomous taxis are taxis, which we understand, with computers replacing the people. That's all they are.
Magical thinking abounds.
And Uber's delusional investment premise notwithstanding, it's pretty clear that there's not going to be a genuine monopoly in app based taxi services. At minimum there will be a few major players.
But the relevant point is that there's no reason to think autonomous driving will strongly affect the monopoly dynamics of taxi services really at all.
First, the taxi companies never made apps, so the lock-in factor just wasn't there.
Second, the absence of an app makes it hard for any single company to succeed with every option that customers want. Willing to pay more for a nicer car and a professional driver? Or want to save money by sharing a ride with someone else? Sorry, you get whatever cab is closest, unless you're willing to look through the phone book, and the cab companies can't stop you from seeing their competitors in the phone book. With an app, I can get all of my options taken care of without ever seeing another company.
Third, taxis are heavily regulated and even have to buy medallions from the limited share the city makes available. Uber and Lyft completely skirted regulations, removing an artificial barrier to monopolization.
Fourth, all of the above greatly diminish the effects of the economies of scale that Uber and Lyft enjoy. Why spend a bunch of money on, say, advertising, if it isn't going to help because people simply jump in the nearest cab regardless? How can you block the competition by copying their features if nobody has apps with features to copy? How can you buy out the competition if you don't have enough cash because needing to invest in medallions and drivers slows your growth?
It's not an accident that Uber and Lyft have put companies like SF's Yellow Cab out of business.
With self-driving technology, the economies of scale become even more influential. Who's going to get first dibs on exclusive partnerships with car manufacturers and tech companies? Who's going to have the funds and the clout and the experience to negotiate with regulators and governments? Who's going to have the software engineers to develop their own self-driving technology? Not small taxi companies, that's for sure.
Assuming that self-driving car tech gets to the point where it's viable as a business, why _wouldn't_ you assume that it'd be huge? Trucking alone is a massive ~$700 billion/year industry in the US (https://www.selectusa.gov/logistics-and-transportation-indus...). Even if you gain only a few % points of that for autonomous vehicles you're sitting on top of billions in revenue. The auto industry adds another ~$600 billion/yr on top of that. Sounds pretty big to me, and there's lots of room to grow from there.
Now, as for monopolies in the market, I don't buy it quite as easily, but I can see it due to the usual "rich get richer" effect. Not to mention training data -- any self-driving company that starts to serve more rides will be accumulating more training data, allowing them to improve their product more and making it that much more difficult for second-in-lines. Look at Wal-Mart, where competition requires big infrastructure, they're bigger in market cap than their closest 5-10 competitors put together.
Another industry that has low switching costs for transportation are the airlines. They had to implement rewards programs to keep customers loyal, and that still hasn't stopped the race to the bottom in terms of price.
And that floor is also regionally dependent. With self driving taxis there no technical reason that taxis in San Francisco couldn't cost the same as taxis in places with reasonable living expenses, at least so long as things like basic maintenance could also be reasonably automated to similarly remove humans from the picture.
And finally it will be incredibly difficult to convince consumers to swap to another brand. One taxi is, more or less, the same as another. When one works well, has an overwhelming critical mass, and offers fair prices - where is a new company supposed to compete? Also there will be minimal need to pick and choose markets, at least not in the scale you're implying. I think most of these imminent monopoly factors are going to be self evident to investors. That's going to drive absurd investment enabling companies to deploy in mass. The bottle neck will likely be how fast cars can be produced which is likely why we're seeing riding sharing come autonomous taxi companies currently partnering with vehicle manufacturers. And I've yet to touch on the final issue (though I'm sure I'm neglecting others) and that can be stated simply as what it is - mergers and acquisitions.
That's not how any of this works.
What you're saying is the opposite of obvious economic theory. It's a pretty fundamental concept that when products are commoditized people will switch to save fractions of a cent or because they're bored, or because the logo is a different color.
The only counter to this is if there are strong netowrk effects but taxis only have weak network effects for availability only.
Incorrect. As I mentioned there will be some aspects of the taxi business that will be more profitable than others. New entrants focusing only on those areas and routes with higher margins will be able to join anytime, and will. Some parts of the business will be more expensive than others (think rural vs. urban or corporate accounts vs. leisure travel) and some companies will optimize for them and thus be able to create pricing pressure.
You see this already with other transportation options that have high capital costs and availability network effects. Think airlines. The tendency in markets like this is for prices to be driven down to marginal cost.
But regardless of all this theorizing, it's much simpler to analyze, we can just look at the taxi business today. The addition of autonomy really just doesn't change the fundamental economics of the thing much at all. People cost money to hire. Machines cost money to buy and maintain. The cost structures are different but they don't have really any effect on the network effect aspect of things.
Because of the app based model and some economies of scale it's likely we'll see a bunch of national/global app based taxi hailing companies, a shift which has already for the most part happened over the last few years. Nobody in this thread has offered up any convincing argument at all for why the simple addition of autonomy really will change this dynamic at all.
I don't have to prove anything, we already have a taxi sector and it has attributes. Burden of proof is on the people claiming that self-driving will create a winner take all market when there's neither any evidence nor a plausible mechanism by which such a thing would happen.
If we replaced airline pilots with robots would that change the basic premise of the airline business? What about bus drivers? Why? OK now why taxis?
All the things you're talking about like economies of scale and similar are applicable to taxis with people driving them. What about replacing drivers with a machine will change the network effects of the taxi business?
Answer: nothing. The two concepts are orthogonal.
The premise that self-driving inevitably leads to an all powerful global taxi monopoly is magical thinking, and I really am mystified that it has such traction here.
Even giving you the benefit of the doubt there, I don't see how this makes sense. Removing the driver is a revolutionary shift in how the entire industry operates. It also completely shifts the margins for competition, and innovation. The vast majority of cost in a taxi is the human in it. That means that in order for taxi companies the most effective means of competition on fare pricing is seeing who can pay their drivers less.
Shaving 10% off your operating cost due to scale is irrelevant when the human in the seat is 95% of your cost. Taxis in most areas are monopolized (making your choice of them as a foundation of your view even more perplexing), but Las Vegas is an exception there. There are a large amount of competitors and the net result of that was that taxi drivers just finally won a years long court case demanding they be paid at least minimum wage. That's quite silly, and sad. And something that a decade from now will be a relic of the past.
Most things don't become monopolies, so the burden of proof goes the other way. And there's nothing about self-driving taxis that makes them a monopoly. For the most part a natural technological lock-in has an insurmountable network effect, the canonical example is the design of the typewriter keyboard.
In all contexts what happens is an environment where your decision to use a product makes it more valuable for all other users. Like a fax machine. Or Facebook.
Taxis are literally the opposite of this. The more people using a taxi service the longer I have to wait for a cab. Yes, you will quickly point out that the bigger the service the more that service be available wherever I tend to go.
But those two forces are in direct contradiction to each other and as such the network effects of taxi services are weak at best.
Sure you can create a hypothetical world monopoly autonomous taxi company. I can always create another company, buy a dozen self-driving taxis, and post them outside giant sporting events or clubs at closing time with graphics on the side saying download this app to rent me, and someone will do it. There goes your monopoly.
The whole freaking point of monopolies is that they happen when the switching costs are extremely high or when the supply is constrained and someone corners it. Switching costs will always be zero, and there's absolutely no chance whatsoever that one single company will permanently be the only one that creates a working autonomous vehicle.
So as neither of those conditions apply, there's no obvious force towards a permanent monopoly. In fact the reason for the government created monopolies we do see is the fact that the market tends toward commoditization and a downward spiral in prices.
The market for taxi services is unusually competitive. That's why we got to where we are in the first place.
Autonomous taxis also completely revolutionize the possibilities for scale. Cars mostly only deteriorate when in active use. Massively oversupply will likely be a thing in some areas opening up possibilities like your sports event thing. People aren't going to be going to the streets to try to find a ride. There will be hundreds outside the stadium - and the cool thing is anybody using the monopolized company should be able to hop into any cab and it'll auto sync to their destination and they'll be off, rapidly replaced by another cab from the monopolist ensuring 0 wait for other users.
And then we get into cost, something you continue to inexplicably ignore. Right now there is no room for economy of scale to affect the price of taxis. I'm not going to repeat myself as I've gone into this above. Suffice to say, the biggest player is going to be the cheapest and by a wide margin.
So your dozen taxis are going to be less reliable, more expensive, likely less well maintained, require people to install yet another app, and also face a trust issue. Self driving technology will likely be closed source and proprietary for some time. So on top of all of the above issues you'll require users jump into an unknown car, from an unknown brand, using who knows what software and security standards.
And this isn't getting into the tertiary developments of self driving vehicles. We'll likely see the introduction of services (that hopefully can be disabled) that tie in the taxi to commercial agreements from the monopolist. For instance, you're passing by a coffee shop and the car offers to order a coffee for you for 50% off. You needn't pay anything (all charged through the monopolist's finance infrastructure) and a server will bring it out for you. Wait time - approximately 30 seconds. I'd assume things like that can be disabled, but on the other hand they'll be kind of nice when you're in the mood - you could also perhaps simply ask the car if there are any deals nearby on [---].
Ultimately self driving taxis will be a paradigm shift. Comparing them to current taxis (or even ride sharing services) will likely be as quaint a notion as considering there was a time when we classified automobiles as "horseless carriages."
Plus Google is rumored to be starting their own ride sharing. Think Google is covering their bases.
Hoarding this much cash is historically unprecedented, largely because it's mostly offshore for tech companies and repatriating it would cost many billions in taxes.
"You can get much farther with a kind word and a gun than you can with a kind word alone."
They started off paying them ridiculous salaries, and then when the engineers got their "F U" money, they left.
Is this cause for concern or innocuous? I don't remember rounds being this big before.
Uber, Didi, WeWork, Airbnb and a select few others have raised rounds that large. These are large businesses. Magic is an outlier in terms of what they're raising vs the size of their business. Those couple top companies have gotten a lot bigger in terms of revenue in the last three or four years. You aren't seeing other companies able to raise a billion dollars like they can. It's best to no longer think of those companies as traditional start-ups, they have more in common with their large publicly traded peers (Airbnb & Priceline for example).
So far it appears Magic raised $500m in the round -
https://www.reuters.com/article/us-magicleap-funding/startup...
It’s basically an unsustainable financial mess that will collapse.
Not that big of a bubble though compared with the student loan fiasco no one is really talking about these days.
Nasdaq Top 2000: 5,000
Nasdaq Top pre-2008: 2,804
Nasdaq Bottom (2008-crisis): 1,293
Nasdaq ATH: 6,624 (just a couple days ago)
That, or the dollar is going through hyper-inflation. And I'm pretty certain this time will not be different (though from a volatility perspective, maybe)
However, there might be something else going on... I wonder if China's efforts to prop up its economy? It would be interesting if someone could tell me where all this capital is coming from.
How do you know that? The 2008 was led by public borrowing. This might be led by bigger investors borrowing or figuring out "schemes" to leverage themselves.
Either way, what we know and are certain of, is that US stocks are rallying. Not quite hard to worry, but they are showing signs of bubbly like behavior. It'll be time for the "larger public" to take notice and plunge themselves.
Equity versus debt.
The 2000 tech boom had companies with no revenue. This tech boom has companies with revenue. But it'll be a bubble if this revenue is derived from bubbling sectors.
whereas you can deny the m.uber.com browser tab the ability to get your location from the browser (caveat: [0]), and you can close the tab when you're in the car.
[0] companies can still get rough location information from your mobile IP address [1], because of course that's a revenue stream for all the big mobile carriers.
[1] https://www.xda-developers.com/services-grab-location-info-d...
Competition, generally speaking, is good.
Why would they need to subsidize outside of the US?
Lyft: -13.5% losses as a percent of gross bookings
This is based on leaked/estimated Q2 2017 financials.
> CapitalG (formerly Google Capital) is a growth equity fund backed by Alphabet, Google’s parent company. We invest in companies around the world that drive market disruption by harnessing long-term technology trends.
"I used to stand for something, I forgot what that could be. There's a lot of me inside you, maybe you're afraid to see"
CapitalG also has completely different objectives than Waymo. Larry & Sergey have 51% of Alphabet, but I seriously doubt the board of directors would approve a $1B spend out of spite.
The Lyft deal looks to be genuinely good. The Waze Carpool app still has low usage even in the Bay Area. Lyft can supply their network, so Waymo doesn’t have to support every metro area, which is what they would have to do if they just sold self-driving kits to automakers.
Lyft isn't public transportation, and there was an article a few days ago which demonstrated that, in some cities, Uber and Lyft were causing a net decrease in public transportation use.
Darned consumer choice getting in the way of multi-billion dollar political handouts again [1].
[1] https://www.utrc2.org/publications/final-second-avenue-subwa...
I wasn't even advocating public transportation necessarily - just pointing out that Lyft doesn't qualify as public transportation.
But, since you're bringing it up, I'll point out that glibly referring to the Second Ave line as a "political handout" is reductive. The Second Ave project is[0] a disaster for a whole lot of reasons, not just "political handouts", and it's also not at all representative of public transportation either in NYC or in general.
[0] not was - is... Phase II and III have still not happened
Fed keeps the interest rate low. That means low borrowing costs for those that can borrow, but also lower yields on debt instruments. Doing so keeps money in equity markets where VCs obviously play, because the risk-adjusted returns are favorable to investing in debt. At the same time, it's doubtful that the sorts of businesses that VCs back could raise debt funding at reasonable rates (they're not borrowing at the Fed overnight rate, nor do they have any real assets to collateralize the debt), so VCs come in and buy equity instead.
If there's some path to which the Fed is printing money and directly washing it through VCs, I'd love to hear how that works. To me it's just more of a market dynamic with low interest rates (which the Fed drives).
The Federal Reserve has kept interest rates artificially low through its programs, in order to nudge economic growth. In turn, companies have used these low interest rates to borrow vast sums of money. Most have spent it on share repurchases but others have used it to fund acquisitions to chase higher growth. It is in this environment that VC money has thrived, funding candidates for future acquisitions or providing money to large companies (like Uber) to continue growing their business.
I am by no means a professional economist. I am just trying to interpret the current situation with the little bit of knowledge I have. I welcome other opinions telling me I am wrong and why.
The low federal funds rate (federal reserve interest rate) results in new Treasury bills being issued at very low interest rates. Large banking institutions must maintain certain capital reserves, which they hold in these TBills, and the low interest rates mean the banks earn tiny returns on the capital.
Banks, being commercial ventures, are expected to return a certain profit. The low interest rates from the TBills are too low of a rate, and won't cover inflation or operating expenses. So banks must chase riskier investments (in general, risky investments return higher interest rates) with their remaining capital to return high enough profits.
The riskiest investments are startups. Very high returns, if a startup succeeds and exits in an IPO, but failure is more common. Banks don't invest in startups though, they are too risky, but banks end up investing in all the less risky assets available. This demand for "medium" risky assets (sovereign debt, corporate or municipal bonds) drives other investors out of the market, they can't compete with the volume banks can purchase at, and are forced to chase the even riskier assets banks won't touch.
So low rates -> low interest tbills -> banks chasing risky assets -> investors chasing startups
http://thehill.com/policy/finance/337790-fed-raises-rates-fo...
and
https://www.nytimes.com/2017/09/20/business/economy/fed-bond...
So the current Fed policy is not in fact indirectly subsidizing ride sharing.
(Video) https://www.bloomberg.com/news/videos/2017-09-27/what-yellen...
These rates are moved slowly and incrementally. You can't just raise the rate 3%.
That video in your link says nothing about keeping rates low, its about the nature of inflation.
Now, you can argue that that is in part because a rapid increase to non-low rates would be disruptive given the status quo ante, but that's a justification for keeping rates low, not a rebuttal to the claim that that is what the Fed is doing.
The plain truth is that inflation is low. And inflation has been consistently low for years.
Sure, the Fed rapidly expanded the base money supply from 2008 to 2014. But the reason they expanded the money supply is that demand for dollars (a safe asset) had skyrocketed. Increasing the supply of money was done to match rising demand for money, in order to keep prices stable. Without that new money, we would have faced deflation (see Japan and Europe) and probably even lower interest rates (again, see Japan and Europe).
Monetary policy and monetary theory are complicated. You can argue that inflation is mismeasured somehow. You can argue that people are irrational. You can argue that an increasing money supply will have disparate impacts on industries (e.g., affecting VCs differently than the aggregate economy). But all of these arguments are complicated, subtle, and second-order. It's not enough to say that a rising money supply causes cheap money which causes increased investment. By itself, the logic doesn't hold.
Obviously compared to a hypothetical higher Fed rate, but that's not much of an argument.
The beauty of this scheme is that the quasi fascist entities are "private" and thus not subjects to laws governing "public" platforms: "it's a private company and they can refuse service to whomever they want."
I was in Denver an Uber driver showed me how much she actually got for my ride. I paid $8 and Uber paid her about $4.20.
I started asking every driver afterwards how much they actually got, and all were surprised to hear how much I’m paying. Uber’s real margin seems to be 45-48%.
I’m sure in some competitive markets they are being subsidised. But I wouldn’t say everyone using ridesharing is being subsidised.
Interestingly, this is what will make these companies so entrenched for decades to come - anything that would ever come close to being a competitor..they will be part owners of.
Ref : https://techcrunch.com/2013/08/22/google-ventures-puts-258m-...