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Comment by zmarty | Hacker News Reader

"Anyone with basic understanding of technology knows that its not a sustainable model" -> Please explain this. I have a basic understanding of technology and this is not obvious to me.

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Right now, Waymo looks like it wants other companies (Honda, Chrysler, Jaguar) to provide it with dumb boxes on wheels. Waymo wants to play different dumb-box-on-wheels providers against each other so it can get the cheapest box-on-wheels.

Waymo then installs it's fancy software on these boxes and uses it's Google connection (Maps, Waze, etc) to put people in those boxes and charge them a hefty profit, at least for a few years while it's the only provider. Waymo wants to be in control and collecting profits, while manufacturers subsist on small margins.

Obviously, this isn't a good situation to be in for Honda etc

It doesn't seem that unreasonable for waymo to expect that car companies would want to sell cars - that's what Honda has been doing for the last 60 years.

If you fast forward, and assume that at some point most cars would be self driving, then you can see why Honda would want to sell more than just the dumb parts.

Aren't cars today mostly "dumb" boxes anyway? (And yet there seems to be enough competition in the field)

I'm thinking what sells will be different when most cars are self-driving. For one, most people probably won't own a car. The buyers will be companies like Waymo, Uber, and Lyft. That's a very different dynamic. Basically saying Honda doesn't want to sell a commodity with small margins.

If you're just hailing a ride, you care a lot less about the brand of car and it's amenities. You care more about the overall ride share service, price, etc. Very little of which Honda would have any effect on if they don't have some skin in the self-driving tech.

True, it might squeeze the profits from some car manufacturers.

I do see a future in very high end & privately owned cars, which will quite possibly generate even higher margins for some manufacturers. Plus there will be a whole new world of innovative design opportunities in the self driving cars realm, in which the self driving part might end up being be the boring and somewhat commodity part.

Cars today have 10's of microprocessors in them and hundreds of millions of lines of code. Not exactly "dumb", but I take your meaning to be "absent AI features".

This is a great description of what Waymo is doing, and why Honda/GM etc. don't want to become a commodity provider (thus letting Waymo capture most of the value).

From Waymo's perspective, that's exactly the scenario they want. Focus all your resources on developing a tech advantage that others can't match, and have others in the ecosystem serve the lower-margin stuff.

If this sounds familiar, recall Google Search and Web Content.

The model being described is one where the company at the center of the network eventually captures ~100%+ of the profits deriving from the products that OEMs build on that platform. The reason is that the traits that define the product for the consumer are all controlled (or eventually co-opted) by the platform, leaving OEMs (what Google wanted Honda to be in this example) no room to differentiate. This leaves the OEMs with very little pricing power, which drives margins lower. Lower margins lead to less innovation. This is why it's hard to sustainably be an OEM in a market like this.

Examples:

-- Wintel --> Microsoft + Intel financially did much better financially than the legions of PC makers who designed, built, and sold products using the Wintel foundation

-- Android --> Similar, with Google reaping the profits.

All of the auto companies have watched the mobile phone market going from a situation where the companies that build mobile phones (Nokia, LG, Ericsson) etc. had high margins to a situation where almost the entire market has been commodified by Android (Google). They don't want the situation to repeat itself with cars, so they are heavily investing in software and technology development to prevent it.

Android didn't commodify phone hardware. There are Android phones in different price ranges, from $1000 ones like Galaxy Note 9 and Pixel to $100 ones.

And the margins on basically all of them are low to very low. Like a typical commodity market.

'Commoditize your complement': https://www.gwern.net/Complement

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