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Those of us who spend too much time looking for misplaced car keys may have a lot more time on our hands in the not-too-distant future. Thanks to the emergence of the ridesharing industry and the promise of autonomous vehicle technology, many of us may soon not even own car keys to misplace.
And it’s not just current drivers who will be impacted by these fast-growing industries; this generation’s young children may not see the need to have a driver’s license and will miss out on the exhilarating rite of passage of taking a driver’s test.
Currently totaling $108 billion, the global taxi industry is still three times the size of the $35 billion ridesharing industry, despite all the media coverage and popularity of well-known rideshare companies Uber and Lyft. Yet, Wall Street analysts project the ridesharing industry will grow to $285 billion by 2030 solely from taking market share from the taxi industry, according to MarketWatch.
This rapid growth has caused the valuation of Uber and Lyft, both private companies for the time being, to skyrocket. At a recent valuation of $68 billion, Uber is the most valuable private company in the world. The Wall Street Journal reports that Lyft’s valuation of $7.5 billion is considerably smaller given the company’s limited market share (less than 25 percent share in the United States vs. 75 percent share for Uber) and being well behind Uber in expanding outside the U.S.
Yet, despite their lofty valuations and sizable annual revenues totaling a combined $7 billion in 2016, neither Uber nor Lyft generated a profit. In fact, the two companies reported a combined net loss of more than $3.5 billion in 2016. Given the large addressable market, these companies are reinvesting every dollar back into the business to support further growth, leaving nothing for the bottom line. And the strategy appears to be working.
Investors who have been clamoring for the opportunity to own a small piece of these sea-changing businesses may soon get their wish: both companies are reportedly preparing for their initial public offerings within a few short years. Uber and Lyft already have a long list of private investors, many of whom may come as a surprise and serve as an indication of just how significant the ridesharing industry will be. Microsoft, Jay-Z, and Amazon CEO Jeff Bezos are all private investors in Uber. And here’s some great trivia to share with the family over Christmas dinner: What do General Motors, Google, Alibaba, and the Ontario Teacher’s Pension Plan have in common? All are early investors in Lyft.
But for technology companies and auto manufacturers, the interest in Uber and Lyft goes beyond a simple equity investment. These companies see the future potential for automobile industry disruption brought on by the combination of ridesharing and autonomous driver technology and are looking to get a first-mover advantage.
Lyft has partnered with Google’s Waymo driverless technology business to develop an autonomous driving technology that could ultimately result in Lyft replacing its entire base of drivers with machines. While may still be years away from this reality, ridesharing companies will likely adopt driverless technology before personal vehicle owners. Bringing new meaning to the idea of a backseat driver, Waymo’s self-driving technology testing has progressed to the point where in Chandler, Arizona, Waymo employees are riding in the backseat of vehicles completely controlled by autonomous driving technology.
Yes, driverless technology is coming faster than we all think.
And that idea should ultimately be a comfort to us all. While initial hesitation with trusting a machine to drive is understandable, consider how much damage Americans cause each year behind the wheel. According to U.S. Department of Transportation data, more than 37,000 people died on U.S. roads in 2016, and 94 percent of all serious vehicle crashes are linked to driver error. What is tragically ironic is the proportion of people who view themselves as better-than-average drivers. A study from State Farm indicated that nearly two-thirds of people view themselves as better than average drivers, a bias known as Illusory Superiority.
Driverless cars do not need to be error-free to be commercially viable and socially acceptable. They just need to be safer than the average driver on the road. The hope is that autonomous vehicles will prove to be meaningfully safer than human drivers; but even being slightly safer than human drivers will lead to a decline in auto-related deaths and injuries.
It is clear ridesharing companies Uber and Lyft have a tremendous market opportunity, especially considering the impact that driverless technology could have on their business models. But their fast-paced growth has come at a cost, at least in the case of Uber. While Uber and Lyft are both based in San Francisco, their internal corporate cultures are quite different. Uber has experienced tremendous public backlash after reports of a deeply embedded “bro culture”surfaced, resulting in company being accused of propagating a culture of sexual harassment toward women. This has stifled Uber’s market-share lead on Lyft and cost the company’s CEO, Travis Kalanick, his position with the company.
As the rideshare and autonomous vehicle industries continue to converge, it is only a matter of time before we find ourselves looking not for our missing car keys, but our misplaced book that we can read while our driverless car escorts us to our desired destination.