Google sure seems to think so. Back in August, Google Ventures, along with several other smaller players, invested $360MM into the mobile app / ride share company, giving it a staggering $3.5 Billion valuation.
For those of you not familiar with Uber, and their funny pink moustache, Uber was founded in 2009 in San Fransisco, CA as a ride share program. The company arranges pickups, using their mobile app, and connects private drivers with users looking for a ride. While the company originally offered premium cars (7 Series BMW, S Class Mercedes, and the like), the fleet now contains a broad selection of vehciles that you can choose from, depending on how fancy you feel like getting around and how many folks are in your party.
In addition, Uber offers ride sharing optimization, where you and other riders can share a route together – splitting the cost. The app handles all of the payment features, so there is no need to worry about having cash or calculating a tip. When you request a pickup, you tell the app where you are going and it provides an estimate of how long it will take for the ride to get to you and how much the trip will cost. At the end of it, you are able to provide feedback on the driver and that feedback can be accessed by all users to make sure that the drivers are held accountable.
Recall Google’s ongoing “Google Driverless Car” project. Autonomous, driver-free cars, driven by Google’s software (codename “Google Chauffeur”), are being driven in several states. States including Nevada, Florida, and California, and soon to be Texas currently allow driverless vehicles. Google has a fleet of roughly one dozen cars and last year successfully logged over 300,000 miles of accident-free miles. Pretty cool (if not somewhat terrifying) but Google admits that they have no commerical aspirations for this project. I’m not entirely sure that I believe that!
So why is Google willing to invest so heavily into a ride share app? Sure, Uber is a great company, but do they truly have something worth $4 billion? Well, aside from having a fair bit of cash, Google has a long history of purchasing promising start-ups in hopes of integrating advancements into their core products (think Waze, for example). There are tons of areas where Google can gain intellectual capital, market share, and increase their advertising reach. But if we think more creatively, there may be a longer-term play here.
Imagine driverless taxis. The most inefficient aspects of taxi service are excess capacity/downtime and the cost of drivers. Uber helps minimize downtime by having a more efficient method of hailing a cab – no sitting at a taxi stand or slowly driving around the block. Google’s Driverless Car project solves the human side of things.
Admittedly, I hate taxi cabs. I hate hailing them and I hate sitting in them. It’s not a pleasant experience, and Uber helps in a lot of ways to make it a more enjoyable experience. I like to be able to know when a taxi is coming for me, where it currently is, and how much it is going to cost. Not having a taxi cab driver try to pull the “credit card machine is down” trick is always a plus. Imagining a taxi cab that does all of that but also is cheaper, more efficient, and doesn’t involve a driver screaming on their cell phone while they try to figure out where I’m going is a huge win. Apologies to anyone that is or has a loved one that is a taxi cab driver!
This could be a classic example of Google purchasing a promising start up in hopes to make a long-term improvement to their core businesses. Uber has a ton of promise, and has made a huge impact in Boston and other cities, much to the frustration of livery companies and many local governments. Google has the financial resources and technological initiative to make this long-term play. As a standalone business, I just don’t think that there is enough revenue and growth potential to get the valuation up to that level. Adding the Driverless aspect, however, makes an easily scalable platform with higher margins and is just downright cool – something that Google has definitely not been shy of in the past.
What do all of you think? Is this too far of a stretch? Is Google just investing in a company that they think will be financially successful? Remember, this is a $4 Billion valuation! They must be on to something, right?