Uber is selling its self-driving car division to Aurora, and that is a good playbook. While the primary motivation may be finding a path to sustained profitability for the ride-hailing company, the decision is the right call. Uber is an aggregator and aggregators win by controlling demand, not supply. In other words, locking the demand (i.e. riders) will make Uber a natural partner for many self-driving brands in the world. This is a fundamental redesign which mobile internet has brought to business: controlling supply does not take you far if you have no way of controlling demand.
Uber in a surprising move is selling its self-driving car unit, Uber Advanced Technologies Group (ATG), to self-driving car startup Aurora, according to a statement made by the company on Monday.
The ridesharing company said the move would accelerate its goal to achieve “profitability” amidst the setbacks of COVID-19. In an era when autonomous vehicles are becoming a thing, Uber’s move to sell ATG and invest in Aurora has been borne out of a perceived future where driverless vehicles become the new normal.
Last year, ATG raised $1 billion from many investors including Toyota and Softbank at a valuation of $7.25 billion, but its valuation has since plunged.
Reuters reported that Uber is also investing $400 million in Aurora, in a deal that valued Aurora at $10 billion according to sources. Uber will hold about 26% ownership interest in Aurora on a fully diluted basis, according to the company’s filing statement.
See it this way: Uber will not lose much if suddenly autonomous cars become ubiquitous, disintermediating drivers, since the owners of these car firms must still need access to demand. Today, Uber has the demand, and would become a natural partner to any brand that wins. Building and wasting money building that supply offers only a marginal strategic benefit.
In August 2018, I wrote on a piece titled “Ube Should Exit Self-Driving Business” thus: “But Uber made a very poor strategic decision many years ago: getting into self-driving business. Sure, Uber’s major cost element is drivers, and removing drivers will improve its margins. But that argument does not account for the fact that Uber is not the right company to bring to fruition the generation-shaping technology leap of autonomous vehicles…Because it has the largest platforms, these entities will gladly consider Uber whenever the time arrives”
By pushing R&D heavy lifting work to Aurora Industries, Uber can position itself as a platform for any brand to party with. If Tesla is better, Uber will be there. If Toyota, that is it. Indeed, the worst thing that would happen in the sector is that there would not be drivers. But that does not mean there would not be demand (riders). Today, Uber holds those riders and it easily work with any brand.
And just in case, Uber is investing in Aurora – and that seals a good call: head, it wins; tail, it also survives.