Thought Experiments

5 Simple Reasons Why Apple Will Buy Uber

Update May 13th, 2016:
Alas, my prediction doesn’t appear to be panning out but at its core it was apparently on the right track. Apple instead of buying Uber decided to bet $1 billion on Uber’s largest competitor in China, Didi. They probably got more bang for their buck here and I do believe most of what I’ve laid out will still apply to the Apple/Didi partnership. Also, notably, this is happening much faster than I predicted, which is a great sign for the autonomous/electric vehicle future: http://www.recode.net/2016/5/12/11669192/apple-invest-china-ride-didi-taxi-uber

Till now, there hasn’t been any real speculation on the possibility of Apple buying Uber however the future of transportation is shaping up to make this look like a smart and even likely move for the large tech company.

It has been predicted that in 10-20 years autonomous vehicles will replace the vast majority of personally owned and commercial vehicles on the road. For people, autonomous vehicles will be safer, more convenient and far less expensive than actually owning a car and for businesses, far more efficient and cost effective than manned transportation.

As this reality comes to pass, there will sprout and new, never-before seen, billion dollar market in autonomous transport and currently there are four main companies well positioned to battle for dominance: Tesla, Google/Alphabet, Apple and Uber

  • Tesla already has everything they need from hardware manufacturing to demand and distribution to software development so they are ready to shoot out of the gates immediately.
  • Google’s software expertise will make it the go-to source for current vehicle manufacturers making hardware manufacturing and distribution and demand unnecessary.
  • Apple has hardware manufacturing down and software expertise as well, it’s just a matter of scaling that up to a vehicle. They however lack vehicle demand and distribution.
  • Uber has no manufacturing ability or autonomous vehicle software skills but they have near endless demand and distribution for autonomous vehicles.

With this simplified break-down, it becomes relatively clear that two of these four, Apple and Uber, simply don’t have everything they need yet to make the leap into the autonomous vehicle market. This is why it is quite possible and even likely that Apple will by Uber.

The Five Reasons Apple Will Buy Uber

  1. Apple is working toward being able to manufacture a fully autonomous vehicle in order to be a relevant competitor in what will be one of the largest new markets to come to pass in the 21st century.
  2. Apple is phenomenal at efficiently producing great software and hardware. As it has been put before “A Tesla is like an iPhone you can sit in” so it’s really not much a jump to get from manufacturer of small hardware devices to large hardware devices with wheels. The problem however is that their distribution specialty is geared solely toward individual consumers, which will not be useful in a world where few people actually own a car.
  3. Uber comparatively is not able to produce the software required for automated transportation and has no skill whatsoever in hardware manufacturing. However what they do have is a large share of the human transportation market, excellent technology for managing the logistics of human transportation and an almost endless demand for autonomous vehicles which will eventually become the preferred option to manned drivers using their own vehicles. What this shows is that Apple and Uber’s core skill sets and needs complement each other very nicely.
  4. Today Apple has over $200 billion in cash and Uber is valued at $50 billion making Apple one of the few companies that could acquire the young startup. In a few years, as Uber services saturate the world and valuation increases, it’s quite conceivable that Apple would even be Uber’s only realistic option for a buyout.
  5. Uber was never meant to be a stand-alone long-term company. Investors have poured so much high risk venture capital into this beast that they would much prefer a buyout exit in the next few years that will provide huge returns on their capital (Apple is absolutely going to have to pay a huge premium) versus waiting decades perhaps to see a comparable return on their investment through taxi on demand service fees.

There it is spelled out. That’s a strategy that simply makes a lot of financial and strategic sense for both of these large companies and when those two factors come together in such a beautiful matrimony, it’s hard to deny the chance that a scenario like this could end up playing out.

Now this may sound all fine and dandy in the hypothetical sense but could Google and Tesla substantially complicate or even compromise the ability for this scenario to play out? It does not look that way.

Google is likely to simply license its autonomous driving technology to all the current established car manufacturers (and any autonomous vehicle startups of the future) who have no interest in becoming software companies, have strong skills in vehicle manufacturing and still want to maintain relevance in a fully automated world. Google did this for cell phone manufacturers through Android and will do the same for car manufacturers with its autonomous driving technology (Autodroid?).  Google will also provide the technology platform that enables any company to plug-and-play into an Uber-like service (people will still be interested in fully automated versions of their favorite luxury vehicles or niche vehicles that are more customized than standard Apple/Ubers or Teslas).

Tesla on the other hand already has software creation and hardware manufacturing down pat plus distribution logistics and most importantly the ability to create markets and services out of thin air (thanks in part to the genius of CEO Elon Musk). This coupled with Musk’s insane drive to see the electric car revolution through to its conclusion (which includes creating fully autonomous electric cars) and reluctance to leave it anyone else’s hands means that they will neither be acquired (they would be short-changing themselves financially and ideologically) nor acquire anyone else (they can do it better themselves). Instead, they will simply create their own service similar to Uber with their own fleet of fully electric autonomous vehicles.

This makes Tesla an incredible force to be reckoned with and adds a very strong sixth reason for why an Apple/Uber acquisition will happen:

  • Tesla has a very real chance and ability to completely dominate the autonomous vehicle future. If Apple and Uber do not combine forces, Apple risks being largely blocked out from the autonomous driving market and left to fight for scraps among the small consumer market and Uber risks losing substantial market share to Tesla as they ramp up their own service which will be far cheaper (there’s no driver to pay), substantially reducing the value of Uber.

This serious and substantial risk to both companies will be the catalyst that bubbles points one through five to the surface and ensures this acquisition takes place.

Now, there is conceivably another scenario where Apple directly sells autonomous vehicles to Uber. It would not however be nearly as efficient or profitable in the long term as simply acquiring Uber, which would mean they couldn’t compete as well against Tesla and would risk losing significant market-share that might otherwise be won. Not to mention that leaving Uber on the table opens the possibility for a Tesla/Uber partnership that will also largely block Apple from the autonomous vehicle market. Fine for Uber, but terrible for Apple and since Apple is in the superior position to simply make the acquisition, they will have the first opportunity to capitalize.

Nailing the exact time this acquisition will take place is difficult but it’s reasonable to expect that it’ll happen in 3-4 years (2018-2019) and if it’s going to happen at all, by the end 2021. (6 years from now). This will give time for Uber to become more strongly established and for Apple to get an actual car and autonomous technology produced. If it doesn’t end up happening by the end of 2021, the odds of point number six being realized begins steadily increasing with each passing month.

Will Apple lose it’s chance to play a significant role in the autonomous vehicle future or make the smartest acquisition in the company’s history and battle it out with Tesla and Google? We’ll leave this to Father Time to arbitrate.

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