Oct 17, 2016 · 8 minutes

It’s almost like making cars is hard.

That shouldn’t be a surprise. What is a surprise is that that’s come as such a shock to tech leaders.

There’s a phrase in the Valley: “Hardware is hard.” It’s typically invoked as a shrug-the-shoulder defense when a device like Jawbone’s UP has a hard time tracking sleep reliably or simply not breaking. It’s the excuse when a company that sets a record breaking Kickstarter campaign struggles to produce a product or find meaningful market fit. It’s the reason more VCs will back software and Web companies over hardware companies anyday.

If all of that applies to a glorified pedometer, it should be no surprise that Valley giants are backpedaling on the whole “making cars” thing.

The latest is Apple, via an in depth story by Bloomberg today. The article explains Apple’s messy shift from being a “Tesla” competitor to “an underlying self-driving platform.”

But given the myriad of Valley heavyweights jockeying for position in a self-driving world, this is not merely about a war between Apple and Tesla. This has to do with the Robber Baron dance between Apple and Google as well. It may have competitive implications for Apple versus Amazon down the line, given its push into delivery and logistics around cities. It certainly has implications for Uber.

Even without a competing service, Apple can fuck with Uber. Let’s remember Apple’s uncharacteristic $1 billion strategic investment in Uber’s one-time arch-rival Didi. It was a scary enough move that many have said it played a role in Uber ultimately determining they were simply not going to win China, and capitulating for a big chunk of Didi while they still had enough power to even get that.  

The news is also a reminder that success in one area of tech, doesn’t mean you’ll dominate another. And that’s a welcome data point, given the outsized dominance that the major tech companies like Google, Facebook, Amazon, and Apple have had on the startup landscape in recent years. These are no longer dumb elephants plodding around, saddled with bureaucracy. These are companies unafraid to spend gargantuan amounts on R&D that doesn’t seem to support their core business, who have learned from what fells large companies, who have stayed paranoid, kept divisions within their companies small and nimble, and overpaid for competitors when they seem like they might get a foothold.

Any of these companies retreating on any big initiative is a welcome sign if you’re an upstart. It gives hope that these four companies are not as invincible as they’ve looked in recent years.

From the piece:

Apple Inc. has drastically scaled back its automotive ambitions, leading to hundreds of job cuts and a new direction that, for now, no longer includes building its own car, according to people familiar with the project.

Hundreds of members of the car team, which comprises about 1,000 people, have been reassigned, let go, or have left of their own volition in recent months, the people said, asking not to be identified because the moves aren’t public.

New leadership of the initiative, known internally as Project Titan, has re-focused on developing an autonomous driving system that gives Apple flexibility to either partner with existing carmakers, or return to designing its own vehicle in the future, the people also said...

...It’s a far cry from early plans that excited Apple executives. "The car is the ultimate mobile device, isn’t it?" Chief Operating Officer Jeff Williams said in 2015.

Soon after, Chief Executive Officer Tim Cook said the auto industry was "at an inflection point for massive change."

Apple executives had imagined an electric car that could recognize its driver by fingerprint and autonomously navigate with the press of a button. One plan sought a partially autonomous car that still had a steering wheel and pedals, while later plans migrated toward a fully autonomous vehicle. 

Among other challenges, the article noted the difference in supply chain and vendors when it comes to making mobile phones versus cars, and that Apple would have nowhere near the leverage it’s had on suppliers in the past.

Benedict Evans, for one, applauded the logic on Twitter, arguing that Apple probably shouldn’t have ever tried to be in the car manufacturing business:

So it seems Apple will be little more than a powerful partner in how we get around cities of the future. It increasingly seems less likely that Uber, Google, Apple, Tesla, Didi, Lyft and automakers will wind up competing, as much as they’ll wind up in a crazy quilt of messy co-opetition.

The company with the most to gain and lose in all of this is Uber: Because it sports the highest valuation of any private Silicon Valley company ever, and because it all rides on a self-driving car future. It’s easy to take Apple’s bowing out of making cars as a win for Uber. And -- in a way-- it is. But you have to distill two issues. One is whether Apple (or any potential competitors) make physical cars, and the other is whether they continue to compete in the autonomous car space at all going forward.

It seems to me the latter question is the more interesting one. And Bloomberg’s article makes plain that that is somewhat up in the air as well:

Apple executives have given the car team a deadline of late next year to prove the feasibility of the self-driving system and decide on a final direction, two of the people said. Apple spokesman Tom Neumayr declined to comment. 

Making cars is a bit of a red herring when it comes to this market.

Let’s not forget Uber, too, scuttled its plan of “making cars” and is instead modifying third-party cars, and putting them in its fleet. Does anyone think what stands between Lyft becoming a bigger player in this space or continuing to be an also-ran is whether or not it makes cars? No way. Lyft would move the needle more by investing in subsidies to prop up its driver fleet and build its user base.

Likewise, it’s hard for me to believe that companies like GM or Ford who do know how to make cars, would have a competitive advantage over Uber when it comes to building a service around autonomous vehicles.

Google and Tesla may have an advantage in that they know how to make actual cars. Certainly the history of Apple argues that when software and hardware are made by the same company, it’s a formidable user experience, brand, and control advantage.

But that potential advantage isn’t simply that they know how to make cars. It’s their lead in particular with autonomous vehicles. In the case of Google, the edge may well be the insistence on fully-autonomous vehicles versus “autonomous cars” that still require a person sitting in the driver seat who we don’t call a driver for mostly marketing reasons. It is also Google’s mapping technology, it’s power position on Android phones and with Waze and Google maps-- apps that most drivers have open when they’re working for Uber and Lyft. It’s how Google might be able to-- with a hoard of cash-- put all those pieces together to build something Uber cannot. (And it should be noted, that Google, too, has started to seek out automotive partners.)

In the case of Tesla, it’s not just making cars, but the advanced, market-moving kinds of cars Tesla makes, and Tesla’s stated ambitions to have your Tesla “working for you” when you aren’t in it. That’s a service. While Tesla may not have some of the advantages of Google, it still has the DNA of a tech company, not a legacy auto-maker. Tesla also has a sexy brand. So again, it’s not simply the hardware but the hardware combined with Tesla’s other assets.

Now, clearly, this was the bull case for Apple as well when it comes to automotive. It has the advantage of owning the device a lot of Ubers and Lyfts are hailed on. It has scale, cash and a market position where it can invest heavily without betting the company on cars. But as today’s story shows, the fact that your company doesn’t rely on automotive to succeed cuts both ways. You can just as easily decide not to pursue cars after all.

There is one clear way this story does impact Uber for the better right now, in addition to the doubts we and others have raised over Google’s commitment to “moon shots” like self-driving cars and Tesla’s current distraction with its Solar Cities merger. Each of these story lines gives Uber a plausible reason to suggest it won’t face meaningful competition when it comes to the coming industry inflection point.

It bolsters the argument I made last week that Uber should go public sooner rather than later -- while it still clearly dominates a market, and it’s biggest rival is Lyft.