Dec 14, 2016 · 11 minutes

That Uber announced “self-driving cars” are hitting San Francisco today isn’t a surprise.

For one thing, CNET broke it earlier this week. For another, San Francisco residents have seen them driving around “gathering data” for a while.

“Gathering data.”

If those words don’t send a chill down your spine whenever Uber says them, you haven’t been following the news (or, indeed, the news).

It was a smart move for Uber to announce something this week. December been a surprisingly busy month for news around the great Silicon Valley/Detroit/Japanese/German hope of self-driving cars, and Uber has to keep reminding folks they are in this game too.

After all, the stakes are higher for Uber than anyone else.

What “VIDEO!”  was to all levels of media companies over the last year, self driving cars has been to a large chunk of the aging and surging global economy. Car companies, to mega tech incumbents looking for growth, for corniest of the deca-corns, and for brand new startups.

Never mind each of these constituencies lives to destroy the other. In self-driving cars each of them sees their own particularly salvation to years -- even decades-- of problems.

For Detroit, Tokyo and even luxury German and Italian automakers, it’s a critical do-over after missing/thwarting electric cars. THIS IS WHERE THE WORLD IS GOING AND THIS TIME WE’LL BE PART OF IT DAMMIT! It’s of particular importance as the stock performance of  automakers ranks 141 of out 197 industry groups over the last six months, according to Investor’s Business Daily.  Even Tesla has underperformed 80% of the stocks in the last year.  They have to at least look like they are trying, even if they don’t quite know how to get there.

For Tesla, it’s the next step in the company’s grand SolarCity + Tesla, non-fossil-fuel dependent cities of the future. The sun works to power your home, that in turn powers your car which works for you when you aren’t using it. It’s like something you would have seen at the Epcot Center thirty years ago.

For Apple… well no one quite knows what Apple wants to do when it comes to cars. Apple has reportedly curtailed its ambitions and decided to focus on an operating system instead of manufacturing cars. In recent weeks, it excited everyone again when it sent a letter to federal automobile regulators signalling its interest in transportation.

But we knew that. The reality is we have no idea what this project will look like, because Apple doesn’t. It’s given the team until 2017 to prove the feasibility of its plans. But clearly Apple needs something. The Apple Watch isn’t close to a new iPhone. It’s not even an iPad.

For Google, this represents growth, yes, but also pride is at stake. For one thing, Google’s moonshots spun into stand alone companies in the Alphabet constellation have stalled. Google Fiber announced a scaling back of its plans and layoffs, Nest has been beset with problems, including the departure of its founder Tony Faddell. Even Google Ventures -- or GV as it’s called now-- has had a revolving door of partners and a troubling track record waffling in its support of founders, despite becoming one of the largest corporate venture groups. Add to that a new round of laughter that has broken out about Google Glass thanks to Snapchat showing the Mountain View giant how it’s done.

Overall Alphabet has 11 business units alongside Google… how many can you name other than the ones listed above?

Well, we have a new one as of this week: A standalone self-driving car company called “Waymo.” That’s supposed to have something to do with a “new way forward in mobility.” I read it as we got “way mo’” money than you Uber.

With this announcement, Google confirmed that it too will focus on an operating system, and backed away from its previous insistence on total self-driving cars, with no wheels or pedals, in order to get something into the market sooner. Like everyone in this space, it also announced deals with traditional automakers.

Self driving cars would be a nice win to tell the world that all that spending — and idealism— on moonshots is actually valuable to Alphabet shareholders. Especially since it was Google that started all of this excitement around self-driving cars, some seven years ago. And only Google has actually operated a fully driverless ride on public roads, last year with a blind passenger in a car without a steering wheel or pedals.

Google unequivocally has the technology lead here, but that’s not necessarily a compliment. It’s arguably squandered that lead and bled out some serious talent, including Anthony Levandowski who left Google, to start Otto, which got acquired by Uber. He now oversees Uber’s driverless car division. Chris Urmson too has left and is said to be working on his own self-driving car company.   

Google, Facebook, and the whole of Silicon Valley also got appropriately dinged recently by the Journal for having some issues with physics.

From that piece:

Google parent Alphabet Inc. and others in Silicon Valley are broadening their sights from the digital to the physical world in a bid to expand their influence, and their bottom lines. They promise to reinvent everything from cars to thermostats to contact lenses. Yet in a sign of how innovation is stalling broadly in the American economy, they are finding their new terrain far harder to control than their familiar digital turf.

Alphabet’s 58 self-driving cars have traveled 2.2 million miles, but they are still flummoxed by snow and drive so conservatively they can disrupt traffic. Its high-altitude balloons designed to beam internet to remote areas have sometimes crashed in shreds, baffling engineers. A planned interactive jacket was delayed for a year in part because its sensor-embedded threads snapped under the pull of industrial looms. The tech giant abandoned projects involving cargo blimps, vertical farming and seawater-to-fuel technology that proved too difficult or expensive.

Others face similar problems. Facebook Inc. is struggling to launch solar-powered drones to beam internet connections via lasers. Starship Technologies, led by a co-founder of video-chat service Skype, plans a fleet of delivery robots, but current models use human operators to cross a road….

“The world is so unforgiving. You can’t just ask it to be more organized,” said Astro Teller, the ponytailed chief of X, Alphabet’s research lab that has investigated—and decided against—space elevators and jetpacks.

Indeed, glitches we’ll accept in an Android phone, we can’t when we are talking about a multi-car operating system. For one thing, Apple and Google’s car operating systems will actually have to be able to communicate. The bar for this OS is gonna be a lot higher, and a lot more regulated.  

For Uber, the stakes are the largest. Even CEO Travis Kalanick has said it’s “existential.” And he admits it’s far behind rivals like Google and Tesla, which is one reason it gave up on building its own cars, well before Google or Apple. When the thing this many companies is chasing is existential to your business, you haven’t gone public yet and you are valued at some $70 billion…. whoa. It’s not an enviable position to say the least. But Uber-- in it’s Ubery way-- has spun this to it’s fans as it’s edge. It has to win!

And then there are the startups. Clearly, if you are a self-driving car startup, winning that battle is absolutely existential. But you also have less to lose. Consider which abruptly scuttled its plans to release an $999 self-driving car after kit after one letter from the National Highway Traffic Safety Administration.

The startups are troublesome, not because they are likely to pose a threat amid this great soup of conflicting ambitions, strengths, weaknesses and trillions of dollars in wherewithal. But because they are siphoning off talent. Sebastian Thrun of Udacity-- and the original Google self-driving car project-- has estimated that the going rate for self driving car talent is $10 million a head, based on Uber buying 70-person Otto for $700 million and GM spending $1 billion on Cruise. He expects that bounty to increase.

You can understand why someone like Urmson might decide to risk a startup. If you are one of the few people with experience in self-driving cars, why not? Worst case scenario if you assemble a team of like-minded talent, you’re almost guaranteed a large payday from one of the giants.

Particularly since Google and Apple are comparatively mature companies, and Uber never makes the list of the most admired companies, companies people most want to work for, or the  best places to work. It’s telling that Uber-- a company that has done far fewer acquisitions than any other company of it’s size in recent Valley history-- had to buy most of its self driving car talent.

And lately, some of them have been leaving. According to Re/Code, three of those engineers it poached from Carnegie Mellon in 2015 have now left the company, amid reorganization and a change in priorities from making cars to tricking out Volvos. Easy poach, easy go.  

OK, so that’s the chessboard, how does the battle in 2017 look?

First off, Tesla is the only Valley-based company that still seems actually committed to making self-driving cars-- indeed, that has made them. Employees or stockholders who don’t believe traditional automakers have the mojo to pull this off, essentially have one company to bet on.

Apple is at best far behind Google with a similar strategy and the same large corporation baggage. While they aren’t out of the game, it’s hard to take them as seriously.

Google is troubling, because it’s in a weird middle-age funk where it’s starting to worry about counting the paperclips and curtail dreamy change-the-world ideas that don’t make financial sense. That was, after all, the articulation of why it changed its corporate structure: So that eventually these moonshots would have to stand on their own two feet.

So while this week’s spin out of Waymo, likely means Google is going to get more aggressive in this market sooner rather than later, it also means there will be a tighter leash on actually turning this seven year research project into a business.

The Waymo team will rise to that challenge or it won’t. Back in August, Ben Thompson argued that Uber’s greatest edge over Google is the urgency of being a company with a single mission that has to make self-driving cars work. Well, arguably, Waymo now has that same advantage over, say, Apple.

It will be an interesting dance of co-opetition for the next twelve months-- and beyond. You have three tech companies-- and a raft of startups-- hoping to be partners for a dozen or so automakers who want to get serious about self driving cars now. Which are the best partners on either side of the table? Are any deals exclusive? Does everyone partner with everyone? Does a company like Apple go high-end as has been rumored in the past or for mass appeal and affordability?

And beyond warring with one another there are three major battles that Google, Apple, Tesla and Uber all face.

The first is with rider trust. Already, those 100 “self driving” Ubers in Philadelphia have been getting into “fender benders.” This is gonna shock you: Uber has been less than forthcoming about the details. Uber wheeled out its resident glad-hander David Plouffe who pinched his chin and said the company was “thinking about” a way to share more information with the public, but there were no actual answers to that oh-so-difficult-challenge of, yunno, being honest. Seriously: Uber is “thinking” about a “way” it can tell the truth. In a weird way, that non-committal statement is one of the most honest things Uber has said to the press.

The second is with regulations. These players aren’t treated equally, and every state is different. In Michigan, for instance, Uber helped draft one of the most permissive laws for self-driving cars that any state has. But Uber was locked out of operating a ride-sharing company under the rules, only automakers can. Will it go with the same playbook of ignoring state laws until it gets its way? That’s harder when safety is an even bigger risk, and Uber isn’t a scrappy little startup anymore.

And the third is for talent, plain and simple. There isn’t enough of it. It’s heavily incentivized to leave and start new companies, after the acquisitions of Otto and Cruise. And this battle was already going to be costly enough. If admiration counts, Musk may have the edge. He consistently ranks highest among most admired CEOs, as voted by people in the industry.

That is the one thing we can count on: Billions and billions of dollars spent as these companies try to best one another.

It may come down to who will have the greatest cash advantage: A deep-pocketed Google that’s suddenly worried about financial performance, a more cash-strapped Tesla who can at least tap the public markets, or an Uber who has broken all Silicon Valley fund raising records, but will have to go public at some point to deliver returns and get access to more cash?