Tuesday, September 12, 2017

"Winner-takes all effects in autonomous cars"

From Benedict Evans, August 22:
There are now several dozen companies trying to make the technology for autonomous cars, across OEMs, their traditional suppliers, existing major tech companies and startups. Clearly, not all of these will succeed, but enough of them have a chance that one wonders what and where the winner-take-all effects could be, and what kinds of leverage there might be. Are there network effects that would allow the top one or two companies to squeeze the rest out, as happened in smartphone or PC operating systems? Or might there be room for five or ten companies to compete indefinitely? And for what layers in the stack does victory give power in other layers?

These kinds of question matter because they point to the balance of power in the car industry of the future. A world in which car manufacturers can buy commodity ‘autonomy in a box’ from any of half a dozen companies (or make it themselves), much as they buy ABS today, is very different from one in which Waymo and perhaps Uber are the only real options, and can set the business model of their choice, as Google did with Android. Microsoft and Intel found choke points in the PC world, and Google did in smartphones - what might those points be in autonomy?

To begin with, it seems pretty clear that the hardware and sensors for autonomy - and, probably, for electric - will be commodities. There is plenty of science and engineering in these (and a lot more work to do), just as there is in, say, LCD screens, but there is no reason why you have to use one rather than another just because everyone else is. There are strong manufacturing scale effects, but no network effect. So, LIDAR, for example, will go from a ‘spinning KFC bucket’ that costs $50k to a small solid-state widget at a few hundred dollars or less, and there will be winners within that segment, but there’s no network effect, while winning LIDAR doesn’t give leverage at other layers of the stack (unless you get a monopoly), anymore than than making the best image sensors (and selling them to Apple) helps Sony’s smartphone business. In the same way, it’s likely that batteries (and motors and battery/motor control) will be as much of a commodity as RAM is today - again, scale, lots of science and perhaps some winners within each category, but no broader leverage. 
On the other hand, there probably won’t be direct parallels to the third party software developer ecosystems that we see in PCs or smartphones. Windows squashed the Mac and then iOS and Android squashed Windows Phone because of the virtuous circle of developer adoption above anything else, but you won’t buy a car (if you own a car at all, of course) based on how many apps you can run on it. They’ll all run Uber and Lyft and Didi, and have Netflix embedded in the screens, but any other apps will happen on your phone (or watch, or glasses).

Rather, the place to look is not within the cars directly but still further up the stack - in the autonomous software that enables a car to move down a road without hitting anything, in the city-wide optimisation and routing that mean we might automate all cars as a system, not just each individual car, and in the on-demand fleets of 'robo-taxis' that will ride on all of this. The network effects in on-demand are self-evident, but will will get much more complex with autonomy (which will cut the cost of an on-demand ride by three quarters or more). On-demand robo-taxi fleets will dynamically pre-position their cars, and both these and quite possibly all other cars will co-ordinate their routes in real time for maximum efficiency, perhaps across fleets, to avoid, for example, all cars picking the same route at the same time. This in turn could be combined not just with surge pricing but with all sorts of differential road pricing - you might pay more to get to your destination faster in busy times, or pick an arrival time by price.

From a technological point of view, these three layers (driving, routing & optimisation, and on-demand) are largely independent - you could install the Lyft app in a GM autonomous car and let the pre-installed Waymo autonomy module drive people around, hypothetically. Clearly, some people hope there will be leverage across layers, or perhaps bundling - Tesla says that it plans to forbid people from using its autonomous cars with any on-demand service other than its own. This doesn't work the other way - Uber won't insist you use only its own autonomous systems. But though Microsoft cross-leveraged Office and Windows, both of these won in their own markets with their own network effects: a small OEM insisting you use its small robo-taxi service would be like Apple insisting you buy AppleWorks instead of Microsoft Office in 1995. I suspect that a more neutral approach might prevail. This would especially be the case if we have cross-city co-ordination of all vehicles, or even vehicle-to-vehicle communication at junctions - you would need some sort of common layer (though my bias is always towards decentralised systems).

All this is pretty speculative, though, like trying to predict what traffic jams would look like from 1900. The one area where we can talk about what the key network effects might look like is in autonomy itself. This is about hardware, and sensors, and software, but mostly it's about data, and there are two sorts of data that matter for autonomy - maps and driving data. First, ‘maps.’....