Conventional wisdom mistakenly interprets the recent settlement of Waymo’s lawsuit against Uber as a draw. Both Fortune and Forbes captured this zeitgeist, with smart reporters describing the outcome as “a split decision” and “everyone walked away a winner,” respectively.
I see the settlement, instead, as an one-sided truce after Waymo’s immensely successful, year-long strategic strike against Uber’s driverless car ambitions. Waymo didn’t build a physical wall to pen in Uber’s future success. Instead, it put up significant security measures after inflicting heavy damage. And, it got Uber to pay for it.
Remember Uber’s evolution from most likely partner to Waymo's fiercest competitor?
When Google invested $258 million in Uber in 2013, many (including me) marveled at the natural synergy between Google’s self-driving car technology and Uber’s ride-sharing network. Google (now Waymo) decided to pursue driverless ride sharing on its own, however. Travis Kalanick, Uber’s CEO at the time, judged Google’s move to be both a betrayal and an existential threat, as he explained:
The minute it was clear to us that our friends in Mountain View were going to be getting in the ride-sharing space, we needed to make sure there is an alternative [self-driving car]. Because if there is not, we’re not going to have any business. It is basically existential for us.
Kalanick responded with aggressive moves to poach university talent in order to establish Uber’s own driverless research and development lab. Then, in August 2016, he made headlines by announcing the launch of Uber's own driverless taxi program, a $300 million alliance with Volvo, and the fateful $680 million acquisition of Otto. The Otto acquisition was the vehicle by which Uber hired Anthony Levandowski.
Levandowski was one of the stars of the Google team. His contributions at Google reportedly earned him more than $120 million in bonus. He is also known for his bold, aggressive style. He immediately took charge of Uber and Otto’s combined driverless efforts and ratcheted them up even more. For example, he quickly forged an alliance with Daimler and accelerated Uber’s efforts in trucking.
Waymo brought its suit shortly thereafter. Consider the damage.
The lawsuit help topple Travis Kalanick as CEO. It never hurts to say goodbye to a competitor’s CEO—especially one that is willing to invest heavily on a strategy to beat you. While Waymo’s lawsuit was not the only issue that brought down Kalanick, it revealed details that contributed to his ulster—such as how he aggressively pushed for recruiting Levandowski and buying Otto despite warnings from other executives.
It eliminated Anthony Levandowski. Kalanick pushed so hard and paid so much to recruit Levandowski because he is widely regarded as a brilliant engineer. He is also an expert in Lidar technology, a critical component of driverless cars.
It threw Uber’s driverless team into disarray. Talent is the coin of the realm in Silicon Valley in general and there’s a war for engineering talent related to driverless cars. The Waymo lawsuit tanked morale at Uber. It made it harder for Uber to keep talent and recruit more.
It forced a change in Uber's strategy. By buying Otto and hiring Levandowski, Kalanick was making a big bet that Uber could be a major player in developing autonomous driving capabilities. Uber didn't want to build driverless cars, thus the deals with Volvo and Daimler, but it wanted to control (and profit from) the technology that Kalanick viewed as existential to Uber's future success. Losing Levandowski and other engineers forced a retreat to a less ambitious strategy. Uber is now focused on building out the autonomous ride-sharing network instead of the driverless car itself. This might be the right strategy, anyway, but it was forced.
It put restrictions on future Uber capabilities. One aspect of the settlement involves restrictions on Uber’s future hardware and software capabilities, and likely provides for some way for Waymo to monitor compliance. As John Krafcik, Waymo’s CEO, told a New York Times conference audience,
We’ve spent a lot time in that case talking about the hardware and trade secrets and confidential information related to the hardware. The added benefits from that suit was the ability to understand and ensure that Uber wasn’t also using any of our software. Those trade secrets and confidential information are secure as well.
Waymo’s efforts did not completely derail Uber’s driverless efforts. Dara Khosrowshahi, Uber’s current CEO, confirmed just a few weeks ago that Uber’s long term vision is still to phase out human drivers in favor of wholly driverless taxis. But, according to other reports, he views such a possibility as far in the future, It is easy to imagine that as Uber continues to burn cash, Khosrowshahi might deprioritize Uber's massive investments in driverless networks. Why spend so much time and money testing driverless cars if you're planning on buying them from someone else?
Imagine, however, where Uber might be had it not been for the distraction and damage caused by the lawsuit. It might still have the hard-charging founder/CEO who was so passionate about its driverless strategy. It would still have the engineering guru leading its efforts to develop and own core driverless car technology. It would still have the talent that it lost and, most likely, would have recruited others. And, it would have the progress from a year’s worth of unencumbered work—a year is a lifetime in Silicon Valley.
As icing on the cake, the settlement also calls for Uber to grant Waymo an equity stake estimated at $245 million—more than enough to repay Waymo for the cost of its efforts.
It is no surprise that John Krafcik is “really happy” with the settlement with Uber.
See a complete listing of my articles on driverless cars: 35 Primers On Driverless Car Innovation And Disruption
