Uber’s $680 Million Gut-Punch to Google
Uber’s $680 Million Gut-Punch to Google
by Erin
Griffith @eringriffith AUGUST 19, 2016, 11:06 AM EDT
The hard-charging startup just acquired the guy behind
Google’s self-driving car program.
Action in the self-driving car industry is picking up
speed. In the month since Fortune’s cover story on the industry, the following
has happened:
Chris Urmson, the head of Google’s GOOG -0.38%
self-driving car program, has left the company;
Ford F 0.45% and General Motors GM 0.76% confirmed their plans to launch
their own self-driving taxi services;
Yesterday, Uber announced it will begin testing
self-driving cars in Pittsburgh by the end of the year;
And even more notably, Uber acquired Otto, a hot
self-driving truck startup co-founded by Anthony Levandowski, the co-founder of
Google’s self-driving car program, in an all-stock deal worth 1% of Uber’s
latest private market valuation including earn-outs, according to Otto
co-founder Lior Ron.
One percent of Uber’s valuation is about $680 million.
That’s a lot of money for a company that’s not even a year old and doesn’t have
a product in the market. It’s a potentially huge payday for Otto’s founders,
who had self-financed their startup to date. As part of the deal, Otto’s
current employees are entitled to 20% of the profits from its trucking business
down the line. (Lior says future employees will have “similar compensation.”)
Why so much for such an early stage company? Make no
mistake—this deal is about talent and revenge.
Uber CEO Travis Kalanick has decided that self-driving
taxis are the key to Uber’s future. Eliminating drivers will go a long way in
making Kalanick’s giant, money-losing startup profitable. But the technological
challenge of making self-driving cars a reality is huge, and there simply
aren’t that many engineers out there that have experience working on them. Uber
already acquired a big chunk of the country’s self-driving car expertise when
it poached an entire Carnegie Mellon research team in 2015, forming the
foundation of its self-driving program in Pittsburgh. With Otto, Uber gains 90
more engineers. To remind you of how competitive the market for self-driving
engineering talent is, remember that earlier this year General Motors paid $1
billion (including earn-outs) for Cruise, a two-year-old startup with no
publicly launched product and around 30 employees.
Regarding Uber’s revenge, this deal brings Levandowski,
one of the industry’s most well-known self-driving car visionaries, under
Uber’s roof. Levandowski will head up Uber’s entire self-driving unit. That’s a
gut-punch to Levandowski’s former employer, Google, which has hinted recently
that it will launch its own self-driving taxi service to compete with Uber. The
competition between Google and Uber is awkward, given that Google’s venture arm
invested in Uber in 2013.
So what does Otto get out of the deal, besides a giant
chunk of Uber stock? As I noted in July, Otto is all about moving fast.
Levandowski and Ron left Google because they wanted to get the self-driving
technology into the market as fast as possible. They believed retrofitting big
rigs was the fastest way. In an interview with Fortune, Ron said this deal will
help the startup move even faster toward its goal.
“We have the ability to plug into the Uber network at
unprecedented scale which gives us ability to see different road conditions,
tapping into the collective brain of every Uber car on the road and seeing what
the cars can see,” Ron says. “This allows us to supercharge how to bring those
technologies to market.”
All of this is still hypothetical. Uber first needs to
get its self-driving cars with sensors out onto the road.
Otto will stay independent from Uber, Ron says. The
promise of remaining independent is so common in startup acquisitions that it’s
become a cliché. I questioned how Otto could do that, given that Levandowski
will now be focused on Uber’s self-driving efforts, too.
The new set-up “allows us to have the right level of
holistic perspective and ability to think about the problem,” Ron says. “Those
trucks and cars all inhabit the same road.” Levandowski will remain in San
Francisco, while the bulk of Uber’s self-driving car efforts will remain in
Pittsburgh.
Ron says he expects to start deploying Otto’s
self-driving fleets by early next year. The company is currently test-driving
six semi trucks around the San Francisco area. “The vision of both companies is
to reinvent transportation and make it as accessible and seamless as possible,”
Ron says. “Uber has built, within six to seven years, the biggest startup in
the world and we strive to the same for commercial transportation.”
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