Carson Anderson
Uber self-driving car on Pittsburgh’s Northside on Wednesday, Sept. 14, 2016, the first day they offered customers in the Pittsburgh area the chance to go for a ride. Photocredit: ASSOCIATED PRESS It is that time of the year for high schoolers to be getting primped and primed for their prom night, trying to ensure that their hair is groomed just right, and they’ve got in-hand the finest sociably fashionable clothes and are otherwise ready-to-go for the biggest night of the lives.
You could say that Uber is doing the same for their upcoming prom-like IPO, hoping to look glitzy and ready-to-go.
While pitching investors, Uber needs to be as primped and primed as it can be. They want to be magnificently alluring for their biggest night, well, day, when they launch into the public stocks stratosphere. Their effort though to get dolled-up is potentially daunting due to a number of seemingly less bejeweled aspects that the media has been fretting over.
Notably, the firm continues to burn through an enormous amount of cash and still is posting gargantuan operating losses. In their formal filings, the company acknowledged that their ridesharing marketplace position declined last year in a substantial majority of their targeted markets. There’s the ruthless and unrelenting competition to factor into their status.
There’s the anti-fanbase pushing for us all to #DeleteUber, there’s the roller coaster of Lyft’s IPO results that some say could be a sign that Uber could get hammered and oddly enough because Lyft potently revealed that ridesharing isn’t all wine and roses (one nagging question, could their mainstay competitor have dampened investor enthusiasm, by being the first out-the-gate, and laying bare the untoward underbelly that undercuts the perceived ridesharing nirvana).
Perhaps one of the savviest preening acts by Uber so far is the recently announced $1 billion investment by SoftBank Group Corporation , along with Toyota Motor Corporation and Denso Corporation , pumping cash into Uber Technologies Incorporated for the honor of being immersed into Uber’s self-driving driverless car efforts. YOU MAY ALSO LIKE
A strategically smart move, containing a hidden message that many have not yet detected.
The Coopetition Deal
The most obvious rationale for Uber to make the investment deal involves the valuation aspects. The billion-dollar table-stakes implies that the Uber self-driving car unit is worth around $7.25B, according to industry analyses, and helps to support a potential IPO that’s aiming to raise around $10 billion and value Uber overall at about $100 billion. Logically, if these big-time and highly successful companies are willing to put a sizable chunk-of-change into Uber, it provides a nice afterglow of the presumed strength and value of the firm.
Furthermore, for those that might be worried that the ongoing cash drain from the Uber self-driving car efforts might be a false hope, you’ve now got the confidence builder by the three cheerleaders willing to put their money on-the-line. Apparently, Uber will reportedly be spinning out the self-driving car unit, encompassing six board seats for Uber and one each for SoftBank and Toyota.
This kind of coopetition has been rampant in the self-driving car realm. Firms that might be considered competitors, depending upon your vantage point, have been coming together in a myriad of cooperative arrangements.
Why would they do so? Because self-driving driverless cars are no piece-of-cake to make and field. It’s hard, it’s costly, and it is going to take longer than some pundits and prognosticators claim. If you didn’t need to strike a coopetition deal, you normally wouldn’t do so, wanting to hang onto the pie all yourself. Typically, coopetition’s happen when firms realize that they are biting off more than they can chew, or essentially are willing to spread around the risk.
You could say that the billion-dollar investment is actually a kind of insurance policy. Allow me to elaborate.
Reading Between The Lines
Besides the seemingly noticeable aspect of boosting the esteem of Uber and bolstering its self-driving car pursuits, along with getting an influx of added expertise and viewpoint, plus the cash to keep the driverless car R&D engine going, there’s the dispersion of risk.
Recall, sadly, there was the Uber self-driving car incident in Tempe, Arizona last year that involved the death of a pedestrian, being struck by an Uber self-driving car that had a back-up driver present and the event raised both national and even global concerns about the status and readiness of autonomous cars. Uber temporarily suspended its roadway trials and conducted a safety check, ultimately issuing a report of what Uber will be doing henceforth for their self-driving efforts. They quietly and somewhat reservedly resumed their roadway trials, doing so in Pittsburgh.
There’s a well-known rule-of-thumb in the systems field that you can have one bad instance when doing an initial rollout or trial of some kind, and many will consider it a fluke, giving you some breathing room to try again, but if you have a second such adverse instance, the hammer will come down, mercilessly. In some respects, the Boeing 737 MAX highlights that rule-of-thumb , notably that the first crash involving the MCAS system issue had a relatively modest reaction overall, while the second crash led to a cataclysmic reaction.
Right now, as Uber is undertaking their daily tryouts of their self-driving cars, even in the limited scope underway, they are on the precipice of a dicey and cataclysmic second potential incident. No matter how low the chances of such a second instance, the impact if it occurred would be enormous.
In short, if there is perchance a second deadly incident, and it occurs between now and their IPO, the reaction could be so massive that it could undermine the nature of the IPO, including its size and timing. Some might protest and say that the self-driving car unit would be like the tail wagging the dog, namely that the firm shouldn’t be overall penalized by such an unfortunate added adverse instance in their fledgling autonomous car effort, but you can pretty much bet that the vitriolic reaction would not discern that kind of nuance.
How can a firm in such a posture of already having incurred one such woeful instance be able deal with the matter?
You might suggest that they summarily halt their driverless car tryouts, thereby preventing entirely a second instance from happening, and wait to continue until after the IPO. No, that won’t fly. It would be tantamount to suggesting they are unsure about their self-driving possibilities, usurping a key element of the firm and something that most believe ties integrally to the future of the firm. It would certainly puncture a hole in the valuation balloon to simply stop the tryouts right now and would raise rather vexatious questions.
Instead, the coopetition path provides a means to cope with the matter.
If a second instance were to occur, let’s all hope not, there is now a possibility of indicating that the added partners were brought on-board to aid in preventing such instances and can bring to the table a capability and sensibility to overcome whatever issue or flaw allowed the second instance. Moreover, by spinning out the entity, it gives the parent firm a bit more room to be distanced from the wrath that would undoubtedly roil the driverless car unit.
It’s a dispersion of risk, an insurance policy that had been subtlety and discretely put in place, prudently established, just-in-case, and happened to fortunately have other beneficial qualities too.
Conclusion
Companies need to be considering their contingencies and be ready for whatever roll of the dice happens. The billion-dollar investment into Uber for a stake in their autonomous car effort has lots of benefits to Uber, especially right now, while getting ready for their IPO prom. The hidden element that I’ve articulated provides an added bonus to offset risk, though presumably and hopefully no such incident will arise, and like any insurance policy, you are usually hoping that your never need to file an insurance claim and invoke your surety.
Source: www.forbes.com
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