There has been speculation about Google’s intention to acquire Uber. If we break down different potential motivations, there may be more reality than speculation to the deal.
Google invested in Uber
Google has invested over $250M in Uber through Google Ventures. These types of large investments indicate a strong belief in the companies leadership and an expectation of successful execution. A close relationship of this nature could easily lead to acquisition – just ask Tony Fadell and Nest.
There has been no shortage of media coverage for Google’s self-driving car initiative. While it seems likely that the cars will become the norm, it may take time before there is wide-spread adoption by the general public. Uber’s use of self-driving cars could help people familiarize themselves with the technology and ignite faster adoption. Removing human drivers would increase efficiency (less wrong turns or mistakes), increase margins (you don’t have to pay the driver in a driverless car), and would empower Google/Uber to have more control over the rider experience.
Shopping Express is starting to see increased adoption but it is still hampered by the limited workforce and vans. Using Uber’s platform, Google could empower anyone with a smart phone to become a Shopping Express delivery driver. With shorter wait times and cheaper delivery, I’d expect to see even more people leveraging same-day delivery. We know that Uber has run many tests in select markets to highlight their logistics power. This could even provide an acceptable intermediate step as we wait for aviation regulations to catch up with the drone industry.
Uber was integrated into Google Maps back in May. The integration allows users to compare transit, walking, and Uber routes as they try to get from Point A to Point B. There are plenty of additional integrations that Google could do if they owned the ride-sharing company. Imagine a world where a self-driving car shows up 30 minutes before your next meeting (based on your Gmail Calendar) to take you there.
Uber is in a battle with Lyft and Sidecar to win the ride-sharing market. Even with the first mover advantage, Uber is not out of the woods yet. An acquisition by Google would allow the company to leverage the resources of an international tech giant, while continuing to scale at an explosive pace.
Uber’s most underrated asset is the dynamic pricing algorithm that determines each fare. It calculates distance, time, current demand, and traffic among other things. Google could leverage the formula to provide dynamic delivery pricing – flat delivery fees are outdated. This increased efficiency would motive drivers and ensure that there was always a delivery vehicle available regardless of the traffic or weather.
Google is one of the only companies with the cash and equity on hand to pull this off. Uber was valued at $18.2 billion during their last funding round (remember Google has large equity stake). Lets say that the ride-sharing service could now demand a $20-22B valuation. With over $50B in cash sitting in the bank, and a sizable equity stake already, Google could easily negotiate an attractive deal for both parties.
This deal makes sense from both a utility and economics perspective. If it came to fruition, it would be the kind of blockbuster acquisition that defines a decade and changes the trajectory of an entire industry.