Google Makes Its First Billion From Transportation

With Uber's monstrous valuation, Google's first investment paid off. Where will this partnership go next?

Jun 10, 2014 at 3:00PM

Uber, the mobile service which allows you to call a private car, just raised over $1 billion at a $17 billion valuation. Just last August, Uber was valued at only about $3.7 billion when Google (NASDAQ:GOOG) (NASDAQ:GOOGL) invested $258 million. In less than a year, Uber's value more than quadrupled. And in less than a year, Google more than quadrupled the value of its original investment.

While it's not self-driving cars, the Uber investment represents Google's first quantifiable value gained from its interest in transportation. What's there to know about Uber and its competition, and just where Google fits into its future?

Uber's breakdown
With Uber, you use an application on your smartphone to select a pickup location, which contacts a nearby driver who accepts your request. Once you arrive to your destination, the application handles all payments automatically, including the tip, so no actual money or cards change hands.


Source: Uber's Facebook page.

Just how popular is such a service? Late last year a set of Uber's internal metrics and financials leaked, which stated the company earned $20 million in revenue per week, along with about 450,000 active users, 80,000 new sign ups, and 900,000 completed rides each week. Uber's founder Travis Kalanick stated revenue doubles at least every six months,  meaning these numbers have likely doubled and are already out of date.

With such a growing market, the competition is also intense. Competitors like Lyft fight for drivers and passengers. Both have offered a driver who switches services a bonus of $500. Additionally, both have lowered fares repeatedly this year, as well as commissions, as well as Lyft even foregoing taking any of its commission. But it's not just new start-ups these companies have to worry about, as the older cab businesses and for-hire car services keep fighting for a level playing field, and suggest that new companies should abide by current law.

Where taxis must have licenses to operate and pass city inspections, these start-ups regulate their own fleet and organize campaigns to adopt new legislation to relax regulations. The new start-ups are fighting these laws and established companies all around the world. In one protest from taxis, cab drivers in Boston circled Uber's headquarters, honking continuously for an hour. In London, black cab drivers plan to clog up Trafalgar Square this week. Many cities are still deciding these start-ups fate, like in Seattle where even though there's a $1,000 fine and potential 90-day jail sentence for operating an unlicensed for-hire car, enforcement is currently lax while the city researches and aims to come to a decision by the end of the summer.

Google in the driver's seat
After Google's investment, Uber now appears in Google Maps' mobile application when a user searches for public transit or walking directions. This is a small first step in a partnership that will likely continue to grow, based on Google co-founder Sergey Brin's comments. After revealing Google's new driverless car prototypes in May, Brin said they would "certainly partner with other companies, possibly Uber."

The majority of Google's revenue still comes from advertising, which made up 90% of revenue in its latest quarterly report. Google noted that the other 10% of revenue largely came from the Google Play store. However, with Google's increasing stake in Uber and foray into home and car automation, this segment of revenue could matter much more than any increase in advertising efficiency or technology. It will rely less on business cycles and maintain revenues no matter the greater economic climate. And for Uber, with Google's backing, the car service has considerable political and economic weight behind its continued success.

The next innovation outside of driverless cars
Apple, while not in the transportation business, recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Dan Newman has no position in any stocks mentioned. The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares) and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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