Source: Google
Between its soaring valuation and rapid international expansion, ride-hailing start-up, Uber, has much to celebrate these days -- the poster child for the success, and excess, of Silicon Valley.
Despite its immense consumer appeal, however, Uber has also managed to win its share of detractors -- regulators and unions who loathe the challenge it presents to traditional taxi cabs. The company has also angered the press with tactics that could, at best, be described as "aggressive."
However, Uber might have just met its most serious threat to date. According to recent reports, search giant Google (GOOG 9.96%) (GOOGL 10.22%) is setting its sights on the ride-hailing industry.
Google to take on Uber
According to Bloomberg, Google is well under way in rolling out its own ride-hailing service to compete directly with Uber, though it is not entirely clear when Google plans to launch the service.
For Google, one of its biggest advantages is its deep technological expertise. Unlike other rivals, Google dominates critical functionalities like mapping, which could prove quite useful for a ride-hailing service. It is a little known fact that Uber actually licenses its mapping and traffic data from Google to power its own in-app GPS platform.
Google will likely remain contractually obligated to provide said data to Uber well into the future. However, the fact that Google clearly enjoys a technological edge helps color the competitive landscape that could emerge between the two players.
Google has also invested heavily in driverless car technology as one of its latest innovations. The technology is still several years from mainstream adoption. However, driverless technology is viewed by many to have the potential to fundamentally rewrite the economics of, not only the global taxi industry, but the entire idea of car ownership. This goes to show just how disruptive Google could potentially be to the already disruptive business model Uber established.
Massive market potential
It is also essential to note that Google is a current investor in Uber. In August 2013, Google Ventures contributed $258 million in the Series-C round of funding that then valued Uber at around $3.5 billion. Google's chief legal officer still holds a seat on Uber's board of directors, although his resignation is expected.
So while Google could potentially threaten its own investment by launching a competing service, we should all know full well by now that Google prefers to take a hands-on role in shaping the future, not just investing in it.
Broadly speaking, I find this storyline tremendously encouraging for Google investors. The company has been in the news repeatedly in the past few weeks for taking bold steps with its various experimental initiatives, most notably the $1 billion it invested in billionaire Elon Musk and SpaceX. Last week, I took a fairly critical stance on the SpaceX investment. However, in light of this more recent news, I find my faith in Google management partially restored.
In my mind, the difference between the SpaceX and Uber stories is the degree to which the latter seems able to create long-term value for shareholders.
It is hard to nail down the potential market opportunity for the new ride-hailing economy with any degree of precision. However, viewing multiple analyses, it seems fair to peg the potential total addressable market (TAM) as somewhere well into the hundreds of billions of dollars.
So, by setting its sights on this emerging market, Google is lining up another significant growth driver just as the industry begins to take full form, and that is exactly the kind of news Google investors should relish.
