Back in 2009, when Alphabet Inc. (GOOGL 4.61%) (GOOG 4.42%) launched its moonshot self-driving-car project, the company was still called Google and the concept of autonomous driving seemed light-years in the future. Fast-forward to 2017, and the media is awash with headlines of companies moving headlong into self-driving systems, while reports of developing partnerships and innovation in the area are regular occurrences. Although the technology is still in the testing stage, consumers dream of the day of easier commutes and fewer accidents.
That dream took a step closer to reality last week, when Waymo reached an agreement with ride-hailing start-up Lyft to work together to develop projects that will bring self-driving-car technology into the mainstream. Lyft provides an intriguing partner in the realm of autonomous driving. The company operates its service in an estimated 300 cities in the U.S. and has its sights set on a worldwide expansion. Last year, the company sported 700,000 drivers providing 162 million rides.
Potentially one of the more important aspects of this partnership will be in Waymo's ability to gradually introduce growing numbers of consumers to autonomous driving. A pilot program with Lyft would give the public access to rides in self-driving cars, providing them with firsthand experience with the nascent systems. Any mass adoption of the technology would need to be preceded by positive consumer experiences, which would then lead to wider acceptance. With this partnership, Waymo will collect reams of real world usage data for ride-share customers which will help in its shift toward consumer facing applications. Lyft, for its part, will gain access to arguably the most advanced technology in the field and a head-start into a world of driverless ride-sharing.
Morgan Stanley analysts Brian Nowak and Adam Jonas issued a note to clients last week that analyzed the potential revenue the partnership could generate for Waymo. Assuming Waymo was to establish a fleet of 3 million autonomous vehicles and each was to clock about 65,000 miles per year, with the ability to generate $1.25 in revenue on average for each mile driven, the pair calculated that the Waymo unit would have an enterprise value of $70 billion. They also make the case that that estimate may be too conservative and that the value could reach as much as $140 billion.
Of course, these are only estimates, and any number of factors could influence the outcome of the actual figures, but it does illustrate that one potential deployment of the technology could result in a venture that could increase Alphabet's current enterprise valuation by 12%. The analysts also suggested that Waymo could be spun off into its own company, particularly in light of the potential for legal and regulatory issues. A spinoff could insulate Alphabet from a degree of risk.
Uber is the larger of the two ride-hailing services, valued at $68 billion, compared with a much smaller $5.5 million for Lyft, but Waymo had good reasons to choose the smaller rival. Uber has recently been embroiled in a number of high-profile scandals, including accusations of a culture of sexual harassment, a video showing the CEO berating a driver in a disagreement over fares, and a lawsuit regarding the theft of trade secrets from none other than Waymo itself. This string of public-relations disasters has created an opportunity that Lyft is seeking to capitalize on.
Driving the point home
At this point, this is merely fun with numbers, and neither Waymo nor Lyft have publicly acknowledged the scale of the collaboration, nor when the autonomous vehicles would be tested. However, this is one more data point in the ongoing flood of developments and a small glimpse of what the autonomous driving tech could do for Alphabet.