By now nearly everyone has heard about Google’s self-driving car project. Many assume it signals their entry into the car industry. Some OEMs in Detroit are warning Google to stay away from their turf such as retired GM vice chairman Bob Lutz who said, “I think, like so many Silicon Valley techies, that they believe they are smarter than the world’s automobile business, and that they will do it better. No way.”
Those who think Google is taking aim at the automotive industry are wrong. Google is a technology company and its profitability is based on technology margins, not the kind found in auto manufacturing. Consider this: GM reported about $4 billion in profit on sales of $151.1 billion for its last fiscal year. Google generated $14.4 billion in net profit on $66 billion of revenue.
So why would Google invest so much in fully autonomous cars? It’s not about making roads safer, although safety is certainly a nice secondary benefit. It’s because it will drive their core business, advertising. How? By capitalizing on what is currently lost revenue during commute time.
Here’s how it works: The average commute time in leading metro areas like LA, San Francisco, New York and Seattle are dramatically on the rise. According to GPS developer TomTom, the San Francisco/Bay Area has the country’s second worst traffic with a 34% congestion level — a 4% increase since 2012. By comparison, LA has the nation’s worst congestion level at 39%.
The typical Bay Area commuter has a 30 minute commute. This translates to 87 hours–3.5 days–over the course of a year. If those drivers were passengers in a fully autonomous vehicle, presumably most would be spending their commute time online. Obviously Google would benefit from the additional lift in search and thus advertising revenue from a source previously unavailable to them–drivers who are now passengers.
When you consider the global lift in lost commute time converted into online activity, Google’s investment in fully autonomous vehicle technology becomes a very compelling business case.
So take it easy Detroit. Google is not interested in your business. They prefer their profit margins over yours.
If you are interested in this topic, I covered it in greater detail in a 70+ slide presentation that I compiled from well-respected sources. You can download that from my Linkedin profile page.