Given their potential to completely transform a wide array of industries, many assume autonomous vehicles (AVs) are “disruptive”. But disruption is a relative term—it can only be defined within a specific frame of reference. So, let’s ask a more pointed question: are AVs disruptive to Uber and Lyft? In short, no—which means entrants who try to leverage AV tech to compete in the ride-hailing market will likely face an uphill battle against motivated and entrenched incumbents.
Disruptive Innovations, conceived by Harvard Business School Professor Clayton M. Christensen, transform markets by introducing simplicity, accessibility, and affordability where complication and high cost are the status quo, eventually resulting in the displacement of established competitors. This happens in part because the innovation can’t fit into the incumbents’ established way of making money, preventing them from commercializing the innovation.
In contrast, sustaining innovations improve existing products and enhance the profitability of established competitors by helping them earn more profits in the way they are already structured to do so. So long as incumbents can absorb these innovations into their business models, they maintain their competitive advantage.
Be wary of motivated incumbents
Autonomous vehicles represent a sustaining innovation to Uber and Lyft; assuming the ride-hailing networks choose not to directly own vehicles, they’ll simply need to swap out one resource—human drivers—for another—autonomous technology. Furthermore, AVs could enable them to offer safer rides at lower costs. Approximately 37,000 people were killed in automotive accidents in the US in 2017 and many believe autonomous vehicles could substantially reduce this number.
Lastly, reducing the single largest expense ride-hailing networks incur—human drivers—is an incredibly enticing target for an industry that has yet to be consistently profitable. As a result, the ride-hailing giants are extremely motivated to embrace AV tech—something that is clear from the fact that both companies already have in-house self-driving car development initiatives. Given this competitive reality, AV tech companies aspiring to take the ride-hailing leaders head-on will be effectively entering a battle with their hands tied behind their backs.
The incumbent advantage in sustaining battles
Sustaining innovations give entrants no choice but to conform to the industry’s predominant business model as they attempt to compete with industry leaders. In this scenario, it’s incredibly difficult for entrants to replicate all of the advantages incumbents naturally have—from brand equity to customers and assets. For instance, developing the technology to optimally pick-up and drop-off passengers for shared rides was a tremendous engineering challenge, and it’s one AV entrants would have to develop to replicate the UberPool and Lyft Line offerings.
In particular, Uber and Lyft have one advantage other AV tech companies will find especially challenging to replicate: a hybrid network that includes both AV tech and human driver options. The transition to autonomous vehicles will be a process that may take years, with AVs initially being limited to certain areas. Until AVs are able to take riders wherever they want to go, ride-hailing firms’ networks of human drivers will actually be a competitive advantage against purely autonomous entrants.
In their initial incarnations, AVs will likely only be able to operate in pre-defined, geofenced areas. In this way, the AV players best positioned to succeed will be the ones that can provide service wherever their customers want to go. Because Uber and Lyft will be able to offer a more complete solution to customers, they’re likely to remain the app that customers open first.
What should AV tech companies do?
Whenever incumbents are motivated and able to embrace an emerging tech, entrants are better off avoiding head-on competition with established competitors. Research has shown that entrants that try to compete in a head-on fashion are only able to establish a new-growth business 6% of the time. However, this too, often causes them to fund huge losses for years.
Instead, entrants like Waymo, GM Cruise and Tesla are more likely to find success by partnering with Uber and Lyft. By avoiding head-on competition, entrants can stay away from the ride-hailing price wars and strive to emerge as the Microsoft or Intel of the autonomous vehicle. As with PCs, enormous value may flow to the owners of the operating systems of autonomous vehicles. This is the component within the vehicle that is most difficult to develop and that could have the most limited number of suppliers.
Some of the world’s brightest minds are planning their entrance to the AV ride-hailing market. Rather than waste time and money trying to take down Uber and Lyft, they’ll accomplish far more through smart partnerships.
For more insights on the future of the AV ride-hailing market, read our research paper: The Race for Autonomous Ride-Hailing: Developing a Strategy for Success.