The race to win in autonomous vehicles (AVs) is well underway, with scores of companies scrambling to make their mark in the new market. While AVs stand to advance industries from farming to long-haul trucking, it’s their ability to completely transform passenger transportation that has caught the imagination of the public.

Because AVs are likely to be too expensive for personal ownership, there is broad consensus that deploying them within ride-hailing networks will be, at least initially, one of the most commercially viable paths for autonomous passenger transportation. But capturing a slice of the ride-hailing market will require strategic thinking; players must determine which business model is right for them given their unique positions in the market.

Much of the analysis from industry experts has focused on various players’ technological advancements, yet the Theory of Disruptive Innovation reveals that how the AV technology is deployed will actually be the greatest determinant of its commercial success. To that end, it’s essential that AV players understand whether AV tech can be positioned as a Disruptive Innovation or a sustaining innovation.

Disruptive Innovations initially take root in simple applications at the bottom of a market, and then relentlessly move upmarket until they displace established competitors. In contrast, sustaining innovations improve existing products, and improve the cost position of incumbent companies. Our analysis suggests that AVs will be a sustaining innovation to ride-hailing services because AVs could lower the cost structure of incumbents and will likely improve safety.

This matters because in battles of sustaining innovations, it’s usually the incumbents—in this case Uber and Lyft—who win. These players are powerfully motivated to embrace an innovation that could lower their costs, and the fact that it fits into their business model enables them to respond to any competition that threatens their core business. 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. Given the competitive forces at play, we offer the following recommendations:

  1. Well-resourced players new to ride-hailing should become the metaphorical Microsoft. Players like Waymo and GM Cruise should avoid the temptation of using their vast amount of capital to engage in head-on competition with entrenched incumbents. Instead, they’ll be better served by focusing their efforts on monetizing what is likely to be the scarcest technology in AVs: the operating system.
  2. Less-resourced players targeting simpler applications should own their niche. Some of these players may believe that by targeting less-demanding applications such as retirement communities, they will be able to hone their technology under less competitive circumstances and eventually move upmarket. But, given Uber and Lyft’s distinct advantages in a battle of sustaining innovation, reaching the top of the ride-hailing market is very unlikely. Instead, they should focus on building a viable business model in their niche applications.
  3. Ride-hailing incumbents should pursue partnerships but retain flexibility. Uber and Lyft’s in-house AV efforts, though trailing with respect to leaders in this space, could potentially act as an insurance policy against scenarios where they could be disadvantaged by not controlling their own self-driving tech. But as soon as a proverbial insurance policy is no longer required, they may be wise to give up owning AV technology and save hundreds of millions of dollars as a result.

Autonomous vehicles represent an exciting new chapter in transportation. Coupled with ride-hailing, they stand to completely reimagine how people get from place to place. With the right strategic vision, AV companies can play a principal role in the advancement of the industry—and make a handsome profit in the process.


  • Chandrasekar Iyer
    Chandrasekar Iyer

  • Rich Alton
    Rich Alton