Wednesday, December 14, 2016

Google Says Driverless Cars Are Ready To Make Money, But We Won’t Know If They Do

Alphabet spins autonomous-car efforts into new unit called Waymo, but will still bury finances in ‘Other Bets’ category.


By Therese Poletti
MarketWatch
December 14, 2016

Alphabet Inc. has changed its self-driving cars business, creating a separate entity called Waymo that plans to sell autonomous technology instead of building its own cars, but Google’s parent company won’t change the way it hides the effort’s finances.

At a small press event in San Francisco on Tuesday, executives described Waymo as graduating from the Google X research lab, where driverless technology has been in the works for eight years. Alphabet GOOGL, +0.92% GOOG, +0.87% said Waymo was ready to begin producing revenue, with plans to license its technology to other companies instead of producing its own cars.

Alphabet does not plan to share how much revenue Waymo brings in nor how profitable it is, however. Google’s parent company confirmed Tuesday that Waymo’s financial results will be lumped in with all its other non-Google businesses, in a bucket called “Other Bets.”

Alphabet Chief Financial Officer Ruth Porat has cautioned investors on the company’s conference calls that the Other Bets business results need to be viewed over a “long horizon” because the results can be erratic, or “lumpy” in corporate speak, because they are considered “early stage.” In Alphabet’s most recent quarter, it reported that “Other Bets” reaped $197 million in revenue—primarily from Nest, Google Fiber and Verily—but with an operating loss of $865 million.

Waymo is expected to start up a ride-hailing service with self-driving cars by the end of 2017, through its partnership with Fiat Chrysler Automobiles NV FCAU, +1.89% But other traditional auto makers , such as Ford Motor Co. F, -0.39% and General Motors Co. GM, +0.70% , have their own efforts at self-driving cars, and a ride-hailing service would jump into very competitive turf.

The ride-hailing business is currently dominated by Uber Technologies Inc., which already has an established rival in Lyft Inc. Uber already has self-driving cars giving rides to customers in Pittsburgh, and Lyft is working with GM on autonomous driving. Alphabet’s increasing rivalry with Uber led to venture exec David Drummond stepping down from Uber’s board last August, where Google had a seat because its venture arm is one of the many investors in Uber.

In fact, the biggest prize for Alphabet in this venture may not be money. As in its hardware effort, the real potential is for the ad and search giant to get more data on consumers, Kelley Blue Book analyst Karl Brauer noted. In fact, Brauer contended that partnerships with traditional auto makers have been troublesome for Alphabet because of disagreements about which company will control drivers’ data. .

“The personal data generated by self-driving automobiles will offer a wealth of marketing opportunities, creating a secondary business model that goes beyond personal transportation services,” Brauer said.

Even though Google’s self-driving car project is seen as the farthest along of all efforts in self driving cars, Waymo’s new direction seems unlikely to generate much in direct revenue for now. With the competition steadily growing in all sectors of this potential market, it could be blocked from any financial success for a long while, and investors won’t know for sure as long as Alphabet keeps it in the “Other Bets” category.


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