Uber, the tech firm that invented the popular ride-sharing service and disrupted the way the world moves, is now facing its biggest challenge since its inception: the revolution around self-driving car.
Ever since the first car was invented 130 years ago, innovations in the automotive made the vehicles cheaper,safer and more efficient. However, these changes were incremental. People still drive the vehicles in the same way as in the 19th century, which has huge social and economical consequences. According to a 2015 report from NHTSA, 94% of crashes were due to human error and led to a loss of 30,000 lives and $190 billion in U.S. each year  .
As the technology evolves rapidly in the early decades of the 21st century, many companies started developing self-driving car as a solution to many issues caused by human drivers.
Company Target Timeline
Google Fully autonomous vehicle 2020
Baidu Fully autonomous vehicle 2018
Tesla Assisted and autonomous vehicle 2015
BMW Autonomous vehicle 2021
Ford Autonomous ride-hailing service 2021
Volvo Autonomous vehicle Later 2017
Beyond the improvement in safety, self-driving car could redefine the world in many ways:
- Car insurance may decrease as the accidents drop and the industry’s focus shift from millions of consumers to the manufactures of self-driving car.
- Self-driving car can free up 50 minutes a day for users  and promote in-car entertainment or enhance productivity.
- Road congestion and vehicle pollution will be reduced as the self-driving car is more efficient.
- Freight and delivery industry can benefit directly from reduced labour cost and create new opportunities for lean supply chain and low-cost delivery service.
- The development of self-driving car will promote the adoption of other robotic consumer and industry applications as they share many core technologies.
However the rise of self-driving car can completely disrupt the ride-sharing service Uber currently offers.
Current Business Model
Uber works as a two-sided platform connecting drivers with riders. It does not own the vehicles and relies on individual driver driving their own cars. The drivers are working as contractors so Uber has less expense. Because Uber is a two-sided platform and is light on assets, it built a strong network effect and enabled rapid expansion into new markets. Unlike car rental business where different companies serve different market and geography, the ride-share service tends to be highly concentrated and leads to a winner-take-all situation.
One of the biggest impacts of self-driving car, however, could be the elimination of private car ownership. On average a private car has only 5% utilization and is parked in the garage or parking lot when not driven. Around 20% of commercial land in U.S. metropolitans is used for parking, a huge waste of resources. When self-driving car is applied to ride-sharing service, it could reduce the ride fare to 1/3 or even 1/5 of current level if we factor in the driver salary and improved utilization. This would make private car ownership extremely expensive in comparison. As more people stop own private cars, Uber’s business model as a two-sided platform break.
Future Business Model
Therefore Uber needs to build and own their fleet of vehicles in order to keep the cost low and maintain a large vehicle network. Uber can partner with existing car manufacturers to integrate sensors and computer system. Since Uber controls the huge rider user base, it can demand favorite deals with car manufacturers on the ownership of user data and revenue sharing of in-car service. Uber could also develop the software and algorithms powering the self-driving car and license such technology to car manufacturers since Uber has significant expertise in artificial intelligence and robotics.
Currently the technology powering self-driving car is very expensive but their price is expected to decrease exponentially like many other computer technologies. If it cost $50k extra to build a self-driving car, amortizing over 5 years is $10k expense vs the current annual salary of a Uber driver around $50k. This saving can help Uber to recoup the expense to own the vehicle and lower the ride fare for passengers.
One key differentiator Uber can play in developing the technology is to leverage their large network of Uber drivers. To improve the intelligence and reliability of self-driving technologies, extensive road testing and sensor data collection is needed. Companies like Google are building and operating a small fleet of self-driving cars that require full time employees on board. Instead Uber can retrofit existing vehicles with sensors and computer system and offer Uber driver a small stipend to collect data on the street. This crowdsourcing method can be much cheaper than Google’s and enable a larger scale of road testing and data collection, creating an edge over competitors in terms of software and algorithm performance.
With this edge, Uber can also explore licensing self-driving capability to truck and delivery industry. Currently in U.S. the total number of truck and delivery drivers employed are 1.6 million and 800 thousands respectively, a combined market of $90 billion . If Uber can capture 10% of such market with its self-driving technology, that equals to a revenue of $9 billion each year.
 Critical Reasons for Crashes Investigated in the National Motor Vehicle Crash Causation Survey, NHTSA
 Ten ways autonomous driving could redefine the automotive world, McKinsey
 Uber’s self-driving cars have come to Pittsburgh, but that doesn’t mean the driverless era is here, Quartz
 Uber: Changing the Way the WOrld Moves, HBS Case 9-316-101
 Light Truck or Delivery Services Drivers, Bureau of Labor Statistics
 Heavy and Tractor-Trailer Truck Drivers, Bureau of Labor Statistics