Tech Doesn't Win, Business Models Do

It’s a story we’ve seen play out again and again. A new technology emerges and there’s competition between two or more technological paths, one of which seems superior to the highly technical early adopters.

“Surely the best technology will win,” they think.

A decade later, we look up and the inferior technology has won because it made better trade-offs and had a better path to market. The business model won.

Those of us who cut our teeth on the technical side don’t like to admit it, but sales, marketing, and the “go to market” strategy probably play a bigger role in financial success than great engineers do.

History is littered with examples of technically superior products that flopped because they had a bad business model.

VHS is a canonical example, beating the technically superior Betamax because it cost less and held a longer film. Today, Microsoft is crushing Slack, Zoom, and other productivity tools not because it has a better product or user experience, but because it has the best bundle and security for Chief Technical Officers.

Business models matter. Especially in technology.

We are seeing that in a potentially trillion-dollar market today — autonomous vehicles.

Autonomous Vehicle Technology and Business Models

As we see more autonomous vehicles on public roads, I think it’s worthwhile to go over who has the best technology and who has the best business model. They may not be the same.

There are dozens of players in the space, but the three with a real go-to-market strategy and scale are Tesla, Waymo, and Cruise.

I’m going to break them down and show why only ONE of these companies is in the Asymmetric Universe.

There is a raging debate about who has the best technology. Many people bet on Tesla, despite its Level 2 status, and I would argue that Waymo probably has the best technology today. But that’s not the question I’m asking.

Which Business Model Wins?

Tesla is an outlier business model selling directly to consumers. They are literally charging people to NOT drive their cars. We don’t know the adoption rate of FSD, but estimate are about 10% of new Tesla buyers also pay for FSD.

Where does Tesla’s autonomous strategy go from here? One strategy for Elon Musk is that a million robotaxis will be launched when owners send their $40,000 vehicle with $12,000 autonomy software off on its own to pick up strangers. Count me skeptical.

Musk has also talked about licensing FSD to other automakers for years.

What we know today is that FSD is a Level 2 autonomy system sold directly to consumers at a price of $12,000.

Maybe Tesla will be a winner, but I think it’s worth asking lots of questions about both the technology and the business model in autonomy.

Waymo and Cruise have similar technology. Both are using multiple sensors with redundancies and have launched regulator-approved Level 4 autonomous services for commercial use. Riders also interact with an app, like an autonomous version of Uber. It’s Autonomous Transportation as a Service.

I think it’s likely Waymo is a step ahead in technology and from what I can tell has a better ride and more impressive user interface.

Who has the best go-to-market strategy?

Cruise is already operating in three cities and is doing initial testing in another 12 cities that will likely launch service in the next few months. The Cruise Origin is also expected to be rolled out later this year, which will increase the number of potential passengers in a vehicle, improve accessibility, and lower costs. On top of that, Origin is designed with product delivery modules, which can turn the vehicle into a delivery vehicle in off hours.

Everything about Cruise points to being a better, lower-cost, autonomous version of Uber from the ground up.

Waymo offers autonomous rides like Cruise. But it doesn’t have custom vehicles and isn’t expanding as quickly as Cruise.

Instead, Waymo is partnering with Uber. But it’s not clear how Uber can disrupt itself by having autonomous and human-driven vehicles operating side by side.

Maybe licensing the technology is the answer for Waymo?

In classic Google fashion, Waymo is probably the best technology in autonomous driving, but it’s searching for a business model.

Cruise has built an autonomous transportation as a service business model from Day 1. And it’s scaling more aggressively than Waymo.

Business Models Matter

My thesis is that autonomous driving makes it possible to view transportation as a service. No more spending tens of thousands of dollars on a vehicle only to have it sit in the garage 95% of the time. Just schedule a ride when you need it.

If that plays out, companies need to build Level 4/5 technology and scale it as rapidly as possible. The Uber/Lyft battle shows that scale matters and the company that has the biggest fleet with the fastest response time will be preferred by users.

Right now, I think the business model leader is Cruise. It may not have the best technology, but it has the best go-to-market strategy.

In technology, that’s a winning formula for investors.

For more, read my full spotlight on Cruise here.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.