Can anyone explain why does Waymo need to raise any money? Doesn't Alphabet have practically infinite pockets? If they are confident of Waymo, why would they want to share the profits with anyone else ever?
Even if Alphabet was reluctant to invest their own profits, can't they borrow cheaply too?
GoogleX projects can 'graduate' and become their own companies that issue their own stock.
Employees of Google that work on GoogleX projects that graduate no longer technically work for Google, but for the new company and they no longer receive Google shares, but new company shares (in this case Waymo, Loon is another example [0]).
This forces the company and employee incentives to be aligned since the value of the employee equity is tied to the success of the specific GoogleX project and not Google itself.
When a company graduates if a lot of employees don't want to stay on the project and choose to stay at Google, that itself might be a bad sign (though it could also just be employee risk preference).
I think companies graduate when they're less pure R&D and closer to marketability. If they can't survive on their own at that point it may be because there isn't a market, the timing isn't right, or any other reason that can cause a startup to fail.
This system prevents Google from pouring money into something that's never tested in an environment where it can actually fail. It puts moonshot projects in an environment where they're truly tested and don't just become places where money is spent without any ability to measure success.
It's my understanding that graduated companies have their own hiring methods and can make their own independent decisions in general. They would also need to raise their own money.
Alphabet wants Waymo to become a company that can make it on its own steam, rather than be dependent on the Google revenue stream. For the first several years of Waymo's life they did exactly what your describing, but now they're at a point where they want to "push it out of the nest" a little bit. Sharing the profits is probably not much of a concern, if Waymo doesn't manage to become self sustaining there won't be any profits to split, so it makes sense to optimize for that.
External investments can prove that Waymo was able to convince its own value outside of Alphabet, which might be a significant signal for future investors.
Alphabet can (and will likely) invest $xB more money for initial business ramp-up but if you want to create the next Google probably money from their own pocket might not be enough. This is particularly important as they need to heavily invest into physical assets with very high upfront costs.
FYI, Uber has 10 millions of drivers across the world and if you want to match that number, you're gonna need $100B even with super conservative assumption of $10k per car (and the actual cost will likely be much higher). Doing something like this by Alphabet alone is extremely risky given that the technology is still in a very young stage.
A company has to be able to operate on its own. Look at BRK; they don't fund every last bit of debt for all of their holdings. They will pull profits from company A even if A needs money to e.g. invest in operations if they can get credit at a decent rate. They may put that money in company B which has more growth potential and is not in as good a position to take on debt to do so.
From the last time this story was posted I recall that Alphabet was only offering Waymo investment opportunities to automakers. This would be an important aspect of fostering strategic partnerships, since Waymo is probably not planning to get deep into the car manufacturing business.
That’s a good point. But maybe they don’t have 100% confidence so they want to share the risk.
Or maybe alphabet doesn’t see the self driving VEHICLE as their product. Maybe they see the consumer data as the product and want someone else to pay for the effort to collect it.
> Can anyone explain why does Waymo need to raise any money? Doesn't Alphabet have practically infinite pockets? If they are confident of Waymo, why would they want to share the profits with anyone else ever?
It's not just about getting money, it's also about getting money from the right people. Investors with the pull/clout/insight/etc they need. Investors who know people or who know people who know people. Perhaps people who have political connections or regulatory access. People with insight in the automotive industry. People with ties to media for favorable coverage. It's about getting money from people in position to help them. It's like a movie production that bring in producers who has connections to local governments that can expedite the process of shutting down a bridge or highway to film on for a day.
Alphabet has "limitless" amount of money but there is also a "limitless" amount of money outside of alphabet wanting to buy into waymo. So for waymo, it's really not about getting money but getting the right type of investors. It's a two way street. Investors want to buy into waymo and waymo wants to buy into investors.
I think also Google share holder probably wont stomach unlimited investment in this. It allows Google stock growth to not be hampered by this investment
Investors could start getting angry if they feel that Google is blowing large amounts of cash on endeavors that continue to fail. By doing it this way they get a major stake in the potential success of their spin-offs, but they are able to continue delivering profits rather than sinking cash in one black-hole big idea after another. It's probably a matter of walking the line between short-term value of the already successful business versus long-term but riskier value of the potential moonshots.
All of the reasons other commentors gave, and also to show it has value. Think of it like getting a credit card while you can still technically get money from your parents (weak analogy).
If you can get money from someone else it shows that it has value in the marketplace generally.
If I were one of those new investors, I'd ask the same question. Alphabet has been involved in Waymo for 12 years. Why does Alphabet feel that more cash is a better investment than more shares in Waymo? What does Alphabet know that I don't?
Fossuser gave the best answer thus far to your question. [0]
A few confounders I haven't seen though:
1) Waymo is its own entity, but its brand is linked to Google/Alphabet. A reader of this article will be clear on that by the time they have gotten through the sub-headline.
Any success or catastrophic failure of Waymo/self-driving will have Google spoken of in the same breath as Waymo.
2) Capital Allocation & Diversification
- Google had $119 Billion of cash on hand at the end of FY2019 earning no return. More than any other company.
- Alphabet is not Berkshire Hathaway waiting in the wings to deploy its capital in a downturn or buy up unrelated businesses.
- Diversification is a fine strategy, but when you have this much capital to allocate—and ostensibly Alphabet has this much because they don't know what to do with it—not fully funding Waymo itself doesn't make sense.
3) The Waymo blog post about this that Rutledge linked below gives a possible alternative [1]
> “Today, we're expanding that team, adding financial investors and important strategic partners who bring decades of experience investing in and supporting successful technology companies building transformative products. With this injection of capital and business acumen, alongside Alphabet, we’ll deepen our investment in our people, our technology, and our operations, all in support of the deployment of the Waymo Driver around the world.”
Building technology is hard, but building out a car company that can produce vehicles on any scale is also hard. Tesla and Elon now know this.
So maybe by opening up to outside investment they allow strategic partners to share in the risk and outsized reward of success.
Curiously though, only one of the six outside investors listed seem to be "strategic." That would be Magna International, "a leading global automotive supplier."
The other investors are:
- AutoNation: a used/new car buying/selling website
- Andreessen Horowitz: VC firm
- Canada Pension Plan Investment Board
- Silver Lake: private equity
- Mubadala Investment Company: United Arab Emirates sovereign wealth fund
From the outside looking in, I have further questions as to how those are "strategic" investments that could help develop and/or bring Waymo cars to market.
tl;dr Alphabet/Google has so much capital it needs to deploy not using it to fully fund Waymo is curious. Waymo is not a distinct brand from Google/Alphabet. It's not readily apparent how six of the seven outside investors chosen for the "strategic" investment add value beyond capital.
Very simple: Google shareholders don't want to be tied up to that extent in self-driving cars.
By keeping Waymo separate, shareholders can make their own choice as to how much they want to invest in search/advertising vs. self-driving cars. They're drastically different risk/reward profiles.
Obviously this isn't something a company usually does, but that's because either a division is small, or it has significant links to the rest of the company, or there's a clear joint strategy.
But Waymo is expected to be huge, and there's really essentially zero link to the ads/search/cloud/media that is Google's bread and butter.
Meanwhile, Tesla continues to iterate on a production fleet with a (admit idly rough) new capability rolled out to allow autopilot to obey stop lights and stop signs.
If I were a investor that invested in individual stocks (which I am not), my money would be on Tesla over the long run here.
Waymo did considering the iterative method and decided against it intentionally. Putting aside the obvious danger of incrementally getting to L4 (the inbetween state where the system feels safe enough for users to not pay attention, but actually isn't), it's actually not obvious that there is an obvious smooth transition from L2 to L4.
Yes, Tesla may be getting more data in the field, but Waymo is still much further ahead with actual fully self-driving car without anyone at the wheel (within a small region + good weather). Also worth pointing out that the quality of the data also matters, not only the quantity.
Tesla autopilot is a joke compared to what Waymo intends to do. For Tesla, autopilot is just an add-on, a cherry on the cake that is a good-looking, hi-tech electric car. For Waymo, full self driving has been the one and only focus. On the surface, one is tempted to compare the two, but from an investment standpoint, I would not compare them directly. Tesla competes with car companies. Waymo competes with driverless car tech companies. Tesla also has some driverless car tech, but I would not invest in Tesla for that. Waymo is still likely the leader in driverless car tech, and that is a winner-takes-all market.
Obeying stop lights and stop signs is a very very long way from fully autonomous cars. "Deploying a production fleet" is a problem that car companies have solved for a century+ so if the finish line is "Deploying a production fleet of autonomous cars," the autonomous part is the hardest part of the equation, I don't see Tesla making it there first.
With the sky-high valuation we see in Tesla, the market already seems to be pricing in something along these lines. Unless you mean that Tesla, even at the current level, is still under-priced.
I ride in a M3 daily. If by "obey" you mean stop at every stop sign and light regardless of color and wait for a user interaction sure. Still no automatic turns either.
haven't waymo cars been able to obey stop lights and stop signs for years now?
Personally, if i were invested in these companies my money would be on the ones developing autonomous car tech over the ones who aren't. Tesla and Waymo can both be leaders here.
Does anyone else think that the massive decrease in driving (due to lockdowns) is a game-changer for the outlook on autonomous vehicles? Suppose we can embrace a society with fewer drivers, isn't that better for autonomous vehicles by most metrics?
I dont understand Waymo and what they are doing. What is their path to making money on this?
They are not building their own cars, haven't partnered with any automakers either. In fact they discussed with a bunch of them and couldn't convince any company to partner with them. Most of the automakers already are investing heavily in their own autonomous tech stack. Unless they blow everyone out of the water with their technology I don't see them selling their stuff to automakers.
The only path then is an Uber competitor. That means they have to acquire a fleet custom made for their solution. That is a huge investment a large undertaking, not sure Waymo has it in them to do it. This is not Google wave to abandon so I am sure they will not do so, however I will not be surprised if people grow frustrated by the lack of clarity.
Can anyone explain the business model of a self-driving car company? We already have this service, except it’s powered by humans. Humans who own the cars, store the cars, clean them, and take care of all the maintenance.
A self-driving car company will have to own a huge depreciating asset, and they’ll still need staff to clean & take care of the cars in addition to an enormously expensive engineering team and/or licensing payments.
What business model are these companies trying to fulfill? It seems like they are trying to solve a problem that doesn’t exist.
I'm not sure I would be so pleased as an employee or share/optionholder in Waymo about the fundraising. In fact, people forget that fundraising isn't something really to be overly proud of. It's a loan, whether it's phrased that way, or as an equity stake.
It was all fine when they got free money from Google to power their experiments (cars, people, time). Now they're borrowing from their own value to pay investors for the loan.
I'd want to see some belt tightening from what is sure to be an overly large engineering team and lots of support staff, if there were ever to be the promise of becoming profitable (and to eventually pay for these loans from investors).
They primarily make software right? 3Bn seems like a lot of cash for a software company to need. That’s 2m dollars per employee. What am I missing here? Am I just old and out of touch?
One oft-repeated line about driverless cars was that they would improve the world by reducing car accidents, and possibly helping with congestion and parking problems.
The pandemic has proven that these goals and many more can be accomplished without any complicated, speculative AI technology, simply by taking full advantage of telecommuting and delivery. Obviously there is no profit to be made so it would make no sense for investors to do so, but I wonder what $3B could accomplish if it were put to the purpose of reducing the need to travel, rather than finding new ways to burn gasoline.
I'm not a car owner but I wouldn't buy a car from Google or a car that is connected to the internet / saves data into logs that can be read in a garage.
I wouldn't buy a car from Google because of this [1]. Even if Google promised not to collect data I wouldn't believe them.
[+] [-] enitihas|5 years ago|reply
Even if Alphabet was reluctant to invest their own profits, can't they borrow cheaply too?
[+] [-] gonehome|5 years ago|reply
Employees of Google that work on GoogleX projects that graduate no longer technically work for Google, but for the new company and they no longer receive Google shares, but new company shares (in this case Waymo, Loon is another example [0]).
This forces the company and employee incentives to be aligned since the value of the employee equity is tied to the success of the specific GoogleX project and not Google itself.
When a company graduates if a lot of employees don't want to stay on the project and choose to stay at Google, that itself might be a bad sign (though it could also just be employee risk preference).
I think companies graduate when they're less pure R&D and closer to marketability. If they can't survive on their own at that point it may be because there isn't a market, the timing isn't right, or any other reason that can cause a startup to fail.
This system prevents Google from pouring money into something that's never tested in an environment where it can actually fail. It puts moonshot projects in an environment where they're truly tested and don't just become places where money is spent without any ability to measure success.
It's my understanding that graduated companies have their own hiring methods and can make their own independent decisions in general. They would also need to raise their own money.
[0]: https://loon.com/
[+] [-] jdoliner|5 years ago|reply
[+] [-] summerlight|5 years ago|reply
Alphabet can (and will likely) invest $xB more money for initial business ramp-up but if you want to create the next Google probably money from their own pocket might not be enough. This is particularly important as they need to heavily invest into physical assets with very high upfront costs.
FYI, Uber has 10 millions of drivers across the world and if you want to match that number, you're gonna need $100B even with super conservative assumption of $10k per car (and the actual cost will likely be much higher). Doing something like this by Alphabet alone is extremely risky given that the technology is still in a very young stage.
[+] [-] yumraj|5 years ago|reply
Even founders who can self fund, raise money from investors as you don't want to own all the risk in any risky endeavor.
[+] [-] EpicEng|5 years ago|reply
[+] [-] dodobirdlord|5 years ago|reply
[+] [-] matt_the_bass|5 years ago|reply
[+] [-] empath75|5 years ago|reply
[+] [-] dntbnmpls|5 years ago|reply
It's not just about getting money, it's also about getting money from the right people. Investors with the pull/clout/insight/etc they need. Investors who know people or who know people who know people. Perhaps people who have political connections or regulatory access. People with insight in the automotive industry. People with ties to media for favorable coverage. It's about getting money from people in position to help them. It's like a movie production that bring in producers who has connections to local governments that can expedite the process of shutting down a bridge or highway to film on for a day.
Alphabet has "limitless" amount of money but there is also a "limitless" amount of money outside of alphabet wanting to buy into waymo. So for waymo, it's really not about getting money but getting the right type of investors. It's a two way street. Investors want to buy into waymo and waymo wants to buy into investors.
[+] [-] julianozen|5 years ago|reply
[+] [-] sidibe|5 years ago|reply
[+] [-] goldenshale|5 years ago|reply
[+] [-] csours|5 years ago|reply
If you can get money from someone else it shows that it has value in the marketplace generally.
[+] [-] KKKKkkkk1|5 years ago|reply
[+] [-] code_duck|5 years ago|reply
[+] [-] bdcravens|5 years ago|reply
[+] [-] heymijo|5 years ago|reply
A few confounders I haven't seen though:
1) Waymo is its own entity, but its brand is linked to Google/Alphabet. A reader of this article will be clear on that by the time they have gotten through the sub-headline.
Any success or catastrophic failure of Waymo/self-driving will have Google spoken of in the same breath as Waymo.
2) Capital Allocation & Diversification - Google had $119 Billion of cash on hand at the end of FY2019 earning no return. More than any other company.
- Alphabet is not Berkshire Hathaway waiting in the wings to deploy its capital in a downturn or buy up unrelated businesses.
- Diversification is a fine strategy, but when you have this much capital to allocate—and ostensibly Alphabet has this much because they don't know what to do with it—not fully funding Waymo itself doesn't make sense.
3) The Waymo blog post about this that Rutledge linked below gives a possible alternative [1]
> “Today, we're expanding that team, adding financial investors and important strategic partners who bring decades of experience investing in and supporting successful technology companies building transformative products. With this injection of capital and business acumen, alongside Alphabet, we’ll deepen our investment in our people, our technology, and our operations, all in support of the deployment of the Waymo Driver around the world.”
Building technology is hard, but building out a car company that can produce vehicles on any scale is also hard. Tesla and Elon now know this.
So maybe by opening up to outside investment they allow strategic partners to share in the risk and outsized reward of success.
Curiously though, only one of the six outside investors listed seem to be "strategic." That would be Magna International, "a leading global automotive supplier."
The other investors are:
- AutoNation: a used/new car buying/selling website
- Andreessen Horowitz: VC firm
- Canada Pension Plan Investment Board
- Silver Lake: private equity
- Mubadala Investment Company: United Arab Emirates sovereign wealth fund
From the outside looking in, I have further questions as to how those are "strategic" investments that could help develop and/or bring Waymo cars to market.
tl;dr Alphabet/Google has so much capital it needs to deploy not using it to fully fund Waymo is curious. Waymo is not a distinct brand from Google/Alphabet. It's not readily apparent how six of the seven outside investors chosen for the "strategic" investment add value beyond capital.
[0] https://news.ycombinator.com/item?id=23157082
[1] https://news.ycombinator.com/item?id=23156434
[+] [-] foobookar|5 years ago|reply
[deleted]
[+] [-] scottlocklin|5 years ago|reply
[+] [-] crazygringo|5 years ago|reply
By keeping Waymo separate, shareholders can make their own choice as to how much they want to invest in search/advertising vs. self-driving cars. They're drastically different risk/reward profiles.
Obviously this isn't something a company usually does, but that's because either a division is small, or it has significant links to the rest of the company, or there's a clear joint strategy.
But Waymo is expected to be huge, and there's really essentially zero link to the ads/search/cloud/media that is Google's bread and butter.
[+] [-] chubot|5 years ago|reply
As I said a couple months ago, the "Waymo" name is a sign. If they really believed in the product, it would be called "Google Self-Driving Cars".
https://news.ycombinator.com/item?id=22632588
[+] [-] bdcravens|5 years ago|reply
"Waymo Adds $750 Million to War Chest as Driverless Cars Prove Tough to Deploy"
[+] [-] Rutledge|5 years ago|reply
[+] [-] faitswulff|5 years ago|reply
[+] [-] InTheArena|5 years ago|reply
If I were a investor that invested in individual stocks (which I am not), my money would be on Tesla over the long run here.
[+] [-] ehsankia|5 years ago|reply
Yes, Tesla may be getting more data in the field, but Waymo is still much further ahead with actual fully self-driving car without anyone at the wheel (within a small region + good weather). Also worth pointing out that the quality of the data also matters, not only the quantity.
[+] [-] raz32dust|5 years ago|reply
[+] [-] sidibe|5 years ago|reply
[+] [-] nojito|5 years ago|reply
Comparing the amazing capabilities of Waymo cars to the Tesla toy is very misleading.
[+] [-] rsanek|5 years ago|reply
[+] [-] wefarrell|5 years ago|reply
[+] [-] pests|5 years ago|reply
[+] [-] 013a|5 years ago|reply
[+] [-] notatoad|5 years ago|reply
Personally, if i were invested in these companies my money would be on the ones developing autonomous car tech over the ones who aren't. Tesla and Waymo can both be leaders here.
[+] [-] kgin|5 years ago|reply
[+] [-] daenz|5 years ago|reply
[+] [-] alokrai|5 years ago|reply
[+] [-] yalogin|5 years ago|reply
They are not building their own cars, haven't partnered with any automakers either. In fact they discussed with a bunch of them and couldn't convince any company to partner with them. Most of the automakers already are investing heavily in their own autonomous tech stack. Unless they blow everyone out of the water with their technology I don't see them selling their stuff to automakers.
The only path then is an Uber competitor. That means they have to acquire a fleet custom made for their solution. That is a huge investment a large undertaking, not sure Waymo has it in them to do it. This is not Google wave to abandon so I am sure they will not do so, however I will not be surprised if people grow frustrated by the lack of clarity.
[+] [-] iamleppert|5 years ago|reply
A self-driving car company will have to own a huge depreciating asset, and they’ll still need staff to clean & take care of the cars in addition to an enormously expensive engineering team and/or licensing payments.
What business model are these companies trying to fulfill? It seems like they are trying to solve a problem that doesn’t exist.
[+] [-] neonate|5 years ago|reply
[+] [-] supernova87a|5 years ago|reply
It was all fine when they got free money from Google to power their experiments (cars, people, time). Now they're borrowing from their own value to pay investors for the loan.
I'd want to see some belt tightening from what is sure to be an overly large engineering team and lots of support staff, if there were ever to be the promise of becoming profitable (and to eventually pay for these loans from investors).
[+] [-] kilroy123|5 years ago|reply
I predict they end up focusing on semi-autonomous trucks instead of cars for regular people.
[+] [-] unknown|5 years ago|reply
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[+] [-] mitfahrener|5 years ago|reply
[+] [-] trixie_|5 years ago|reply
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[+] [-] fl1pP3R|5 years ago|reply
[+] [-] LatteLazy|5 years ago|reply
[+] [-] jhpriestley|5 years ago|reply
The pandemic has proven that these goals and many more can be accomplished without any complicated, speculative AI technology, simply by taking full advantage of telecommuting and delivery. Obviously there is no profit to be made so it would make no sense for investors to do so, but I wonder what $3B could accomplish if it were put to the purpose of reducing the need to travel, rather than finding new ways to burn gasoline.
[+] [-] KCUOJJQJ|5 years ago|reply
I wouldn't buy a car from Google because of this [1]. Even if Google promised not to collect data I wouldn't believe them.
[1] https://www.theverge.com/2017/11/21/16684818/google-location... Google admits it tracked user location data even when the setting was turned off