Zoox – Amazon in the Race for the Autonomous Ride Market
Summary
Amazon has recently purchased the company Zoox at a $1.2 billion to enter the autonomous ride market. Though Zoox is majorly involved in the autonomous delivery of the package currently but it still open doors for an autonomous ride in the market.
Amazon has to invest a lot of money in the company to be competitive in the market. Three big tech companies in the world- Amazon, Google, and Apple are geared to compete in the autonomous ride market. Hence the acquisition of Zoox is a strategic move by Amazon and would pay great dividends in the near future. This would greatly help Amazon in expanding into other major markets after it expanded into AWS from its online eCommerce.
Amazon’s Strategy
Many people have speculated that this acquisition was just another foray by Amazon to automate its delivery ecosystem. However, Amazon made it clear that it wants Zoox to run as a standalone entity. This would work like the ride service like Uber or Lyft without the need for an actual Driver. As such, it’s a huge potential market that would require a huge investment to deal with all the technical stuff required. Even though Zoox was purchased for 1.2 billion $ by Amazon, Zoox had already invested almost that amount in R&D for autonomous rides.
The potential usage for this technology in Amazon’s current services can be utilized down the line by the creation of autonomous grocery delivery service or package delivery. This is not currently feasible as it would require someone to be present at home to receive packages.
Zoox has an expensive but with the high potential strategy for autonomous ride services that Amazon is planning to continue. In the near future, Amazon would fork out another 1-2 billion dollars for the technology and several more in creating a fleet of such driverless vehicles.
Zoox Strategy
Waymo is one of the competitors for Zoox that has been in the market from the initial days. Its approach to the driverless autonomous vehicle is mainly through the help of sensors, software, and computer programming. The available commercial vehicles are then retrofitted with these technologies in order to create the first generation of its driverless vehicle. It has six hundreds of Chrysler Pacifica Hybrid minivans fitted with sensors and programming in its initial test run. Now 62000 more of these vehicles and 20,000 more of Jaguar I-Pace electric vehicles are being retrofitted in their Michigan factory.
It is highly cost-effective for retrofitting older vehicles as it decreases R&D costs by a very large margin. After the success of this phase, companies would then move on to create exclusive vehicles with no human control modules for their autonomous vehicles. However, Zoox plans to bypass the first generation and move to create exclusive second-generation vehicles. Its vehicles would have seats facing each other and no pedals or steering wheels. The vehicle would also be able to move forward or reverse easily as there is no human at controls.
This strategy is both highly costly and time taking. Along with the creation of the technology, it would also have to take care of the hardware components including the design of these unique vehicles. This led to the collapse of Zoox as it didn’t have the money needed to develop it nor it could raise it. As such, the only way out was to sell the company to Amazon which has the capacity to spend several billion-dollar to complete Zoox’s vision
The testing for the autonomous ride technology has already been started by Zoox using retrofitted Toyota SUVs in the cities of San Francisco and Las Vegas. As per California’s autonomous mile driven record, Zoox has clocked 67000 miles while its competitor Waymo and GM Cruise has clocked 1.4 million and 800,000 miles respectively in 2019.
The Reason behind Low Valuation of Zoox
Though Zoox had a previous valuation as high as 3 billion dollars and had raised 1 billion dollars on that valuation, it still sold to Amazon for the low value of 1.2 billion dollars. The reason behind that was the Zoox’s highly ambitious strategy proved too costly for the company.
There would be a shortfall of 2 billion dollars for R&D and the creation of the second-generation autonomous vehicle. Also, it needs an additional 8-10 billion dollars to create a fleet of a hundred thousand vehicles. This additional money was not available to Zoox and as such, they needed to come up with the money first. When potential investors got this news, the valuation of Zoox becomes lesser than the earlier rounds of investments. So if they were to make more money from investors at lesser valuation, then the earlier investor would lose a lot of money.
It was a better option for the company to sell itself to someone with deep pockets like Amazon. Perhaps Amazon was one of the potential investors that wanted to take over the business. It has money and a way to incorporate autonomous ride vehicle in its future growth strategy
Another big potential investor such as Softbank already involved with their competitors and auto companies doesn’t have that deep of a pocket.
Details About ARS Market
ARS or autonomous ride services is basically driverless ridesharing service. It’s more cost-effective, convenient, and highly profitable. It will provide a highly localized service. The fleet of autonomous vehicles will provide the ride-sharing service to select municipal areas. For instance, a fleet of a hundred thousand ARS vehicles can meet the transport need of 7.5% of the greater Phoenix area.
ARS is a highly revolutionary product that can compete with the likes of Uber and Lyft while also hitting private car ownership. As it becomes cheaper and convenient than owning a car that’s sitting idle most of the time.
According to estimates, The ARS market has the potential to be as big as 75 billion dollars by the year 2025 and more than 750 billion dollars by the year 2030.
Amazon’s Competitor in the ARS market
Waymo is the current market leader of the ARS market with more than 20 million autonomous miles clocked in 25 different locations and 10 billion more clocked in simulation. Just before the suspension of their services, Waymo was having around 100-1500 trips in the Pheonix area every day with 10% of them were fully autonomous. Waymo is currently a separate company with a recent investment of 3 billion dollars at a valuation of 30 billion dollars.
GM Cruise is another separate entity that’s now the number two in the ARS market. It has a valuation of 19 billion dollars and had raised around 6 billion dollars at that valuation. It has around 1750 employees in the R&D and is burning cash at a rate of a billion-dollar every year. Its ARS vehicle expected to be available in the second half of 2021.
Apple is also in the ARS market with its Project Titan that has been under development for many years. Legal filings have revealed that it has 2700 employees in the project, more than 100 patents in driverless vehicles. Apple had already invested several billion-dollar and done some testing in California on autonomous driving
Other companies that intend to compete in the ARS market include Ford motors by their entity Ford Autonomous Vehicles LLC along with ridesharing companies UBER and LYFT. Though it’s unlikely that ridesharing companies can afford to develop their own ARS vehicles. They are looking into partnerships to develop it.
Tesla is not a part of this list as it’s mostly for the private owners and is semi-autonomous. It doesn’t seem to get into ARS market anytime soon
Amazon’s Opportunity with the ARS
Zoox’s acquisition is a very good strategic move by Amazon as it will have the big ARS market to it. Big companies like Amazon, Apple, and Alphabet have very little avenue for expansion into new profitable big markets.
Also, Zoox’s acquisition has pushed Amazon a lot forward in the R&D into the second-gen autonomous vehicle. It would have been a very foolish move by Amazon part if it were to invest a lot of money to develop this technology from scratch. Now it cost Amazon 1.2 billion for acquisition and around the same more to complete R&D and testing. It’s a very good deal
Even by a very conservative approach, the valuation of Zoox can increase to 30-40 billion by just investing 1-2 billion dollars to complete R&D. The potential 750 billion dollar market by 2030 would be ripe for taking by Amazon.
One more point of view is to compare the current expansion with Zoox with the previous expansion with AWS. AWS has grown from 17.5 billion dollars in 2017 to 35 billion dollars recently. AWS currently accounts for 80% of Amazon’s profit and more than one-third of Amazons’ 1.3 trillion market value. Similarly, Zoox is expecting to generate 35 billion dollar revenue within the next 5-6 years. If it manages to capture even 10% of the whole market. As such Amazon is looking to create another success story with Zoox.
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