Why Uber’s Autonomous Car Project Flopped

Why Uber’s Autonomous Car Project Flopped

Click for ebook

Business Trends from COVID19 impact hartung

Thrive to the Future – 4 top trends for 2021 and beyond.

On December 7, Uber announced it is spinning out its autonomous car development effort to a new company- Aurora. On December 8, NASA announced a large flare from the sun was going to produce auroras over the northern hemisphere. NASA’s solar flare fizzled and there was no light show. What about Uber’s Aurora?

After spending what was likely a billion dollars on development, Uber is pushing its AGV out the door, along with $400 million, to be a separate company all on its own named Aurora. After a lot of development, serious steps forward in self-driving technology, and some problems, Uber is simply walking away. Expensively. It begs the question “what went wrong.”

The #1 problem with this investment was created at the outset. What is Uber’s value proposition? That was at the very least complicated, and at the worst never quite clear. Uber was always supposed to be a lot more than an alternative to taxi and limo services. Ostensibly Uber was a tech company that matched up unused resources with people who could use those resources – which is why Uber is often lumped into discussions with AirBnB. Both are supposedly tech companies that allow the unleashing of locked-up value in underused resources to marginal users who could benefit from the marginal increase in resource capacity.

If that’s the case, why would Uber invest in autonomous car technology? That’s what went wrong. People driving their own cars as gap-filling cabs is a value delivery mechanism. It is one use of the technology in one application. The value of Uber is supposed to be its matching technology with some elaborate pricing capabilities (surge pricing, for example.) But autonomous cars were an improvement in the delivery system – an effort to eliminate the costly driver and thus compete more specifically against taxis in ferrying around people. Uber confused its Value Proposition with its Value Delivery System – and thus it made huge investments in the latter when it should have remained focused on the former.

Uber needs to refocus on its Value Proposition.

How can Uber help me unlock value in my underused resources? How can Uber help me get better access to resources, help me access underused resources? Neither of those are met if I have to turn my car into an autonomous vehicle, at my own cost. In a way it actually defeats the Value Proposition, because rather than unleashing locked-up value in my resource (car) it causes me to invest in technology I don’t need and may not even want. And as an Uber user I get no additional value from the car being driverless – that doesn’t inherently help me meet my needs any better. Overall, autonomous vehicle technology really misses the point of the Uber Value Proposition.

Lots of companies make this mistake. They get so focused on how they are delivering value that they over-invest in the Value Delivery System, and lose sight of the Value Proposition. Encyclopedias got so focused on printing books they forgot their value proposition was instant information – thus letting Google drive them out of business. Newspapers were so focused on the process of daily newspaper prep and delivery they forgot their Value Proposition and let on-line news outlets kill them. Sears and ToysRUs got so focused on running traditional stores (and traditional retail metrics) they forgot their value proposition and let Amazon steal customers away. ABC, NBC, CBS, BBC got so focused on running broadcast television networks they let streaming services (Netflix, Disney+, Hulu) steal all the entertainment eyeballs.

Uber’s mistake just happens to be really costly, and really dumb.

They should never have invested in autonomous vehicle technology. Leave that for someone who identifies a very real unmet customer need that is fulfilled with an autonomous vehicle. The leadership of Aurora first and foremost have to define their value proposition – and then figure out how to deliver that value with their technology. Nobody succeeds by inventing a technology that solves no real problem – that’s how you get Segway! Or the Amphicar that turned itself into a boat. Instead, you identify the need then develop the delivery mechanism to fulfill that need.

Do you know your Value Proposition? Can you clearly state that Value Proposition without any linkage to your Value Delivery System? If not, you better get on that pretty fast. Otherwise, you’re very likely to end up like encyclopedias and newspaper companies. Or you’ll develop a neat technology that’s the next Segway. It’s always know your customer and their needs first, then create the solution. Don’t be a solution looking for an application. Hopefully Uber and Aurora will both now start heading in the right directions.

Don’t Miss Adam’s Recent Podcasts!

Did you see the trends, and were you expecting the changes that would happen to your demand? It IS possible to use trends to make good forecasts, and prepare for big market shifts. If you don’t have time to do it, perhaps you should contact us, Spark Partners.  We track hundreds of trends, and are experts at developing scenarios applied to your business to help you make better decisions.

TRENDS MATTER. If you align with trends your business can do GREAT! Are you aligned with trends? What are the threats and opportunities in your strategy and markets? Do you need an outsider to assess what you don’t know you don’t know? You’ll be surprised how valuable an inexpensive assessment can be for your future business.  Click for Assessment info. Or, to keep up on trends, subscribe to our weekly podcasts and posts on trends and how they will affect the world of business at www.SparkPartners.com

Give us a call or send an email.  Adam@sparkpartners.com  847-331-6384

Dow and DuPont – Nobody wins when transactions replace leadership

Dow and DuPont – Nobody wins when transactions replace leadership

DuPont is one of America’s oldest corporations.  Founded by Eleuthere Irenee duPont as a gunpowder manufacturer for the Revolutionary War, the company has long been one of America’s leading business institutions.  From humble beginnings, DuPont became well known as a leader in Research & Development, a consistent leader in patent applications, and the inventor of products that proliferate in our lives from nylon to Teflon pans  plastic bottles to Kevlar vests.

dupont scientistBut in a series of fast actions during 2015, DuPont as it has been known is going away.  And it is too bad the leadership wasn’t in place to save it.  Now there will be a short-term bump to investors, but long-term cost cutting will decimate a once great innovation leader.  When the bankers take over, it’s never pretty for employees, suppliers, customers or the local community.

It has been a long time since DuPont was the kind of business leader that gathered attention like, say, Apple or Google.  From dynamic roots, the company had become quite stodgy and unexciting.  Many felt leadership was over-spending on overhead costs like R&D,product development and headquarters personnel.

Thus Trian Fund, led by activist investor Nelson Peltz, set its sites on DuPont, buying 2.7% of the shares and launching a proxy campaign to place its slate of directors on the Board.  The objective?  Slash R&D and other costs, sell some divisions, raise cash in a hurry and dress up the P&L for a higher short-term valuation.

These sort of attacks almost always work.  But DuPont’s CEO, Ellen Kullman, dug in her heels and fought back.  She aligned her Board, spent $15M making her case to shareholders, and in a surprising victory beat back Mr. Peltz keeping the board and management intact.  In a great rarity, this May DuPont’s management convinced enough shareholders to back their efforts for improving the P&L via their own restructuring and cost improvements, planned divestitures and organic growth that existing leadership remained intact.

But this victory was quite short-lived.  By October, Ms. Kullman was forced out as CEO.  A few days later the CFO reported quarterly profits that were only half the previous year.  Sales had continued a history of declining in almost all divisions and across almost all geographic segments – with total revenue down to $5B from $7.5B a year ago.  As it had done in July and previous quarters end-of-year projections were again lowered.

Net/net – CEO Kullman and management may have won the Trian battle, but they clearly lost the business war.  Unable to actually profitably grow the company, the Board lost patience.  They were willing to support management, but when that team could not produce the innovations to keep growing they were willing to accelerate cost cutting ($1B in 2015 alone) in order to prop up short-term stock valuation.

Now the newly placed transaction-oriented CEO of Dupont has cooked up a deal the bankers simply love.  Merge DuPont with Saran Wrap and Ziploc inventor Dow Chemical, which itself has been the target of Third Point’s activist leader Dan Loeb (which Dow settled by giving Third Point 2 board seats rather than risk a proxy battle.)  Then whack even more costs – some $3B – and lay off some 20,000 of the combined companies’ 110,000 employees.  Then split the remaining operations into 3 new companies and spin those out publicly.

Sounds so good on paper. So simple.  And think of the size of the investment banking and legal fees!!!!  That will create some great partner bonuses in 2016!

Theoretically, this will create 3 companies that are more profitable, even though sales are not improving at all. Improved P&L’s will be projected into the future, and higher P/E (price to earnings) multiples on the stock should yield investors a very nice short-term gain.  A one-time investor “Christmas present.”

But what will investors actually own?  The lower cost companies will now be largely without R&D, new product development, internal patent departments, university research grant management programs, and many of the finance, marketing and sales personnel.  Exactly how will future growth be assured?  What will happen to these once-great sources of invention and innovation?

Nothing about this mega-transaction actually makes business better for anyone:

  • The companies are no closer aligned with market trends than before.  In fact, lacking people in innovation positions (product development, R&D and marketing) they are very likely to become even further removed from the leading trends that could create breakthrough products.
  • Competition will be reduced short-term, so there will be less price pressure.  But longer-term innovation will shift to smaller companies like Monsanto and Syngenta, or even companies currently not on the industry radar – as well as universities.  These big companies will be removed from the leading edge of competition, the innovation edge, and will much more likely miss the next wave of products in all markets as new competitors emerge.
  • There will be no resources to develop or manage new innovations that emerge internally, or externally.  The much smaller staffs will have no bandwidth to explore new technologies, new products, new go-to-market channels or new ways of doing business.  There will be no resources for white space teams to explore market shifts, consider major threats to their “core,” or develop potentially disruptive businesses that will generate future growth.

A very smart CFO once told me “when the finance guys are figuring out how to make money, rather than the business guys, you need to be very worried.”  Clever transactions, like the one proposed between DuPont and Dow, do not replace great leadership. These are one-time events, and almost always leave the remaining assets weaker and less competitive than before.

Leadership requires understanding markets, managing innovation, creating new solutions, disrupting old businesses by launching new ones, and generating recurring profitable sales growth.  Unfortunately, DuPont suffered from a lack of great leadership for several years, which left it vulnerable. Now the bankers are in charge, busy managing spreadsheets rather than products, customers and sales.

Don’t be confused. In no way does this merger and reorganization improve the competitiveness of these businesses.  And for that reason, it will not offer a long-term value enhancement for shareholders.  But even more obvious is the outcome negative outcome we can expect for employees, suppliers, customers and the communities in which these companies have operated.  Bad leadership let the hyenas in, and they will pick the best meat off the bone for themselves first – leaving seriously damaged carcasses for everyone else.

 

Sell Microsoft NOW – Game over, Ballmer loses

Microsoft needed a great Christmas season.  After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft's future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products – including the new Surface tablet.

But that did not happen. 

With the data now coming it, it is clear the market movement away from Microsoft products, toward Apple and Android products, has not changed.  On Christmas eve, as people turned on their new devices and launched their first tweet, Surface came in dead last – a mere 2% compared to the number of people tweeting from iPads (Kindle was second, Android third.)  Looking at more traditional units shipped information, UBS analysts reported Surface sales were 5% of iPads shipped.  And the usability reviews continue to run highly negative for Surface and Win8.

This inability to make a big splash, and mount a serious attack on Apple/Android domination, is horrific for Microsoft primarily because we now know that traditional PC sales are well into decline.  Despite the big Win8 launch and promotion, holiday PC sales declined over 3% compared to 2011 as journalists reported customers found "no compelling reason to upgrade."  Ouch!

Looking deeper, for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC.  Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to the mobile device penetration  – the market where Surface and Win8 phones have failed to make any significant impact or move beyond a tiny market share.  Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made consumer and businesses now favor iOS and Android.

Microsoft's monopoly over personal computing has evaporated.  From 95% market domination in 2005 share has fallen to just 20% in 2012 (IDC, Goldman Sachs.)  Comparing devices, in 2005 there were 55 Windows devices sold for every Apple device; today explosive Apple sales has lowered that multiple to a mere 2! (Asymco).  Universally the desire to upgrade Microsoft products has simply disappeared, as XP still has 40% of the Windows market – and even Vista at 5.7% has more users than Win8 which has only achieved a 1.75% Windows market share despite the long wait and launch hoopla. And with all future market growth coming in tablets, which are expected to more than double unit volume sales by 2016, Microsoft is simply not in the game.

These trends mean nothing short of the ruin of Microsoft.  Microsoft makes more than 75% of its profits from Windows and Office.  Less than 25% comes from its vaunted servers and tools.  And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums on-line (negative $350M-$750M/quarter).  No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits Microsoft is not sustainable.

So what can we expect at Microsoft:

  1. Ballmer has committed to fight to the death in his effort to defend & extend Windows.  So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.
  2. As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, any hope of future dividends falls to zero.
  3. Expect enormous layoffs over the next 3 years.  Something like 50-60%, or more, of employees will go away.
  4. Expect closure of the long-suffering on-line division in order to conserve resources.
  5. The entertainment division will be spun off, sold to someone like Sony or even Barnes & Noble, or dramatically reduced in size.  Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows – and Microsoft leadership has long shown they have no idea how to profitably grow this business unit.
  6. As more and more of the market shifts to competitive cloud businesses Apple, Amazon and others will grow significantly.  Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical experiences with Zune (mobile music) and Microsoft mobile phones.  Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.

Missing the market shift to mobile has already forever tarnished the Microsoft brand.  No longer is Microsoft seen as a leader, and instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership.   The declining sales, and lack of customer interest will lead to a tailspin at Microsoft not unlike what happened to RIM.  Cash will be burned in what Microsoft will consider an "epic" struggle to save the "core of the company." 

But failure is already inevitable.  At this stage, not even a new CEO can save Microsoft.  Steve Ballmer played "Bet the Company" on the long-delayed release of Win8, losing the chance to refocus Microsoft on other growing divisions with greater chance of success.  Unfortunately, the other players already had enough chips to simply bid Microsoft out of the mobile game – and Microsoft's ante is now long gone – without holding a hand even remotely able to turn around the product situation.

Game over. Ballmer loses. And if you keep your money invested in Microsoft it will disappear along with the company.