[ChuckMcM]

Fair enough, if it helps here is what is odd. Let's say for the point of argument that Waymo does, in fact, have a LIDAR product that is every bit as good as what everyone else is selling but they can make it at 1/10th the price.

For the sake of argument lets say the typical "net profit margin" on a LIDAR unit is 10% (the higher the margin the better this gets). Now if $x is the price of the typical LIDAR unit, and .1x is the profit. and Waymo can make an equivalent unit and sell it profitably at .1x then they could sell their units for .5x (1/2 the price of the current market) and make .4x$ in profit (roughly 4x what the other manufacturers are making).

To me that would be a press release that made sense. It would say "We're going to own the LIDAR market with this product, and all the self driving cars from everyone are going to use them and when you multiply by the number of cars that is going to make use billions of dollars."

That is a business announcing they have a huge advantage that they are going to use to make huge profits which will keep them in a leadership position for making the gear people use in deploying self driving cars.

So for me it was odd that they announce what seems like a huge advantage but they aren't selling it to anyone except their one existing partner who opted not to participate in the press release. How did you interpret their press release?

[nostrademons]

The LIDAR market is estimated at $1-3B by 2020. The automobile market is estimated at around $1T. Owning a $1B market is pocket change for Alphabet; it's not even worth their while. Being cost-competitive at owning a $1T market would make them the most valuable company on earth.

The way I read the press release, it's a way of saying "Self-driving cars are here, they are reliable, and they're not just a rich person's toy. Every car sold on the roads will soon be self-driving, it's the biggest innovation in automobiles since the Model T, and you better have a piece of it or you will be left behind." Then they get all the major auto makers on board, and that becomes a self-fulfilling prophecy, one where they have a monopoly position on the most crucial component (which is actually the software, not the LIDAR).

Google is very well acquainted with spending billions of dollars on "free" products as a way of deepening their economic moat on the component they make money on. This is just an extension of this strategy to a market that's at least double the size of the total advertising market they've traditionally gone after.

[seanmcdirmid]

"I think there is a world market for maybe five computers."

Thomas Watson, president of IBM, 1943

Is the LIDAR market really just $1-3b because of how expensive they are now?

[nostrademons]

It's possible, but if LIDAR is actually a fundamental breakthrough technology at $7500/per that opens up lots of other new markets, it will require buy-in of many, many entrepreneurs seeking to find uses for this technology. Betting on that likely looks a lot worse to Wall Street than betting on self-driving cars.

[marcosdumay]

> Owning a $1B market is pocket change for Alphabet; it's not even worth their while.

If this line is true, it means Alphabet is not free from the Innovator's Dilemma. That means they have a very systemic risk of being undercut out of a market.

Anyway, it doesn't make any of what you said wrong. It's just interesting because avoiding the dilemma was one stated goal for Google when creating Alphabet.

And, well, another possible explanation is that they have a limited productive capacity, so they can not physically sell to the entire market.

[nostrademons]

Alphabet's absolutely subject to the Innovator's Dilemma. I left Google a few months before it became Alphabet and I could think of a half dozen markets where they'd be potentially vulnerable to it. (I also personally had projects I worked on that made $100M and were canceled because they couldn't make a billion. $100M would be absolutely awesome in most other companies, but it's pocket change to Google.)

The tricky thing about Innovator's Dilemma situations is that it's very difficult to predict a priori which $1M markets will be stuck at $1M and which will eventually grow to become multi-billion, because this usually results from changes in consumer behavior or technological capabilities that haven't happened yet. It's a "dilemma" because the companies that overlook these opportunities are acting rationally.

[TheCoelacanth]

If every car in the world uses LIDAR, how is it still going to be a $1-3B market?

[nostrademons]

Not every car in the world is going to use LIDAR unless someone comes up with viable self-driving car software. Right now, Alphabet/WayMo is in the best position to do that.

[petra]

One guess: the hardware costs for self driving is tiny relatively, and will go towards zero.

But in the ideal case, owning the self-driving transportation network in most major cities, having a strong network effects(assuming shared rides+brand+other stuff) and selling rides, is worth hundreds of billions or more.

And not sharing tech, especially possibly superior tech is a good strategic move.