Action in the self-driving car industry is picking up speed. In the month since Fortune’s cover story on the industry, the following has happened:
- Chris Urmson, the head of Google’s (GOOG) self-driving car program, has left the company;
- Ford (F) and General Motors (GM) confirmed their plans to launch their own self-driving taxi services;
- Yesterday, Uber announced it will begin testing self-driving cars in Pittsburgh by the end of the year;
- And even more notably, Uber acquired Otto, a hot self-driving truck startup co-founded by Anthony Levandowski, the co-founder of Google’s self-driving car program, in an all-stock deal worth 1% of Uber’s latest private market valuation including earn-outs, according to Otto co-founder Lior Ron.
One percent of Uber’s valuation is about $680 million. That’s a lot of money for a company that’s not even a year old and doesn’t have a product in the market. It’s a potentially huge payday for Otto’s founders, who had self-financed their startup to date. As part of the deal, Otto’s current employees are entitled to 20% of the profits from its trucking business down the line. (Lior says future employees will have “similar compensation.”)
Why so much for such an early stage company? Make no mistake—this deal is about talent and revenge.
Uber CEO Travis Kalanick has decided that self-driving taxis are the key to Uber’s future. Eliminating drivers will go a long way in making Kalanick’s giant, money-losing startup profitable. But the technological challenge of making self-driving cars a reality is huge, and there simply aren’t that many engineers out there that have experience working on them. Uber already acquired a big chunk of the country’s self-driving car expertise when it poached an entire Carnegie Mellon research team in 2015, forming the foundation of its self-driving program in Pittsburgh. With Otto, Uber gains 90 more engineers. To remind you of how competitive the market for self-driving engineering talent is, remember that earlier this year General Motors paid $1 billion (including earn-outs) for Cruise, a two-year-old startup with no publicly launched product and around 30 employees.
Regarding Uber’s revenge, this deal brings Levandowski, one of the industry’s most well-known self-driving car visionaries, under Uber’s roof. Levandowski will head up Uber’s entire self-driving unit. That’s a gut-punch to Levandowski’s former employer, Google, which has hinted recently that it will launch its own self-driving taxi service to compete with Uber. The competition between Google and Uber is awkward, given that Google’s venture arm invested in Uber in 2013.
So what does Otto get out of the deal, besides a giant chunk of Uber stock? As I noted in July, Otto is all about moving fast. Levandowski and Ron left Google because they wanted to get the self-driving technology into the market as fast as possible. They believed retrofitting big rigs was the fastest way. In an interview with Fortune, Ron said this deal will help the startup move even faster toward its goal.
“We have the ability to plug into the Uber network at unprecedented scale which gives us ability to see different road conditions, tapping into the collective brain of every Uber car on the road and seeing what the cars can see,” Ron says. “This allows us to supercharge how to bring those technologies to market.”
All of this is still hypothetical. Uber first needs to get its self-driving cars with sensors out onto the road.
Otto will stay independent from Uber, Ron says. The promise of remaining independent is so common in startup acquisitions that it’s become a cliché. I questioned how Otto could do that, given that Levandowski will now be focused on Uber’s self-driving efforts, too.
The new set-up “allows us to have the right level of holistic perspective and ability to think about the problem,” Ron says. “Those trucks and cars all inhabit the same road.” Levandowski will remain in San Francisco, while the bulk of Uber’s self-driving car efforts will remain in Pittsburgh.
Ron says he expects to start deploying Otto’s self-driving fleets by early next year. The company is currently test-driving six semi trucks around the San Francisco area. “The vision of both companies is to reinvent transportation and make it as accessible and seamless as possible,” Ron says. “Uber has built, within six to seven years, the biggest startup in the world and we strive to the same for commercial transportation.”