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Disrupters don't stand a chance against car companies

Self-driving cars will come mostly from GM and Toyota, not Tesla or Waymo

Robotic arms assembling Tesla's Model S sedans at a factory in Fremont, California. The company has struggled with financing concerns, investor relations and mass-producing vehicles at scale. Tesla, Uber and Lyft are not profitable and have not yet survived an economic downturn.

THE technology for self-driving cars keeps improving. And there's no shortage of investment, from both technology and car companies. What's missing so far is a business model, and even the best ideas can get only so far without one. The history of Google Fiber provides a cautionary tale.

Google first announced its intent to create what eventually became known as Google Fiber in February 2010. The goal was to deliver gigabit Internet at a competitive price to "at least 50,000 and potentially up to 500,000 people". Communities were encouraged to apply to be the first "Fiber city", and that kicked off a feeding frenzy not unlike what we've seen as Amazon searches for a city to plant a second headquarters.

About a year later, Google announced that Kansas City, Kansas, would be the first to have the new service. Service became available in September 2012 and was declared by executive chairman Eric Schmidt to be a viable business at the end of that year.

Expansion announcements followed, with the biggest perhaps being in early 2015 with Atlanta, Charlotte, Nashville and Raleigh-Durham. But a year and a half later, Google's now-parent Alphabet decided to put its Fiber expansion plans on hold. Subscriber goals weren't being met, and expansion was costly and time-consuming.

The city of Brookhaven, Georgia - adjacent to Atlanta - was on the list of Fiber cities in that early 2015 expansion announcement. Part of making service available to the community required building two utility huts in central locations in the city. While one was built, the other was caught up in zoning issues related to ownership of public land, fence lengths and road setbacks. Brookhaven still doesn't have a Fiber service.

It's now been over eight years since the original Google Fiber announcement, and while a number of cities do have service, it doesn't appear that there will be a nationwide rollout the way that some might have hoped. Google's ambitions did lead the incumbent telecommunications companies to make some gigabit investments of their own, and a wireless technology called 5G looks poised to take over where gigabit fiber left off, assuming governments and communities can figure out where to put the equipment.

Losing the race

Based on what we know now, it might be fair to say that at some point in the 2020s, most Americans will have access to gigabit Internet service - wirelessly, not through the fiber network, and using infrastructure paid for and run by large incumbent telecommunications companies like Verizon and AT&T. At first, Google Fiber was perhaps a "disrupter," but it is now on track to lose the race.

This may end up being analogous to how the transportation industry will evolve. Most of the buzz over the past couple of years has been with the innovators and disrupters, companies like Alphabet's Waymo, ride-sharing companies Uber and Lyft, and Tesla. But transportation, like telecommunications, is an industry in which transformations play out over decades, in which investments are measured in the tens of billions of dollars.

Incumbent carmakers, while slower to innovate and change, have the advantage of decades of experience, operational and logistical excellence, and profitability in a cut-throat, low-margin industry. They also know how to play nice with regulators. We've seen the shortcomings of the Tesla approach recently as the company has struggled with financing concerns, investor relations and mass-producing vehicles at scale. Tesla, Uber and Lyft are not profitable and have not yet survived an economic downturn.

Building sustainable business models doesn't thrill Silicon Valley the way innovation does. This industry is best at coming up with an initial vision and creating products and services to achieve that vision. The visionaries and the cultures they inspire usually lack the financial, operational and regulatory commitment and consistency to sustain a large business. Watch the evolution of self-driving cars for a case study. The robots ruling the road in 2030 are most likely to be made by Toyota and General Motors, not Waymo, Uber or Tesla. BLOOMBERG

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