Uber should fear the company formerly known as Google

Google’s restructuring under the Alphabet umbrella means that there’s nothing standing in the way of it taking on every company in the technology sector. That should give every company pause, but Uber in particular should worry about the possibility of Alphabet continuing a fight Google started.

It never made sense for Google to invest in Uber. Both companies want to experiment with businesses that are only slightly related to their original purposes, and these ambitions have often pit the two against each other.

Just look at some of the headlines from recent months. Uber is trying to make self-driving cars and buying companies to reduce its dependence on Google Maps, while Google reportedly works on its own ride-hailing service.

There are other signs that Google and Uber aren’t getting along as well as many investors and portfolio companies, such as Google’s decision to use data from an Uber competitor, Lyft, in an update to its Google Now service.

A cold war is being fought. Neither company has come right out and said that it’s competing with the other, but both have been working on projects that would give them the upper hand when they finally recognize the conflict.

That war has a chance to heat up now that Google founders Larry Page and Sergey Brin have created Alphabet, a new company of which Google will be a subsidiary, so they can work on things unrelated to Google’s online services.

Alphabet’s creation is a warning to every company in the tech sector. The company formerly known as Google no longer has to try to justify working on things like anti-aging research or wireless networks; it’s free to just do them.

It would make sense for Alphabet to focus on ride-sharing. The company has been working on self-driving vehicle technologies for a while, and if Uber chief executive Travis Kalanick is believed, self-driving cars will replace the human drivers currently utilized by ride-hailing startups in a few decades.

Then there are the already-referenced reports about Google working on its own ride-hailing service. It might have been difficult for the company to introduce that service before, but as one venture capitalist already joked, Alphabet isn’t bound by any promises Google might have made to Uber.

Alphabet is all about giving Page and Brin the freedom to do whatever they want. It was clear even when the company was known as Google that they want to compete with Uber — now that they have a little more leeway to explore that desire, it wouldn’t be surprising to see this cold war get heated.

As Uber, Lyft, and Sidecar count patents, warning signs ahead

Government regulators and the taxi industry can’t stop Uber — but maybe a patent can. At least that’s the hope of Sidecar, a small rival of Uber whose founder obtained a patent related to mobile ride hailing way in 2002, and who claims he thought up today’s version of the industry way back in the 1990s.

Meanwhile, Uber itself has been busy on the intellectual property front. The company has filed more than a dozen patent applications that seek a monopoly on not just Uber’s hated “surge pricing,” but also on other basic aspects of the car hire business such as dispatching and calculating tolls.

All this raises the question of whether a patent battle, like the epic one between Apple and Google that roiled the smartphone industry, could break out among the car companies.

Meet the patents

At first glance, Sidecar’s patent looks like it could bring Uber’s cars to a screeching halt. Titled “System and method for determining an efficient transportation route,” the patent describes the use of GPS-tracking to plot routes and connect drivers with passenger pick-up locations.

The patent, which confers on Sidecar the right to exclude others from using the invention until 2020, includes a drawing that shows a wireless network linking a car and passenger via satellite:

Sidecar patent

As for Uber, it doesn’t own any patents yet, but a Google search reveals it has filed more than a dozen applications since 2010 for car-related patents that list the company or CEO Travis Kalanick as the inventor. (It’s likely that Uber has filed even more applications since, under Patent Office procedures, an application typically remains secret months for 18 months before it is laid open – meaning any applications filed in 2014 have yet to come to light.)

Uber’s earliest patent application, filed in 2010, is titled “System and method for operating a service to arrange transport amongst parties through use of mobile devices,” while others refer to more specific features of the company’s operations, which are based on consumers using an app to summon nearby drivers.

The later patent applications include the infamous one for surge-pricing or, in Uber’s words, a method for “a user to verify a price change for an on-demand service.” It includes this diagram:

Uber surge pricing screenshot

Other applications include one published in 2013 that describes a system for rating Uber drivers through a star-system, and one that turned up late last year that describes the use of location data points to include tolls in a passenger’s final fare, and that refers to this diagram:

patent for tolls

All of these claims — related to tolls, driver-rating, services to “arrange transport” and so on — are for now just applications. But if the Patent Office grants Uber even some of these patents, the company could be in position to threaten its competitors, including Lyft and Sidecar, with the prospect of injunctions or multimillion dollar jury awards.

A spokesperson for Uber declined to state how the company plans to use any patents that the Patent Office might bestow.

As for Sidecar, the company simply replied “Yes” in response to an question as to whether it would exercise its 2002 patent.

Owning the ideas of Adam Smith

While patents in theory confer powerful 20-year monopolies, the reality can be different, especially when it comes to claiming abstract ideas.

“This application is really seeking to claim the basic idea of pricing and service, which is a concept Adam Smith discussed 200 years ago. The notion that’s a new idea in this day and age is far-fetched,” said Michael Strapp, a patent lawyer with Goodwin Procter, in a recent phone interview.

His comment was addressed specifically to the surge-pricing patent application, but Strapp is also skeptical that Sidecar’s patent or any of Uber’s proposed patents would stand up to scrutiny. His doubts stem in large part from recent rulings from the Supreme Court that have set stricter standards for the Patent Office.

Alice said tying a well-known idea to a computer or smartphone is ineligible,” said Strapp, referring to Alice v. CLS Bank, a seminal decision from last year that called into doubt the validity of thousands of computer-related patents.

This means that Sidecar’s swagger with its 2002 patent could be a bluff, given that Uber or another defendant may have a good chance to invalidate it under the patent law doctrines of “obviousness” or “ineligible subject matter.” And likewise, the Patent Office may point to the stricter standards in order to deny Uber’s applications altogether.

But despite what looks like a weak hand, Sidecar or another ride-booking service could try to start a patent war anyways.

Doing it on the cheap

While patents can invoke images of “eureka” moments and grand invention, in practice they’re typically just another tactic — like talent raids or squeezing suppliers — by which businesses try to get the upper hand on competitors. And while the legal costs of a full-blown patent case can reach tens of millions of dollars, a company can also wield patents on the cheap.

“If Sidecar was going to decide as a business matter that they were going to raise investment or look like a more viable competitor, they could [file a patent lawsuit] and take initial steps without a lot of costs, especially if they find a lawyer willing to operate on contingency,” according to Strapp, the lawyer.

In this context, a Sidecar lawsuit could amount to leverage against Uber, either to encourage acquisition talks, or else to further founder Sunil Paul’s narrative that Sidecar is the real, original ride-booking company. The risk of course is that Uber or Lyft might respond with an aggressive legal approach of their own, perhaps by buying patents to launch a countersuit (Facebook used this approach successfully when Yahoo sued it in 2010 over the rights to social networking).

And in the event Uber, which is known for bare-knuckle business tactics, succeeds in obtaining patents (or buys Sidecar), it has the deep pockets to hire as many lawyers as it thinks would help it to wipe every other car service off the map.

For consumers, this would be a bad thing since the costs of a patent war in the ride-booking industry would be passed on to them. But for now, it’s too soon to fear the worst. Not only are patents in this area still few and far between, changing attitudes to patents among courts and entrepreneurs (remember what Tesla’s Elon Musk did last year) mean that war is less likely in the first place.

Avis and Hertz should launch their own Uber

The sharing economy leads to more efficient utilization of assets and capital, thereby generating superior economic and environmental returns. Airbnb allows for the same real estate to be used more effectively. Rent the Runway does this for dresses. This same principle can be applied to the massive fleets of rental car companies — there ought to be a way for the sharing economy to more efficiently utilize these cars.

The car rental industry is an old industry (Sixt, with a fleet of 3 cars, was established in 1912). The industry has millions of cars in its fleets all around the world. A significant portion of revenues is driven by business travel during the weekdays (leading to low-priced weekend specials). Revenues are also seasonal, with winter being leaner than summer. Fleet utilization in North America hovers between 60 and 80 percent (source: Avis 10-K, Hertz 10-K).

Car rental companies like [company]Avis[/company] and [company]Hertz[/company] have bulk purchase arrangements to buy vehicles, solid insurance contracts, discounts on bulk gasoline purchases and so on. They can easily use these economies of scale and leverage their fleets to launch their own versions of an Uber-style service.

One option is that Avis could launch its own app and allows drivers with their own cars or cars rented from Avis (on special terms for short periods) to provide ride-sharing services on this app’s network. Avis would keep a portion of the driver’s fare as well as increase its rental receipts.

Another option is that Avis could create special rental offerings for Uber drivers who want to drive for Uber without using their own car (drivers who are college students, drivers from families with shared cars, or drivers with old cars). In this case, Avis would make money only from the incremental rental receipts.

Here’s what the economics could look like: Let’s say there are two million cars across fleets in car rental companies in North America utilized at 70 percent at an average gross revenue of $40/day. (Benchmarks derived from SEC filings of Avis and Hertz.) This gives us about 220 million car-days [(0.30*2,000,000)*365] where these cars are not used.

Uber prices usually surge on Friday and Saturday nights or during holidays/bad weather conditions. This is complementary to the pattern of business traveler demand — consumers need Uber-style cars when Avis and Hertz usually have them sitting on their parking lots.

Let’s say that the car rental industry is able to extract profits (net of costs) of $10/day for even 20 percent of these fallow car-days. This computes to a direct profit impact of about $500 million per year in North America alone. (This $10/day is quite conservative as Uber drivers reportedly make, on average, $25–40/hour or $200–300/day, and they also use their own cars.)

Avis and Hertz could launch their own Uber competitors or launch a program where interested drivers could rent from them and drive for Uber. Either way, it would create significantly more supply in the P2P ride sharing system, which would be a huge win for consumers. (Current supply estimates on number of active Uber drivers are still in the tens of thousands.)

Further, drivers stand to gain significantly from this as they would no longer have to finance or buy new cars and could benefit from some of the scale-economies of car rental companies. The environment overall is a winner as these same cars are utilized a lot better.

This is a big business opportunity and a chance for the “old economy” to show how it can compete in new markets. Avis bought Zipcar in 2013 in what was widely seen as a forward-looking acquisition. If car rental companies launch Uber-style services, they could over time extract even more creative benefits from their fleet being “on the road” — they could lower parking lot expenses and deliver cars to prospective customers wherever they are. Imagine ordering an Avis car through an Uber-style app and having the rental being delivered to you.

Avis’s tagline used to be “We try harder.” Perhaps it is time to do just that.

Dinkar Jain is a University of Michigan–trained engineer, a Harvard MBA and a product leader based in San Francisco. Follow him on Twitter @DinkarJain.

Delete Uber if you want, but it still has your data

The ongoing uproar over the ethically challenged Uber has brought about calls to delete the service. And to my surprise, some people are actually doing this: I’ve already seen a few friends boast on Facebook that their Uber app is no more.

Uber drivers arrested in Amsterdam as service’s licensing woes continue

Four Uber drivers were arrested in Amsterdam on Sunday for flouting a ban on unlicensed taxi services. According to local reports, they may be fined up to €4,200 ($5,329) or more if they break the law again. Bloomberg reported Uber as saying the crackdown was “unjustified and disproportional.” One report suggested the firm might pay drivers’ fines in some cases. In Berlin, where Uber has frequently come up against similar laws, the company has now cut its UberPop/UberX fares to such a low point that the services count as ride-sharing rather than profit-making taxi services, thus bypassing taxi licensing regulations – but destroying any incentive for people to drive for it.