Tuesday evening was a busy day for Lyft (LYFT) - Get Lyft, Inc. Class A Report . It published its first-ever earnings report as a public company, while it was also announced that it would expand its partnership with Alphabet's (GOOGL) - Get Alphabet Inc. Class A Report (GOOG) - Get Alphabet Inc. Class C Report Waymo.
With Lyft's earnings and Uber's (UBER) - Get Uber Technologies, Inc. Report IPO coming on Friday, the news with Waymo may be being overlooked. However, I consider it a potentially very important move.
Ride-hailing has already dealt a serious blow to car rental agencies and taxi groups, while self-driving technology is in its younger years of transportation disruption and will eventually deal the next blow. It's drawn in major technology players -- like Alphabet -- and is forcing traditional companies in the space to adapt or become irrelevant.
That's where the industry finds itself now. The automakers have the vehicles, self-driving tech companies like Waymo have the technology and companies like Uber and Lyft have the customers.
Developing autonomous driving technology is tedious, time consuming and above all, very expensive. Automakers have realized this and shifted from an "every man for himself" mindset to one of collaborations and partnerships. Ford (F) - Get Ford Motor Company Report and Volkswagen (VLKAY) (VLKAF) have teamed up to a degree, while Nvidia (NVDA) - Get NVIDIA Corporation Report is working with Daimler (DDAIF) (maker of Mercedes) and more recently Toyota (TM) - Get Toyota Motor Corp. Report . General Motors' (GM) - Get General Motors Company Report Cruise raised another $1.15 billion at a $19 billion valuation just this week, which includes Honda (HMC) - Get Honda Motor Co. Ltd. Report as one of its investors.
Waymo has reportedly explored the idea of bringing in partners as well, as the company is now in an interesting situation. With Alphabet as its parent company, it's easily the most well-funded name in town while arguably controlling the industry's top technology. But it doesn't have the customers that Uber and Lyft have and it doesn't build vehicles. An acquisition is always a possibility, but partnerships seem more likely.
Is Lyft That Partner?
In a post on Tuesday evening, Waymo CEO John Krafcik explained the partnership: "As a first step, we'll deploy 10 Waymo vehicles on Lyft over the next few months. Once Waymo vehicles are on the platform, Lyft users in the area will have the option to select a Waymo directly from the Lyft app for eligible rides."
10 cars is nothing in the grand scheme of things, but it's a start. Waymo is really one of the only companies that has a commercial autonomous driving program (Aptiv does have an autonomous partnership with Lyft in Las Vegas, but it's nowhere near the size of Waymo).
Now Waymo is introducing the vehicles to the Lyft platform, a company that just reported almost 100% revenue growth year-over-year in its latest quarter. Uber's obviously the bigger fish of the two and a partnership isn't out of the cards down the line. But Waymo's partnership with Lyft could be the first significant step (of many) in the changing autonomous driving landscape.
Safety is a reigning priority for Waymo and rolling out to new areas or in new ways too quickly could compromise that priority. Therefore, Waymo's expansion efforts -- on its own in new cities or in Phoenix with Lyft -- will be well thought out and not rushed.
About a year ago, Waymo said it would partner with Lyft on autonomous technologies, so the two companies' small step forward in Phoenix should come as little surprise. If it shows promise, though, the two could expand their partnership and perhaps even expand to more cities in the future.
It's a potential win-win for Lyft and Waymo, too. Waymo can instantly tap into a massive user base of customers, while Lyft doesn't have to race to develop autonomous technologies. If the partnership blossoms, it won't happen overnight. But it could put Uber in a precarious position if it does. Even though it's far larger than Lyft, both companies have made it clear that self-driving cars are necessary for their business models.
That's not to say a Waymo/Lyft setup is a death-blow to Uber. Only that, short of partnering with Waymo or someone else, Uber will have to figure out autonomous driving on its own and as we've said, that's a tough task. For Uber, though, it has a far larger footprint than Lyft, domestically and globally, and should Waymo look in that direction, Uber could be an attractive partner, too.
Either way -- with Lyft, Uber or both -- this looks like an advantageous first step for Waymo.
This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.