No Driver, No Profits — Yet. Can Waymo Survive Long Enough to Win?

In parts of San Francisco and Phoenix, it is no longer unusual to see a car glide through traffic with an empty driver’s seat, ferrying passengers who paid for the ride through an app. 

For Waymo, Google’s self-driving car unit, each trip is a real-world test of whether its business model holds up. The bigger question is who will capture the value: the companies that build the vehicles, or those that write the software that drives them? 

And the question is not confined to cars. When software becomes the core of a product, the balance of power tends to move with it — as smartphone makers learned when profits flowed to the firms behind the operating systems.

Waymo’s story is a lesson in digital strategy. When software becomes the core of a product, the winners are not necessarily the best manufacturers. They are the ones with the best code, and the most data to improve it. That can change who leads in any industry.

In car manufacturing, firms have long competed on engineering, scale and brand. Autonomous driving challenges all three. Waymo does not manufacture cars; it builds the system that drives them — and it is delivering that system at vast scale. The company expects to deliver about 1 million rides a week this year in cities such as San Francisco, Los Angeles, Phoenix and Miami. In total, its vehicles have logged more than 125 million fully autonomous miles on U.S. roads, with few reported safety incidents.

Waymo now generates more than $350 million in annual recurring revenue. But it has yet to prove it can deliver sustained profits. For Google’s parent company Alphabet, the question is: how long will it keep funding a business that has yet to prove its returns? 

The sums are large. So is the potential upside. If autonomous mobility reaches mass adoption, the auto industry could look very different indeed. Instead of owning cars, more people might pay for rides. Fewer cars would then be needed, but they would be used more intensively. And revenue would shift from one-off car sales to ongoing income from selling rides. 

The same pattern is playing out in other industries as products become services. Waymo is betting on that shift. The company has chosen to operate its own ride-hailing service rather than simply supply its driving system to carmakers. In several U.S. cities, it runs fleets directly through its Waymo One service. 

That brings control — but also cost. It means owning the vehicles, managing the service and dealing directly with riders. That is not cheap. In 2021, a vehicle equipped with Waymo Driver was estimated to cost between $130,000 and $150,000 — far more than a conventional car. It is a far more costly model than that of Uber or Lyft, which provide the app and leave drivers to supply the vehicles.

Adoption, meanwhile, remains uncertain — in part because the technology still has limits. In clear weather and predictable traffic, autonomous vehicles perform well. In tougher conditions — like heavy rain, sudden obstacles or broken traffic lights — the system struggles. The final 5% of the driving challenge can require 95% of the engineering effort.

The technology is only one risk. There is also demand: will people trust a driverless car enough to give up owning one? Regulation is another uncertainty. Cities can slow or block expansion. A serious accident can halt operations overnight. And because rollouts happen one city at a time, progress can stall just as quickly as it begins.

For now, that makes the economics of driverless cars hard to pin down. As with many new technologies, the early years are messy. Money pours in. Companies expand quickly. Losses mount. Then weaker players fall away. Autonomous vehicles still look to be in that early stretch, so by the time the dust settles, the sector could look very different from today.

Against that backdrop, Waymo must decide where to place its bets. One option is to expand its ride-hailing service, entering more cities and building scale. Another is to concentrate on its driving system, supplying it to carmakers rather than operating fleets itself. That approach would likely require less capital. But it would also mean stepping back from running the service directly. Becoming a software-only provider would certainly lower revenues, but it may improve profit margins.

A third path is trucking. Highway driving is less complex than dense city streets, making autonomous systems easier to deploy. McKinsey estimates that autonomous trucks could cut freight operating costs by up to 45%, saving the US industry between $85 billion and $125 billion a year. Waymo has tested such routes in Texas, though it scaled back the effort in 2023 to focus on ride-hailing.

That leaves a more fundamental question. Where will the profits sit — in the car, the fleet or the software?

It is not Waymo’s dilemma alone; the same tension runs through the established carmakers. They excel at building cars. Writing the code that runs them is another matter.

The same divide is playing out elsewhere. When software runs the product, being big is not enough. What matters is who can build the better system — and improve it faster than everyone else. That will decide who wins, in mobility and in other industries facing the same shift.

For a look inside Waymo, listen to Lenox ‘s conversation with Will Shepherdson, Darden alum (MBA’21) and Product Manager at Waymo, and Madhur Behl, an Associate Professor in Computer Science at UVA, on the Good Disruption podcast. 

This article provides an overview of the key challenges examined in the case study “Driving Waymo’s Fully Autonomous Future” (Darden Business Publishing), written by Michael Lenox and Jack McDermott. The case serves as an introduction to the topics of digital strategy and digital transformation and can be used in more general strategy classes focused on industry evolution and disruptive technologies.