At Battery, a central part of our consumer investing practice involves tracking the evolution of where and how consumers find and purchase goods and services. From our annual Battery Marketplace Index, we’ve seen seismic shifts in how consumer purchasing behavior has changed over the years, starting with the move to the web and, more recently, to mobile and on-demand via smartphones.
The evolution looks like this in a nutshell: In the early days, listing sites like Craigslist, Angie’s List* and Yelp effectively put the Yellow Pages online — you could find a new restaurant or plumber on the web, but the process of contacting them was largely still offline. As consumers grew more comfortable with the web, marketplaces like eBay, Etsy, Expedia and Wayfair* emerged, enabling historically offline transactions to occur online.
More recently, and spurred in large part by mobile, on-demand use cases, managed marketplaces like Uber, DoorDash, Instacart and StockX* have taken online consumer purchasing a step further. They play a greater role in the operations of the marketplace, from automatically matching demand with supply, to verifying the supply side for quality, to dynamic pricing.
The key purpose of being end-to-end is to deliver an even better value proposition to consumers relative to incumbent alternatives.
Each stage of this evolution unlocked billions of dollars in value, and many of the names listed above remain the largest consumer internet companies today.
At their core, these companies are facilitators, matching consumer demand with existing supply of a product or service. While there is no doubt these companies play a hugely valuable role in our lives, we increasingly believe that simply facilitating a transaction or service isn’t enough. Particularly in industries where supply is scarce, or in old-guard industries where innovation in the underlying product or service is slow, a digitized marketplace — even when managed — can produce underwhelming experiences for consumers.
In these instances, starting from the ground up is what is really required to deliver an optimal consumer experience. Back in 2014, Chris Dixon wrote a bit about this phenomenon in his post on “Full stack startups.” Fast forward several years, and more startups than ever are “full stack” or as we call it, “end-to-end operators.”
These businesses are fundamentally reimagining their product experience by owning the entire value chain, from end to end, thereby creating a step-functionally better experience for consumers. Owning more in the stack of operations gives these companies better control over quality, customer service, delivery, pricing and more — which gives consumers a better, faster and cheaper experience.
It’s worth noting that these end-to-end models typically require more capital to reach scale, as greater upfront investment is necessary to get them off the ground than other, more narrowly focused marketplaces. But in our experience, the additional capital required is often outweighed by the value captured from owning the entire experience.
End-to-end operators span many verticals
Many of these businesses have reached meaningful scale across industries:
All of these companies have recognized they can deliver more value to consumers by “owning” every aspect of the underlying product or service — from the bike to the workout content in Peloton’s case, or the bank account to the credit card in Chime’s case. They have reinvented and reimagined the entire consumer experience, from end to end.
What does success for end-to-end operator businesses look like?
As investors, we’ve had the privilege of meeting with many of these next-generation end-to-end operators over the years and found that those with the greatest success tend to exhibit the five key elements below:
1. Going after very large markets
The end-to-end approach makes the most sense when disrupting very large markets. In the graphic above, notice that most of these companies play in the largest, but notoriously archaic industries like banking, insurance, real estate, healthcare, etc. Incumbents in these industries are very large and entrenched, but they are legacy players, making them slow to adopt new technology. For the most part, they have failed to meet the needs of our digital-native, mobile-savvy generation and their experiences lag behind consumer expectations of today (evidenced by low, or sometimes even negative, NPS scores). Rebuilding the experience from the ground up is sometimes the only way to satisfy today’s consumers in these massive markets.
2. Step-functionally better consumer experience versus the status quo
California bill would require all self-driving vehicles to be zero emission by 2025
California might be the first state to give self-driving cars a deadline to electrify.
In mid-February, a bill was quietly introduced into the California State Legislature that would require all autonomous vehicles to also be zero emission by 2025. Proposed Bill SB 500, which was introduced by Senator Dave Min and sponsored by the Union of Concerned Scientists (UCS), would directly affect the nascent AV industry in applications like ride-hailing, delivery and trucking.
The amendment is in line with many of California’s goals to reduce emissions. It would add to the state’s vehicle code, which currently provides for programs to promote zero-emission vehicles, such as the Clean Vehicle Rebate Project and the Charge Ahead California Initiative.
Governor Gavin Newsom has said he wants all new vehicle sales to be zero emission by 2035, but that doesn’t apply to commercial fleets. Not unless this bill is passed. The proposed bill is in its infancy stages, so there are plenty of opportunities for it to be quashed. But it surfaces an issue for a burgeoning AV industry and the companies trying to develop and commercialize autonomous driving technology in California. It also has the potential to provide a boost to the companies that only use electric vehicles.
“California has set important standards to aggressively address our climate crisis,” Min told TechCrunch. “My SB 500 aligns with these ambitions and takes a critical first step in requiring autonomous vehicles to be zero emission before they are put to widespread use.”
Proponents of the bill don’t want to see future means of transportation married to the technology of the past, pointing out the potential for AVs to either help or hurt attempts to cut emissions. California has a reputation for leading the rest of the country in EV adoption and other emissions-related policies, so the success or failure of this bill could create ripple effects in states across the nation.
“It definitely seems like we’re going to start seeing AVs in these fleet applications, whether that’s ride-hailing or delivery, and that makes it even more important that these vehicles are electric,” said Elizabeth Irvin, senior transportation analyst at UCS. “The average person drives their car 11,000 to 13,000 miles per year, but a full-time Uber or Lyft driver drives 30,000 or more.”
Close to half of California’s greenhouse gas emissions come from transportation. And while there’s nothing quite like a smoggy Los Angeles sunset, supporters say the danger of not placing requirements on the AV industry could lead to a world in which autonomous commercial vehicles are commonplace and powered by fossil fuels.
In a statement defending support of this bill, UCS points to research that shows how AVs could dramatically increase driving, and thus emissions, as people get used to living the luxurious life of a passenger. One study, which examined the potential effects of AVs on the Washington, D.C. metropolitan region transportation system in 2040, found that AVs would cause the total amount of driving to increase by as much as 66% relative to the 2040 baseline year.
Irvin told TechCrunch that UCS has been in talks with various stakeholders — such as Nuro, the SoftBank-backed autonomous delivery startup, and Cruise, General Motor’s self-driving subsidiary — regarding strategies for advancing policy that would require all AVs to be zero-emission in California before mainstream adoption.
“We are supportive of efforts to accelerate the industry’s transition to clean energy, which aligns with Nuro’s goals and values,” said a spokesperson from Nuro. “We are excited for autonomous vehicles to pave the way for the rest of the auto industry, which we believe will lead to a greener and healthier future.”
The sentiment is mirrored by Cruise, which unveiled last year a driverless vehicle called Origin that’s designed for sharing and powered by an all-electric platform built by GM, the result of a multi-year partnership with Honda. Cruise is not testing autonomous Origin vehicles in San Francisco yet; the battery platform is still undergoing testing at GM’s proving grounds. Cruise does have aspirations to roll out a fleet of autonomous vehicles — initially using the all-electric Chevrolet Bolt — as part of a ride-hailing, and possibly a delivery, service in San Francisco.
“Because this industry is so new, everyone has a choice to be an EV or not,” Rob Grant, SVP government affairs at Cruise, told TechCrunch. “It’s not like you have to transform an existing fleet. You have a choice to do this in the beginning rather than going down this path and being forced to change it at some later date.”
Hybrids versus electric
Not all AVs use electric vehicles. The Ford Fusion hybrid and Chrysler Pacifica Plug-in Hybrid minivans have been the go-to choices for AV developers, including Argo AI, Aurora, Waymo and Voyage.
Argo AI is a technology platform company that works with major automakers, like Volkswagen and Ford, to develop autonomous driving systems. While Volkswagen’s ID.Buzz will be the company’s first fully electric self-driving car, Ford still prefers to take a more measured approach by modifying the hybrid Ford Fusion.
“We all want to transition to BEVs eventually, but we also need to find the right balance that will help develop a profitable, viable business model,” John Davis, chief engineer at Ford Autonomous Vehicles said. “This means launching with hybrids first.”
Davis outlined various challenges in developing all-electric vehicles as AVs, including depletion of range from on-board tech, decreased use of the vehicle during charge times and degradation of the battery.
“Testing shows that upwards of 50% of BEV range will be used up due to the computing power of an AV system, plus the A/C and entertainment systems that are likely required during a ride-hailing service (for passenger comfort),” Davis said. “We continue to be encouraged as battery chemistry and cost continue to improve to address these issues.”
Waymo, which tested and then launched a robotaxi service in a limited and growing area in the Phoenix suburbs, intends to bring a commercial service to California. The Mountain View, California-based company regularly tests its vehicles, which includes the electric Jaguar I-Pace, in San Francisco and the surrounding area. The company said it supports Newsom’s recent executive order, but stopped short of endorsing the current language in Min’s bill.
“As the first company to commercially deploy our fully autonomous technology to the public, we strongly support the goals outlined in Governor Newsom’s recent Executive Order N-79-20 which takes a holistic approach to transition California towards a 100% EV future,” a Waymo spokesperson told TechCrunch. “Waymo has business lines and partnerships that span ride-hailing, trucking and local delivery, and we want to ensure that California’s EV policy reflects the myriad issues and industries affected. It’s early in the legislative process, and we look forward to working with Sen. Min in his efforts.”
Industry sources familiar with the bill have noted that the current language, which is fairly brief, is just a placeholder and unlikely to make much headway this session. Those same sources have criticized the sponsors and author for neglecting to specify a plan for charging infrastructure or making distinctions between light and heavy-duty vehicles. Trucks carrying freight are expected to be among the first vehicles with widespread autonomous use. Most self-driving truck development occurs outside of California in regulatory-light states like Arizona and Texas. And while there are some efforts to develop electric and autonomous semi trucks, most testing today involves diesel-powered vehicles. That could prompt companies hoping to deploy in California to lean on the senator’s office to include an exemption for heavy-duty vehicles.
“We’re still looking to fill out details as we move through the legislative process, but UCS’s intention is that this bill stay focused on the electrification requirement,” responded Irvin.
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Honda Legend With Level 3 Autonomous Driving Goes On Sale In Japan
In November last year, Honda announced it had “received the required type designation for Level 3 automated driving” in Japan. This approval allows the company to sell cars in the country, equipped with Level 3 autonomous driving systems. It took Honda just four months to prepare the 2021 Legend equipped with the tech for public sales.
Starting today, the Honda Legend EX with the so-called Honda Sensing Elite will be available for lease sales in Japan. The semi-autonomous driving system upgrades the existing Honda Sensing family of systems, available for models of the brand in Europe and the United States.
The main feature of the Elite system is the Traffic Jam Pilot, which takes full control of the car when it is in a bumper-to-bumper traffic situation. The function is responsible for the acceleration, braking, and steering in the conditions of congested traffic, and Honda promises it delivers “high-quality and smooth driving.”
The system is based on three-dimensional high-definition maps, as well as several external sensors detecting the vehicle’s 360-degree surroundings. Inside the cabin, there’s a camera tracking the “conditions of the driver.”
The development of the Traffic Jam Pilot employed simulations of approximately 10 million patterns of possible real-world situations. In addition, vehicles equipped with the system were tested for a total of approximately 800,000 miles (1.3 million kilometers).
With the launch of the 2021 Legend equipped with the Honda Sensing Elite, the Japanese manufacturer is effectively becoming the first automaker in the world to offer a Level 3 autonomous driving system in a production vehicle. For now, the offering is only available in Japan and Honda says it plans only “limited lease sales.”
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Over-the-Air Automotive Updates
Modern vehicles are increasingly-connected devices with growing volumes of electronic systems. This systemic complexity means that even an average vehicle design will include over 150 ECUs, which control not just infotainment and communications, but powertrain, safety, and driving systems (figure 1). We see not just a surge in the volume and complexity of electronic hardware, but also software. New cars have about 100 million lines of code, and this is growing fast.
To ensure the correct and safe operation of these complex systems, designers have to build in functional monitoring to ensure functional safety, safety of the intended function, and security issues. Root of Trust (RoT) and other layered security mechanisms inside the chip ensures that chips are not compromised in manufacturing, in the supply chain, or during field use.
Fig. 1: Vehicles have a lot of electronics hardware and software.
However, the hardware and software in automotive devices also needs to be updated during the device’s lifecycle. Software errors, for example, account for a large and growing number of recalls in the automotive industry, about 46 percent of the total recalls.
We are all very accustomed to having updates not only to desktop computers, but to cellphones, TVs, even domestic appliances. Currently, only about 22 million vehicles have any type of wireless, or over-the-air (OTA) update capabilities. By 2025, that number is expected to grow to more than 250 million vehicles. IHS Markit estimates the total OEM cost savings from OTA updates to reach $60.9 billion by 2025.
Automotive safety and security regulations
The advantages of wirelessly connected and remotely updatable vehicles comes with cybersecurity risks. The new UNECE (United Nations Economic Commission for Europe) regulation R155 (also known as WP.29/GRVA/79), which is due to come into force during this year, is a conscious move towards treating the cybersecurity of a vehicle as an entity and ensuring OEMs take on the legal responsibility of automotive cybersecurity. In fact, it requires an automotive OEM to remain solely responsible for the cybersecurity of a vehicle throughout its entire lifecycle. The approach of the UNECE regulation aligns closely to existing and developing standards from the ISO (26262 [functional safety] and 21434 [cybersecurity]).
There are two obvious financial ramifications for non-compliance to UNECE R155 regulations:
- Inability to sell non-certified vehicles within EU, Asia, and Australia, as of 2024.
- The high cost of vehicle recall.
OEMs must start making the transition to compliance immediately, including for vehicle types that are already in production to minimize the potential financial impacts. R155 (or WP.29/GRVA/79) makes it clear that software security processes are inherent in any design, and extend to software updates. That means that vehicles in development and even some already on the roads should have their systems ‘upgraded’ to adhere to these standards.
Need for in-life, in-built embedded analytics
SoCs in complex automotive systems have to remain aware of threats and changes to the system and be able to receive updates—software and security patches to keep ahead of security threats and in-line with evolving regulatory requirements.
Silicon for automotive applications designed with intelligent embedded analytics will benefit from verification and validation in product development. But, the same embedded analytics IP provides powerful monitoring capabilities ‘in-life’ to spot both systemic and random errors, providing a new level of safety functionality and allowing in-field system health monitoring and advanced cybersecurity forensics.
Designers can incorporate intelligent self-analytic capabilities in the SoCs at the heart of today’s automotive electronics using Tessent Embedded Analytics semiconductor intellectual property (SIP).
Cars designed this year need to have systems that stay up to date and can be upgraded well into the 2030s, with continued support for OTA for an expected minimum of 15 years. That means an SoC designed into an automotive system today has to be capable of fighting off threats from hacking, changes to security and safety requirements as an absolute minimum. An embedded analytics infrastructure helps to monitor for changes that would indicate a threat to a vehicle system that can be life-threatening.
The evolving threats and design requirements mean there are also constant changes and development of the industry standards that govern automotive design and these are constantly being upgraded as threats and the automotive systems themselves change.
Defense in Depth
That brings us onto the issue of ‘Defense in Depth’, a strategy of delivering secure control systems by viewing threats and security solutions as multidimensional. It’s one thing to defend today’s threats, but who knows what is around the corner? We need to deploy as many threat prevention, detection and response measures as we can today, to do our absolute utmost to protect ourselves from the unknown threats of tomorrow. A Defense in Depth approach forces you to look holistically at all aspects of vehicle production and usage and layer on as many different techniques as you possibly can (figure 2).
Fig. 2: Defense in depth strategy for system’s lifecycle security and integrity. Source: Siemens
Secure access in implementing OTA
Ensuring chips are not compromised in manufacturing, in the supply chain, or during field use can be enabled by a root of trust (RoT) and other security mechanisms inside the chip. In an OTA update, only authorized and ‘suitable’ software should be ported to the automotive system, which makes it essential to have a hardware-embedded root of trust. To ensure that OEMs implement the highest security standards for OTA, UNECE defined R156 (Software Update Processes and Management System), which is accompanied by ISO24089, currently being developed.
Embedded analytics allow the SoCs to confirm compliance at the bit level, for safety, security and for suitability to match the hardware configuration in use. Traceability is fundamental here: tracking the build of any software through to its implementation with full software authentication and encryption to ensure payload is delivered appropriately.
At the design level, by architecting SoCs to integrate IP for sensors, security, and chip identifiers and inserting such IP along with DFT IP as part of the design flows, SoC suppliers can establish a foundation of hardware enablement for trusted and secure Silicon Lifecycle Management.
Fundamentally, the traceability needs to be included in the hardware design, with each chip granted a unique and permanent identifier, so that in-field provisioning, data gathering, monitoring, and management, including OTA, can all be linked back to the specific chip’s history and lifecycle data (figure 3). The traceability and root of trust identifiers are established at the chip level, but a ‘device identity’ could incorporate a number of chip-specific identifiers.
Fig. 3: Silicon lifecycle management establishes traceability.
Hardware enablement is not enough on its own. Software chip-to-cloud infrastructure platforms, open APIs and standards will enable SoC embedded analytics through secure SoC data access for monitoring and managing the population of chips in the supply chain and in the field. A software chip-to-cloud infrastructure can evolve by partnering with PLM and Cloud Service providers, if SoCs are architected to support a wide variety of use cases including mass zero-touch enrollment during manufacturing, traceability through the supply chain, onboarding to the cloud and ultimately monitoring and managing automotive devices over the air. In order for partnerships to create value, chip suppliers should focus on gathering requirements from the end application and using that as a strategic basis for their next-generation SoCs. For more details on root of trust as part of a Secure Silicon Lifecycle Management strategy, see my previous article here.
Of course, it’s not just the deployment of updated software where security is important. Once we have implemented these advanced security and monitoring technologies, the data we collect from our SoCs is extremely valuable. This means the collection and storage of data from the vehicle/devices is critically important. There is a lot of discussion in the industry about the types of data collected and ensuring it is kept completely separate from any personal data that could also be collected from the vehicle.
With the technologies available today, we are able to address many of the challenges surrounding OTA updates and the regulations, from high-level application and data management through to the silicon-level threat-monitoring IP.
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