Early this year Amazon announced that it would be buying Zoox. The tech and retail giant is reportedly acquiring the autonomous vehicle startup for USD 1.2 billion. At around the same time, another autonomous vehicle startup, Luminar Technologies Inc., announced that it would soon be going public via a SPAC merger in a USD 3.4 billion deal.
Beyond apparently jostling for pole position in the potentially lucrative but still unrealized autonomous vehicle industry, these moves underscore a less evident reality: Building complex systems is not easy, even if your company is huge and dominant, and not lacking in tech and financial resources.
The Complexity Conundrum
A closer look at Amazon’s and Luminar’s moves may reveal profound strategic initiatives that intend to give each one the key technology pieces to the complex puzzles they seek to solve. Amazon, for example, already has several driverless vehicle projects of its own, including a stake in yet another autonomous driving tech startup, Aurora. It doesn’t take much to suppose that these initiatives are part of plans to automate package delivery for its retail business.
Luminar, on the other hand, sees its move as a way to take advantage of the deal making potential of blank-check companies. This could provide the company with more access to funds, which could help it strengthen its market advantage in low cost lidar sensors for guiding driverless vehicles.
Every new piece of technology that is produced – hardware, software, or a hybrid of these two — adds an unavoidable layer of complexity to our increasingly complex world. Companies that can navigate through the intricacies of layered technological development and offer value are the ones who will be in position to benefit from market acceptance.
The Promise of Verticalisation
Complex tech solutions such as ones pursued by Amazon and Luminar require strong verticalisation to succeed. Verticalisation refers to specialised marketing and sales activity depending on the target industry or function. This departs from a “horizontal” approach, where the business owns the entire supply chain. In today’s increasingly complex markets, such “horizontalism” is getting to be more and more difficult to sustain, if not utterly impossible.
Returning to the Amazon example, one of the targets they are aiming for by acquiring Zoox is to offer autonomous driving vehicles to the ride-hailing market currently dominated by Uber and Lyft. This represents a brand-new market segment for Amazon, and a clear vertical industry they can develop and profit from.
In a complex environment, the startup that can bring forward true innovation and master a layer (vertical) within the supply chain are in the best position to build billion-dollar markets-within-markets.
Conclusions
- The market demonstrates that larger companies are willing to be market leaders and are prepared to pay stellar valuations to acquire unique technologies and the systems to produce them.
- Innovators who show high-growth traction within a specific vertical of a high-tech market (like autonomous driving) can even transform into a public unicorn.
- As technology advances and we start to rely on ever more complex systems, the need for Deep Tech startup “masters” will only grow. Dominating even a single layer within a given industry might just be enough to fence off even the titans (or force them into billion-dollar buyout deals).