Case 7: Mobileye
In 1999, more than a decade before Google captured the imagination of the world with the idea of a self-driving car, Professor Amnon Shashua and entrepreneur Ziv Aviram had a dream about how to build the next generation autonomous car. Rather than rely on unreliable radar or expensive lasers, they believed that a single, cheap camera combined with sophisticated software could reduce collisions, prevent accidents, and save lives. Fifteen years later that dream was coming true: Mobileye went public on the NYSE in August 2014, with a valuation that quickly exceeded $11 billion. With 285 car models and 20 car manufacturers already committed to their technology, Mobileye expected to capture roughly an 80% share of the autonomous driving systems in the world by the end of the decade. The case explores how Mobileye built a very strong set of competitive advantages in an industry known for very high buyer power. It also explores whether those advantages are sustainable. The case is set immediately after Mobileye’s IPO in the late fall of 2014.
1. Briefly summarize the problem(s) (Assume we’ve read the case). Think about the problem from Mobileye’s perspective.
2. What is Mobileye’s competitive position? Identify the resources and capabilities that lead to Mobileye’s competitive advantage. Use the VRIO framework to assess whether those resources and capabilities can sustain a competitive advantage.
3. Which trends in Mobileye’s external environment (PESTEL) are likely to have the greatest impact on the company’s ability to sustain a competitive advantage? How can Mobileye mitigate the threats (or exploit the opportunities) from the external environment to sustain a competitive advantage?
4. Perform a Porter’s Five Forces Analysis of Mobileye’s industry, and identify the major opportunities and threats for the industry. How can Mobileye mitigate the threats (or exploit the opportunities) from the industry environment to sustain a competitive advantage?
5. Identify the short-term and long-term challenges that face Mobileye and discuss how to address them. Develop strategic alternatives and discuss your recommendations.
· Your recommendations should flow logically from your analyses.
· What are the potential caveats (pitfalls) to your recommendations?
Mobileye: The Future of Driverless Cars
In 1999, more than a decade before Google captured the imagination of the world with the idea of a self-driving car, Professor Amnon Shashua of Hebrew University in Jerusalem, and entrepreneur Ziv Aviram had a dream about how to build the next generation autonomous car. Rather than rely on unreliable radar or expensive lasers, they believed that a single, cheap camera combined with sophisticated software could reduce collisions, prevent accidents, and save lives. Fifteen years later that dream was coming true: Mobileye went public on the NYSE in August 2014, with a valuation that quickly exceeded $11 billion. According to Aviram, everyone told them they were on the wrong track in the early days: they had picked the wrong technology, the wrong functions, and the wrong customers. But with 285 car models and 20 car manufacturers already committed to their technology, Mobileye was on a roll. Within a few years, Mobileye forecasted that it would capture roughly an 80% share of the autonomous driving systems in the world.
Success meant that Shashua and Aviram were newly-minted billionaires—at least on paper. They were also close personal friends, who met through their wives. They enjoyed riding mountain bikes and motorcycles together, and even taking family vacations together. Shashua, as Chairman, and Aviram as CEO, described their partnership as two-in-a-box, an organizational innovation developed in the 1970s by Intel. Shashua handled all of the technical work in this deeply technical company, while Aviram managed the business side. On strategy, they made all decisions together.
sitting around the table in Aviram’s 6th floor office, in a non-descript building in Har Hotzvim (the high tech park) on the outskirts of Jerusalem, the two partners debated two dilemmas about the company’s future. First, car companies were notorious for squeezing their suppliers on price. Aviram believed that part of Mobileye’s success had come from maintaining stable pricing. Yet Mobileye’s volumes were about to explode, and some car companies were threatening to look elsewhere if prices did not come down in the lower-end segments. Shashua and Aviram discussed whether Mobileye should sacrifice margin in order to retain share, or continue to hold firm on price?
Second, they also debated their role in self-driving cars. This debate had immediate relevance because Shashua was about to give a talk at Google’s campus in Mountain View. He also expected to meet with Google’s team in charge of its self-driving car. Naturally, Google was going to have many questions about Mobileye’s technology and business strategy. In fact, Mobileye had developed its own self-driving car. For Shashua and Aviram, this upcoming visit raised obvious questions about the efficacy of Google’s approach, what role Google vs. Mobileye would play in the future of self-driving cars, and was Google a potential competitor or partner for Mobileye?
The Vision of Assisted Driving and Self-Driving Cars
Amnon Shashua was described by his partner, Aviram, as a “brilliant computer scientist” who made Mobileye possible. Soft-spoken, but confident, the Hebrew University professor received his Ph.D. from MIT’s Artificial Intelligence Lab in 1993. An expert in visual systems and machine learning, Shashua had previously founded a company that developed camera-based machines to perform detailed inspections of auto parts. 1 Shashua said that he “learned a lot from my first company,” where he built a product for Toyota, which only Toyota wanted. “It was a miserable failure,” noted Shashua, “the venture capitalists (VCs) took control of the company, fired the CEO, asked me to step down as Chairman, and ultimately sold the company for half of the invested capital.” When he started Mobileye, he wanted to do things differently.
The first difference was that he found a trusted partner in Ziv Aviram, an industrial engineer who had emigrated from Russia to Israel when he was 9 years old. A former army commander who had led 100 soldiers into battle, Aviram had a background in industrial engineering. Described by Shashua as a “financial and managerial genius,” Aviram believed that management was a profession which could be applied across industries. Aviram had been CEO of Israel’s largest bookstore chain, CEO of the country’s biggest shoe retailer, and the CEO of a water park, before founding Mobileye.
Shashua and Aviram’s vision was to put Mobileye in the center of Advanced Driver Assistance Systems (ADAS). The world of assisted-driving and ultimately self-driving cars was replete with acronyms, ranging from LDW (Lane Departure Warning), and FCW (Forward Collision Warning) to TSR (Traffic Sign Recognition) (see Exhibit 1 for a list of acronyms). These systems were designed to actively improve safety and avoid accidents, while airbags and seatbelts were passive safety measures designed to save lives after an accident. The next phase in ADAS was fully autonomous vehicles, which were still in the testing stage in 2014. However, many of the underlying technologies were already available. ADAS ranged from simple systems that warned the driver of an impending problem (e.g., that the car was beginning to drift out of its lane), to complex systems that actively took control of the vehicle (e.g., by steering the vehicle back into its lane or applying the brakes to avoid a collision or hitting a pedestrian). Mobileye used a single camera to scan the road ahead, identify obstacles, road signs, traffic lights, etc., then interpret the image and send signals to the driver or other car systems to take evasive action (see Exhibit 2 for pictures of how Mobileye works).
Shashua and Aviram saw many of these capabilities coming, before most of their customers and long before many competitors. They also believed that they could deliver many of these functions with a single, low cost camera. Their theory, described by Shashua, was that: We understood early on that the camera should be the primary sensor. We began developing vehicle detection from a single camera back in the year 2000 when the industry believed radar would be primary. We began developing pedestrian detection back in 2002 when the industry was not even contemplating the necessity. Mobileye was the first to launch a Pedestrian Collision Warning feature in 2010. We were the first to launch FCW for detecting licensed vehicles back in 2011. In 2013, we were first to launch Autonomous Emergency Braking (AEB) on vehicles and pedestrians using only camera processing. In 2013, we were the first to launch Adaptive Cruise Control (ACC), which actively adjusted the speed of a vehicle to maintain a safe following distance during highway driving, from a camera. To date, competitors have not introduced any of those functions on a single camera. (See Exhibit 3 for list of Mobileye pioneering innovations.)
Beyond the technology, Shashua said that many of the key elements of the business model were also clear “from Day 1.” He knew, for example, that regulation would drive demand because the technology saved lives. He admitted that his biggest surprise was that it took 8 years to launch. “If I thought it could take until 2007,” noted Shashua, “I probably would not have done it.”
Looking forward, Shashua and Aviram believed that the company’s success depended on both evolutionary and revolutionary changes in cars and trucks. As regulations increasingly forced companies worldwide to add ADAS to reduce accidents and auto-related deaths, Aviram noted that, “We expect that by 2017-2019 the majority of new cars manufactured worldwide will have a camera equipped with active safety features.” Perhaps more important, they believed that revolutionary trends were on the horizon, which would push the world “in leaps and bounds,” according to Shashua, into the “realm of autonomous driving. We know today that the utopian vision of completely autonomous driving—where the driver can choose to be out of the driving loop for extended periods of time—is not about to be achieved in a single leap.” In the 2016 time frame, Mobileye expected the first hands-free capable driving at highway speeds. Drivers could not go to sleep or read a book, but Mobileye had already built a prototype car in 2014 which could drive on highways without driver intervention. Stop-and-go traffic would be next, followed by country roads, and ultimately in 2018-2020, city traffic. Shashua and Aviram did not share Google’s optimistic projections that a self-driving car was only a few years away; they believed that the truly self-driving car, which allowed the driver to disengage totally, was probably a decade away.
Financing Mobileye’s Growth
Mobileye had a relatively focused product line: it developed a custom semiconductor chip (called EyeQ), a bundle of software applications, and a simple camera and warning display that sold in the aftermarket. (See Exhibit 4 for pictures of their products.) Since it took 14 years for the company to make these products profitable, Aviram needed an unconventional approach to financing the company. From the very beginning, he didn’t want VC money: he believed that VCs were “short-term investors,” and Aviram knew that he needed patient capital. Instead, he found a broker, and asked him to find 100 investors who would invest $5,000 each. In the end, he raised $1 million from 14 angels. His plan was to do small rounds, almost every year, with angels and friends. “My philosophy,” said Aviram, was “take more money than you think you will need. I wanted at least four years of capital on the balance sheet, but I always ran the company as lean as possible.” As major car manufacturers began testing Mobileye’s technology for detecting vehicles, road markings, and road geometry, Aviram raised $30 million in 2002, with a post-money value of $135 million.2 By 2006, Mobileye began installing systems in trucking fleets that would warn drivers of imminent collisions or unintentional lane departures. 3 In 2007, BMW, GM and Volvo became the first automobile manufacturers to include Mobileye technology in safety packages for production passenger vehicles.