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Michael Baxter

Robots versus drones

Written by: Michael Baxter on December 5th 2013

Category: Thought for the day

Here is your question for today: why has Google bought itself seven robotics companies in the last six months? The answer follows, but here is a hint. In the short term the company’s target is Amazon: it’s a battle that is less than ten years away, maybe as close as five years. It may change the shape of commerce across the world. Make sure you are strapped in.

I often think that from a commercial point of view when you drill down, Amazon’s and Google’s products are actually very similar. The main difference is that Amazon is one step closer to the point of production.

Let me elaborate. Amazon makes money by selling other people’s stuff on the internet. Google makes money by advertising other people’s stuff on the internet.

So let’s say I produce ‘yummy cakes’.

I use Amazon as my distributor, and every time a customer orders one of my products from Amazon, I either deliver it to Amazon to send on, or I send it directly to the customer. Amazon makes money based on the difference between what it sells the product for and what I charge Amazon – this is all net of taxes, of course.  What determines Amazon’s mark-up? Why supply and demand of course.

I might also sponsor ‘key words’ on Google, such as ‘yummy cakes’, in the knowledge that there is a good chance that someone who types in those words into Google, and is directed to my web site, will buy my products. But what is the price of the key words I sponsor? Well, price is determined by a bidding process. Economic theory would suggest that the price market forces would create for you to sponsor a key word on Google would be close to the Amazon mark-up, net of the additional costs – such as facilitating payments and maybe stock control – that Amazon might incur.

That is why Amazon and Google are rivals, very big rivals. Apple is in this game too, but not to the same extent. It remains predominantly a hardware company – although it too has been making purchases that indicate it is looking at the same market Amazon and Google are battling over.

You will have read about Amazon’s drones project. There is no shortage of cynics. Clearly a network of drones transporting goods carries danger. Might such a network be used by terrorists? And what about safety considerations? Technology can be great in theory, but in practice it can be a right pain. But I am a believer in the inexorable march of technology, problems will be overcome. I can imagine police drones, searching the skies seeking drones carrying illegal substances? Besides I guess the internet of things will make it harder to abuse the system – which is why the organised crime of the future will be cyber crime, as criminals try to circumnavigate “internet of things” rules.

Google is coming at this from a different angle, however. Andy Rubin is an important man at Google; he was the fellow behind Android. He created the Android operating system, but stepped down from Android some time ago. Many asked: why was that? It is well known that Rubin is into robotics – why the very name Android is a giveaway – and rumours had it that he was to head a new Google venture into robotics. Well, it appears the rumours were true. He is indeed to head a new Google project, which has control of the seven robotics company the company has bought.

What will the resulting robots be like? Bear in mind here the march of Moore’s Law. As graphene or another material takes over from silicon at the heart of computer chip manufacture, we may see an acceleration of Moore’s Law. If computers are say 100 times faster than they are at present – and this may well happen within ten years – all kinds of new applications open up. So the mind boggles.

Yet, in an interview, Andy Rubin told the ‘New York Times’ that he is not trying to create robots for consumers (alas, we may have to do our cleaning and ironing for a few more years yet), but rather to compete with Amazon and its flying drones delivery system.

So that’s drones versus robots as new high tech posties. Consider, by the way, how Google’s work into self-driving cars comes in here.

You may say, but this is surely a very long time away. I am not so sure about that. Delivery by robots won’t be happening next Tuesday that is for sure. It may not even happen this decade. But I reckon most investors have a time horizon of at least ten years.

Even if the technology to which I alude here hasn’t quite taken off within ten years (and actually, I think it will) the markets will start pricing in the potential years before it is realised. I don’t think they have priced in the implications of all this yet – not by a long way.

In a world of drones and robots many traditional businesses may no longer be safe. You may think that backing the new technological revolution is too risky, but personally I think backing companies that may be made redundant by new technology is even riskier.

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Tags: Amazon’s drones, Andy Rubin, drones versus robots, Google robotics, Google versus Amazon, graphene, , self-driving cars

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