Uber is not going to be the Standard Oil of transportation, at best, it's got a hope of being the Walmart of transportation. Like other commenters have said, for Uber to get the level of defensive moats to achieve Standard Oil levels of monopoly and profitability, it doesn't just have to put Lyft and Sidecar out of business, it has to put private cars out of business. That's not going to happen.
The private transportation industry is interesting right now but I see a couple of pretty severe challenges down the road.
The first is the brutal price war that's coming down the pike. Right now, everyone's hiring pretty young white people as drivers because companies are engaging with a big PR push with regulators and they're able to still handsomely profit off disrupting inefficient cab companies.
But there's a reason why cab drivers are poorly paid and have horrible working conditions and it's because transportation has a hard time breaking out of a commodity status. Look at the airline industry in the 1950s vs today. The race to the bottom is something airlines have been fighting tooth and nail. The simple fact of the matter is that, despite all efforts to the contrary, only a tiny minority of consumers are willing to pay even a few dollars extra for a better experience. Once Uber bleeds millions of dollars being the first to fight all the regulatory battles, a Southwest is inevitably going to emerge to Uber's United.
The second major threat is that everyone can already see that the entire industry is going to be disrupted by the self-driving car and it's just a matter of when, not if. All of the private transportation companies are picking up pennies in front of a bulldozer. If they're smart, they're trying to figure out how to leverage what they have into a dominant position in a new industry but that is always a process fraught with peril.
Ultimately, I think the space has a lot of potential but let's not let wishful thinking get in the way of the brutal economics of this space.
Why do you dismiss Uber as being a leader in self driving cars? If anything they are in a better situation because as self driving cars get introduced, they can incrementally switch over from 100% human drivers to 100% self driving.
Since they know where people are going, they will be able to make best use of early self driving cars that have limitations. For example if the first self driving cars aren't allowed on freeways, or a restricted range, then Uber can send human drivers for journeys requiring them, and self driving for the rest. Uber will also have a lot of credit cards on file which is a significant advantage.
Perhaps there is an assumption that self driving cars will follow the existing private ownership, idle 23 hours a day model. I expect it will be the other way around where they are owned by companies who try to maximize utilisation.
But it isn't a pivot in their case. They would be able to make an extremely efficient[1] transition from 100% human to 100% self driving. Uber is not in the business of giving rides in human driven cars - their business is to get you where you are going on demand quickly.
[1] Efficient means money (the first self driving cars won't be cheap and will be limited), but also adjusting to public perception (every crash will suspect the self driving bit leading to a minor backlash) as well as all the other tradeoffs that occur. Someone in the same space with one self driving vehicle won't be particularly useful, but Uber can operate with only one self driving vehicle in the fleet.
definitely agree. What's stopping some upstart kids with a mobile app and a ton of VC funding from undercutting everyone. What if they didn't take any cut at all and made money on upselling on other services or ads on the app?
No he won't. He'll be like those early competitors to Ford who failed because they didn't see the big picture. Google is going to eat Uber alive in the long term. You stand on a street corner, use an app to select where you want to go, and a driverless car rolls up and you hop in to get on your way. Google bills you for cab fare every time you hit 50 bucks worth and offers you a discounted rate if you keep the volume up on the screen in front of you as it plays offers from various sponsors.
I think this is a very naive and somewhat wishful thinking writeup. You neglect a major reason why Rockefeller was able to obtain a monopoly: he controlled literally every part of the process of extracting oil, from the wells to the pipeline to the tank cars, in an industry that had high startup costs/barriers to entry.
You basically look at every way in which Uber is doing a great job and then declare they will have a monopoly. It's not like they are the first successful business that is killing it and you don't have any truly remarkable arguments for why no one else can go do EXACTLY what they are doing. They have a head start: big whoop, so has any great company.
For Uber to obtain Standard Oil style monopoly they'd have to do something very different that you don't mention: buy a good portion of the cabs and cars and black car services in the world. In the end those cars are the actual supply, and Uber DOES NOT OWN ONE CAR. Do you know how many of those companies exist? Do you think that 1) Uber is even interested in acquiring them and 2) that'd even be possible if they did? Do you think that every single one of them would come onto one platform and that Uber could convince them to be that one platform? You don't think that in certain regions or countries other companies, the Lyfts and Sidecars and Hailos of the world, won't make a move and lock down certain markets first and become the defacto option in those cities?
You also neglect the fact that in many cities (downtown new york?) getting a cab is super easy. In some cities there aren't enough uber cabs going around at any one time to have an on demand app work necessarily, and for other trips private transportation in the way Uber offers might be exorbitantly expensive (getting to certain airports, etc.). You neglect the fact that they are targeting one behavior, a massive one, but still one behavior: the on demand ride. Lots of people like to plan their rides in advance.
Overall this reads like it was written by a fanboy, little real analysis of why, despite the fact that Uber is an awesome company that is doing extremely well, they have any real chance of having a monopoly.
It is a transportation planning and booking app. Orbitz, Expedia, Kayak, Hipmunk, you name it are all in the transportation planning space (but for flying) and everyone has their preferences etc. There is room for more than just Uber and the idea that they will just take over everyone is ridiculous.
> he controlled literally every part of the process of extracting oil, from the wells to the pipeline to the tank cars, in an industry that had high startup costs/barriers to entry.
If you read his biography, Rockefeller didn't become successful this way. He started doing vertical integration (buying the supply chain, rail roads, etc) only after he was widely successful dominating the oil refinery part. Then his competitors were not able to compete with his prices and went out of business.
Although I agree the oil industry vs taxi one has limited analogies outside of government regulators and highly entrenched industry encombants.
The futuristic domaination of taxi's probably won't involve owning the tradition "black taxi" style businesses. The real opportunity will be whoever dominates automated car taxi services.
Perhaps, I'll admit my Rockefeller history isn't super extensive, but still: once he bought up all those competitors he was in an industry that required MASSIVE investment of oil wells, pipes etc. to compete with him. He had massive barriers to entry.
Considering that Uber owns none of the cars and they are a software company, I don't see how they are different from any other software company that just has a really good product. There are plenty of software companies that are awesome, that companies use, but don't have a monopoly.
I'm in the transportation space, specifically airport transfers and ground transportation, and there are tons of backend systems, and yes, it's difficult once people start using one to get them to switch, so Uber does have some barriers to entry. But there are like 20 of these systems that I work with: Zaui, Hudson, Fastrack, Distinctive Systems, they go on. Different companies used different solutions at different times.
It will be the same for taxis/on demand services. Hailo was the app in London when I was there. Most of my friends in SF use Sidecar or Lyft, not Uber, because we are more interested in the budget option, and even if Uber now offers it they didn't when we needed it first, so our habits have been formed already.
I agree on the automated cars, that will be the supply, but even then smaller companies, instead of just acquiring cars for their driver to drive, will get in the business of acquiring cars to lease. And then what about my own car? What if I want to put my car to work while I'm at work, instead of paying for parking? When we all have autonomous cars, then I can go make a choice which framework I want to use, and I'm willing to bet that Uber is not the only one standing. Who says I won't use multiple services, and have my car accept the first request that comes in from any of them?
Also, Uber doesn't have such domination that they can make a Rockefeller like threat right now. They are doing great, but so are other companies. They are in 40 markets, what about the other thousands they aren't in? What are they going to tell those competitors? Sell to us, or, sometime 3-5 years to now we may or may not move into your market and try to compete with you? Hell no, if I was them I'd stay independent and duke it out.
In the end, this is too early the game. If there are 10's of thousands of markets in the world, and Uber is in 40, and you are already declaring them the winner.
They are on the first mile of a Marathon, don't get ahead of yourself.
Uber is great and all, but it is a grandiose idea that it will ever hold a monopolistic position on the transportation industry. I don't buy it, I would throw my nickels toward the direction of Elon Musk if anything.
Elon Musk is 100% in a class of his own. He isn't just disrupting markets (Tesla), he's creating new ones by advancing civilization (SpaceX and possibly the Hyperloop).
Still, my point with the piece is that they stand to destroy cabs in major cities around the world. That's a lot of power in the transportation industry if they can pull it off as I believe, especially when you think about how much that consolidates that power from city by city medallion owners.
Not sure what other cities are like but in Melbourne I can't justify the price difference. The times I have used Uber I have had a coupon or wanted to take a nice car to get to a specific event.
Our taxi system isn't great but is passable at most times. I would much rather a company similar to Uber that leaveraged technology to drive down Taxi prices rather than compete of service/ luxury.
They have convinced baby boomers with money (TPG, and the other VC/PE firms), that "this time is different". Let the Uber founders take some money off the table.
I saw this with social media a few years ago, when RenRen and Groupon and Zynga IPO'd. It was remarkable.
> With Uber close to a new $150 Million+ financing round at a stunning $3.5 Billion valuation, Travis Kalanick has the funds necessary to dominate the transportation market in cities around the world and at a stunning pricing (less than 5% of his company for that $150Mn).
$3.5 billion is peanuts in the world of transportation infrastructure. You couldn't "dominate" the transportation market in even a single major city with $100 billion.
You're right, but it puts them further out in front of any competition they're facing. I expect they'll be raising more rounds but at similar friendly terms as well as being able to self-fund continued expansion from profits in other cities. Remember, they're still seeing double digit growth every month (I think Travis said 18% M.o.M.)...that's a lot of cash to reinvest in even more growth.
True today. But Uber's value is in the human component and the alternative's cost of ownership. Google and Elon Musk look well positioned crush Uber in the 5-yr timeframe.
What is Elon going to do? If you're talking about the Hyperloop, you're deluding yourself if you think that's going to be wide spread in 5 years. It'll take at least 10 for a functional scale prototype and then decades of NIMBY (Not In My BackYard) battles to get them built around the country. Even after that, it'll be like an airport. You can't have a hyperloop with 37 stops...it'll only be so fast and easy if it has a minimum amount of stops. At which point, Uber can help close the loop from hyperloop stop to your home or office.
Sure, but it's more like Tesla would buy Uber, not Uber would rocafella out and buy Tesla, along with the roads. Plus, outside of SF, Uber isn't really taking off.
UberX is may be cheaper than UberTaxi some of the time, because the latter has a mandatory 20% "tip" plus a convenience fee, but it's not cheaper than a cab.
For one, the minimum fare is more than double that of a cab in SF, but more importantly it "surges" 2x at all of the busier times.
The private transportation industry is interesting right now but I see a couple of pretty severe challenges down the road.
The first is the brutal price war that's coming down the pike. Right now, everyone's hiring pretty young white people as drivers because companies are engaging with a big PR push with regulators and they're able to still handsomely profit off disrupting inefficient cab companies.
But there's a reason why cab drivers are poorly paid and have horrible working conditions and it's because transportation has a hard time breaking out of a commodity status. Look at the airline industry in the 1950s vs today. The race to the bottom is something airlines have been fighting tooth and nail. The simple fact of the matter is that, despite all efforts to the contrary, only a tiny minority of consumers are willing to pay even a few dollars extra for a better experience. Once Uber bleeds millions of dollars being the first to fight all the regulatory battles, a Southwest is inevitably going to emerge to Uber's United.
The second major threat is that everyone can already see that the entire industry is going to be disrupted by the self-driving car and it's just a matter of when, not if. All of the private transportation companies are picking up pennies in front of a bulldozer. If they're smart, they're trying to figure out how to leverage what they have into a dominant position in a new industry but that is always a process fraught with peril.
Ultimately, I think the space has a lot of potential but let's not let wishful thinking get in the way of the brutal economics of this space.