
Why Travis Kalanick is going to be a Transportation Rockefeller - jevanish
http://jasonevanish.com/2013/07/31/why-travis-kalanick-is-going-to-be-a-transportation-rockefeller/
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shalmanese
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.

~~~
rogerbinns
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.

~~~
shalmanese
I'm not dismissing it, I explicitly addressed it and noted that pivots are
always hard and risky.

~~~
rogerbinns
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.

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MisterBastahrd
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.

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dlitwak
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.

~~~
dmix
> 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.

~~~
dlitwak
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.

~~~
WalterBright
Preceding and throughout Standard Oil's anti-trust trial, he steadily lost
market share, and he was unable to stop it.

------
pseudometa
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.

~~~
jevanish
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.

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tnuc
I tried using Uber to get To/From JFK a week ago.

The cheapest fare on Uber was $98 one way. Car service is $40.

Amazon and Google in a bidding war over Uber? Sounds like bullshit to me.

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robryan
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.

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princetontiger
Another FirstGroup

[https://www.google.com/finance?q=LON:FGP](https://www.google.com/finance?q=LON:FGP)

Give the Uber guys credit.

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.

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eigenvector
> 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.

~~~
jevanish
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.

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lowglow
Whoever owns autonomous vehicles will own us all.

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jchrisa
Car2Go is way better positioned for taking the self driving short term rental
market

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dhruvkaran
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.

~~~
jevanish
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.

~~~
rdouble
He has the ability to sell cities a whole electric cab platform, with hailing
and payment system built right into the car itself.

~~~
jevanish
and who has the logistics technology and user base to power that? Uber.

~~~
rdouble
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.

~~~
jevanish
Joint venture? They both have what the other needs. And $125Million in revenue
says Uber is taking off in more than SF.

~~~
rdouble
$125M means they have 1/4 the SF Taxi market revenue.

~~~
jevanish
Do you have a source for that? I tried googling and couldn't find a solid
number on Taxi revenues by city.

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chris_mahan
Too expensive. I got the app and priced a ride home from work: $37-42. I don't
do discounts.

at $18-20 dollars I'd do it.

~~~
jevanish
Do you have UberX in your city? They slashed prices on UberX in SF in June and
it made it cheaper than a cab.

~~~
zaidf
How do they afford to make it cheaper than a cab?

~~~
ajju
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.

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untilHellbanned
my money is on Elon Musk

