Why Travis Kalanick is going to be a Transportation Rockefeller
jasonevanish.com
jasonevanish.com
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.
The Uber drivers I've had were old Russian men, and a middle aged Chinese guy.
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.
[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.
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.
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.
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.
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.
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.
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.
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.
$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.
at $18-20 dollars I'd do it.
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.