The Crazy Ride Called Uber
Full disclosure ‒ I've used Uber twice. Once in San Francisco and once in San Diego. I’m not openly critical of the service (as some are), but my two experiences were “meh” at best. Yes it worked ‒ yes it was cheaper ‒ but I wouldn't categorize the experience as remotely revolutionary or “disruptive.” Hailing a cab with my phone felt about as revolutionary as checking‒in on Foursquare or using Groupon. High novelty factor maybe, but also based on a ton of assumptions around consumer behavior and change.
I also realize that I’m definitely not the target demographic of young, mostly single, urban and hip. We live in the suburbs ‒ own our vehicles ‒ and while I travel frequently, I tend to lean on mass transit or rental cars for most of my life on the road.
But none of that excludes any of us from weighing in on the idea — the valuation — the brand — or the craziness of the ride called Uber. In these things we all have some stake — even if it’s only an opinion.
Starting last week, Uber started a 10-day trial in Los Angeles (called UberFresh) to deliver a fixed-price lunch menu to select areas of town — further flexing it’s desire to branch out of ride-sharing and into the “logistics” business. All I can think is — here we go again. Does no one remember Kosmo or Webvan? Before we get there — a little background.
First and foremost ‒ what’s truly “proprietary and protectable” about Uber? It’s not the technology because it’s largely a consumer‒facing cloud service based on fleet tracking and dispatch. That technology was pioneered by Qualcomm ‒ called Omnitracs ‒ in the late 1980's. In the first wave of “application service providers,” another company (@Road) moved the solution to the cloud and targeted smaller fleets of plumbers, exterminators and repair services for most of the major metros here in the U.S. In 2006, navigation pioneer Trimble (market cap of about $9 billion) bought @Road for about $500 million.
The point here is that if either of these companies ‒ Trimble or Qualcomm ‒ wanted to challenge Uber (or Lyft or a half‒dozen others), they probably own the IP to do just that. The “technology” that Uber has is a version of fleet tracking and dispatch tweaked for a single user. Even if Uber has the IP around single use — they most certainly don’t have it for fleet tracking.
That’s not to say Uber isn't popular ‒ or that the initial growth hasn't been explosive ‒ it has. Like many services that seemingly appear revolutionary (rather than evolutionary) it became wildly popular with the Towncar and Taxi crowd in every city where it was available. It also created a new way for anyone with a car to become part of the “gig” economy.
That also hasn't prevented the launch trajectory of the Uber investment rocket. In just over 5 years (founded in 2009), Uber has seen 32 investors pour $1.5 billion of venture capital into the company through 6 rounds of funding. The combined effect has created a 5 year‒old company with a market capitalization of $18 billion. On paper ‒ that’s bigger than Nordstrom’s or Tyson Foods.
But the heady days of shooting fish in the proverbial taxi barrel may well be coming to a close. No less than four seismic events just this year signal some very turbulent waters ‒ even for a pimped‒out, $18 billion gold‒plated limo ride.
- Rival services have sprung up in a way that suggests a really nasty, cutthroat race to the bottom. The recent article on Verge (This is Uber’s Playbook for sabotaging Lyft) is a sobering account of just how cutthroat the ride-sharing business has become. Winning at any cost now seems to be the latest execution of “disruption.”
- Hire a top‒tier political strategist in an attempt to battle heavily entrenched municipalities (and States) in a regulatory turf war for dollars flowing into both city and campaign coffers. Whatever else can be said of Uber hiring David Plouffe ‒ it has all the appearance of a desperate tactical move ‒ not a long‒term, well thought out strategic one. Might the Board of Directors (sitting on a $1.5 billion venture commitment) have helped to accelerate the one man acqui‒hire?
- The death of the IPO (as recounted by Marc Andreessen in an interview here). It’s a good thing that Uber has the war chest it has because the road to IPO is much further away than it’s ever been. Not surprisingly, this new model of investing accrues all of the wealth to the private investors ‒ not the public ones. Clearly an attractive feature for 32 investors to pour $1.5 billion into a “logistics” startup.
- The “sharing economy” (as it’s called) feels new, fresh, vibrant ‒ and disruptive ‒ today, but the novelty wears off and the experience of “sharing” other people’s stuff doesn't quite live up to all the rosy pictures (imagined or real). There’s real consumer risk here — but much of it gets lost in the fervor of new.
For those who may not remember, Webvan (and to a lesser extent Kosmo) were also in the “logistics” business ‒ as more of an online shopping service for groceries (or small purchases) delivered directly to the home.
Like Uber ‒ Webvan had an A‒list of investors ‒ including Benchmark Capital, Sequoia Capital and Goldman Sachs. In less than two years, Webvan went from being a $1.2 billion company with 4,500 employees to bankruptcy liquidation.
In the course of a blistering spending spree that lasted 18 months, Webvan shelled out about $1 billion (largely to engineering firm Bechtel) to construct a network of $30 million distribution warehouses. In effect ‒ it was a colossal failure built on the premise that everyone (of course) would want to buy groceries online and have them home‒delivered. The idea pre‒dated smartphones, but the premise of “disruptive logistics convenience” was the same.
Beyond just the mechanics of the Uber experience (which are definitely impressive if you’re hailing a cab), the reality is that the numbers are really anemic (at least here in the U.S.). Relative to getting to work ‒ the total taxi business is a fraction of 1% ‒ literally 0.1%. The majority of working people use a personally owned vehicle (76%) or mass transit (5%) to get to work. The Bureau of Transportation Statistics doesn't even track Towncar or limo services because they’re just too small.
More recently, people determined to find an $18 billion valuation somewhere have resorted to calculations that substitute Uber for actual car ownership. Here’s one from yesterday on TechCrunch (When Does Uber Become Cheaper Than Owning A Car?). Missing, of course, from any calculation are any ideas around ad-hoc suburban travel for things like weekend excursions to lakes, oceans — or even Ikea or Home Depot. Or how about to a local restaurant or soccer, baseball or any one of a dozen other activities with kids? No reference — at all. If we've learned absolutely nothing else over the last 100 years — it’s that American’s LOVE automobile ownership. This isn't an economic calculation — it’s just part of our DNA.
Sorry, but here at our home, we’re very comfortable shopping for essentials at the local brick‒and‒mortar stores ‒ no “disruption” required. We’re also pretty comfortable going to the local movie theater ‒ and water park ‒ and restaurant. Yes ‒ it’s convenient having purchases delivered to our home, but we’re not hunkered down staring at our computer screens with tin foil hats waiting anxiously for another “logistics” company to come skidding into our driveway with a pizza.