Uber’s Next Moves [part 1]
Uber has grown exponentially over the past few years, and while it is best known for becoming a multi-modal transportation juggernaut, in the process it has created one of the world’s largest last-mile delivery networks. This delivery network is one of its biggest assets, and as Uber’s IPO nears and pressure for it to turn profitable increases, this network provides Uber an avenue to evolve beyond the transportation company it started as and into a business platform. Here are some predictions of where Uber will go with this in the next few years:
- Delivery as a Service
UberEats is a natural and profitable extension from Uber’s main ride-hailing business. By itself, it is valued at around $20 billion, which is especially impressive given the tough margins in the delivery industry. But while UberEats is all about food, it has strong fundamentals that can extend well beyond the realm of takeout: it has created a system for businesses to accept and prepare orders within a specified time window, for them to hand off those orders to drivers in a well-established way, and for drivers to then deliver them using Uber’s optimized routes.
This same network and process can be applied to any number of other retail sectors. Grocery stores for instance can load their inventories into Uber’s app and allow customers to order through the app, and can have their employees package and hand off orders straight out of the store room. This would help them compete with larger chains like Whole Foods that can make deliveries through services like Amazon’s Prime Now. Many grocery stores already allow for pickups of online orders — take Walmart for instance — but Uber can provide the benefit of providing a door to door delivery service. What’s more is that for some businesses, particularly ones in dense areas where floor space is expensive, this could provide a way to decrease their store size and focus more on shipping directly from the backroom. Virtual restaurants are already a profitable phenomenon, and it wouldn’t be surprising for that model to spread to grocery stores and other types of businesses.
Granted, services like Instacart already exist that provide their own shoppers, allowing grocery stores to take advantage without having to package customer orders; but this only proves the point that there is an appetite for such services in the market. Uber can use its size and resources to become a go-to destination for shoppers who want things delivered to their homes, and given how successful UberEats already is, expanding the service to include groceries is only an incremental step that helps Uber accelerate the virtuous cycle of retaining and winning over new customers with superior offerings and convenience, and attracting more businesses to deliver on its platform because of its aggregation of customers. With the same aggressive expansion and frictionless user experience that Uber has brought to ride-sharing, Uber could meaningfully change the way shoppers get their groceries.
Supermarkets and grocery stores might be the easiest next steps, but why stop there? A hardware store like Home Depot could use Uber to send a screwdriver or a lightbulb to a new homeowner exhausted from their nth trip to the store in as many days. A trophy store could use Uber to schedule an end of season delivery for an overworked volunteer little league coach. Pharmacies could use Uber to send over the counter medicine (and with additional work and design, even prescription medication). Any business that sells any good that can be packaged and transported relatively easily can use Uber to offer door-to-door delivery, and that would make Uber an integral part of any number of businesses.
Go-Jek, one of Uber’s competitors in Indonesia, has already done quite a bit of work in this space. It has modularized its delivery business into two services that can be used not only by businesses but also by individuals: Go-Send acts as a courier service, allowing anyone to send anything (reasonably sized) through it, and Go-Box allows anyone to order a truck to make a larger delivery on a specified route, with up to 15 stops along the way. The ability to conjure up couriers for small individual deliveries and trucks for impromptu delivery routes allows any person or business to focus on crafting and preparing the things they want to send, and letting Go-Jek take away all of the pain of figuring out the delivery logistics.
Closer to home, Roadie already offers delivery as a service, and with a valuation close to half a billion dollars, customers like Delta and Walmart, and nearly 120,000 drivers, it’s a seriously viable business. But Uber has a number of large advantages. For one, Uber dwarfs its competitors in terms of the number of drivers and customers it has, with roughly 750,000 and 42 million respectively in the US alone. That gives it a significant leg up when it comes to scaling its delivery businesses, both in terms of having drivers at the ready to make deliveries as well as customers looking for convenience who it can upsell delivered goods to. The customer base is especially significant; it makes Uber an easier sell to businesses looking for a delivery partner.
Uber Freight is also a significant moat that Uber has; it gives businesses that need to haul cargo a convenient way to schedule freight trucks, not just cars. This allows Uber to service much larger operations and become a force in supply side logistics, not just last mile delivery.
Additionally, Uber has a significant technological advantage over its competitors. Its efforts to bring about self-driving vehicles could eventually drive down its own supply costs, as well as allow it to expand in other ways such as licensing out the technology to car manufacturers, for instance.
UberAir, Uber’s program to introduce transportation by electric drones by 2023, could tie in nicely as well. Dropping deliveries off at people’s doorsteps is one way it could fold into the delivery service; Amazon is toying with the idea though its Prime Air program, and the promise of drone-to-door delivery is as exciting to consumers as it is potentially game-changing logistically. But while both Amazon and Uber are still working to incorporate drones into their delivery networks, the concept isn’t a sci-fi dream in other parts of the world; Zipline for instance uses drones to deliver blood in Rwanda, and the model works well because of the lack of road infrastructure in the country. Uber’s current markets generally have decent road infrastructure, but using air transport to zip over traffic, especially once the unit economics of the fleet can be brought low enough, holds a lot of promise for building a larger moat around Uber’s delivery business.
Ultimately, Uber can provide businesses delivery as a service— any business that can package its goods in a timely and efficient manner can take advantage of Uber’s established network of drivers, as well as its established network of customers. Just like AWS removed the need for businesses to maintain and scale their own web infrastructure, Uber can do the same for delivery, by taking away the complexity of the associated operations and logistics.
Continued in part 2
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