Uber Wants a Private Transport Monopoly
But its finances could derail the whole project
Uber has unveiled the latest phase of its plan to dominate transportation by adding services outside its primary ride-hailing option in certain cities. This should not come as a surprise, as Uber has been offering additional modes of transportation in its app for several years. However, while this move should be seen as another step toward exerting greater control over transportation networks, it must also be seen through the lens of Uber’s difficult financial situation, which it’s struggling to improve.
Expanding Service Offerings
The new offerings that Uber announced show its intent to add bike share, vehicle rental, and even some degree of transit ticketing to its app. Uber began a partnership with Jump, a dockless bike-share company, in San Francisco back in February, and now Uber has purchased the company and will expand the service to Washington, DC — presumably the first of many new cities that will see dockless bikes crowding its sidewalks.
It also signed partnerships with Getaround, a car-sharing company that allows people to rent their vehicles to others (a typical gig-economy model), and Masabi, which offers transit tickets in 30 cities around the world. For now, Getaround will only be available through the Uber app in San Francisco, though Masabi’s offerings will extend to a number of major US metros.
These new services should not be seen as a unique development, but an ongoing trend in Uber’s larger strategy to dominate urban transportation. The company began as a black car company, later expanding to offer its cheaper UberX service to compete with taxis. It’s since added a successful food-delivery service with UberEATS and the not-so-successful UberRUSH courier service that is scheduled to shut down in June 2018.
In an attempt to increase profitability, uberPOOL adopts some of the traits of a traditional bus by carrying multiple passengers with different stops and even has an Express POOL option where passengers can be picked up and droped at designated points — you know, what we usually call “bus stops.” Uber even went so far as to announce its ambition to begin operating buses in the United States several months after it unveiled similar plans in Egypt — which recently ran into trouble as the government looks at regulating ride-hailing companies.
Uber wants to begin operating buses in the United States, which is has already announced in Egypt
Outside the United States, Uber has also experimented with other modes of transportation suited to local needs: rickshaws in Pakistan, boats in Istanbul and Croatia, and motorcycles in Thailand, Bangladesh, India, and Indonesia. It’s also floating the idea of flying cars in the near future, but I wouldn’t hold out my hopes on that one.
The variety of services on offer demonstrate that Uber has no intention of confining itself to being a digital taxi company. Its ambitions go far beyond being the app where you conveniently hail a ride and ignore the social and urban consequences because it’s cheaper than a taxi. Uber wants to dominate transportation networks, but in order to do so, it needs to get its finances in order, and these new partnerships suggest it’s trying to do so.
Whether it will be successful, however, is a whole other question.
Uber is Losing Billions of Dollars
Uber gets treated with kid gloves in much of the tech press — and even by many mainstream outlets, if we’re being honest — which frequently parrots the company’s assurances that its financial situation is improving without looking at the figures that show the exact opposite.
Uber is a wildly unprofitable company which lost $2.8 billion in 2016 and a further $4.5 billion in 2017 — and that was after cutting an addition $2.2 billion of driver compensation. It has no clear path to profitability and has seemingly placed its bets on autonomous driving technology being ready in time to save it, even though Uber has among the worst tech in the industry, all other major companies are pushing back their timelines, and Uber is reeling from a fatal collision one of its self-driving vehicles had with a pedestrian in Tempe, Arizona. And even if all that was put aside, it’s not at all clear that driverless vehicles will save as much money as Uber seems to hope.
Uber is a wildly unprofitable company which lost $2.8 billion in 2016 and a further $4.5 billion in 2017 — and that was after cutting an addition $2.2 billion of driver compensation
In an enlightening piece, Nathaniel Horadam outlined how the current narrative around autonomous vehicles largely underestimates the increased costs associated with ongoing software development and cybersecurity efforts. The cost-savings from having software take over will also fail to materialize due to ongoing hardware upgrades that will be necessary to keep up with processing requirements and the significant energy requirements of the vehicles’ sensor arrays and onboard computers. We’ve been fed a myth that letting computers take the wheel will automatically make transportation more efficient both on the level of the vehicle and the larger network, but that isn’t necessarily the case.
It’s hard to say whether Uber recognizes the degree to which their financial situation is putting their whole business at risk. The subsidization of fares to attract customers was a great tool to get massive numbers of riders and drivers using the app in a short timespan, but with the costs of that model mounting, Uber needs to get its finances under control.
There is already evidence the company is trying to do this. It sold its operations in China to Didi Chuxing and in Russia to Yandex.Taxi — the dominant players in those markets. After SoftBank invested in Uber in early 2018, it called for the company to pull out of even more markets, which happened in March 2018 when Uber sold its Southeast Asian branch to ride-hailing giant Grab — a deal which is already running into trouble after scutiny by several governments in the region.
Uber’s partnerships with Getaround and Masabi indicate another means of bringing more revenue with minimal cost since Uber is presumably allowing its app to be little more than an interface for users to access those other services, so it doesn’t need to expend more on operating costs and is simply taking a cut of all bookings made through its app. With that said, it’s unlikely these will become wildly popular additions to the app, so it’s unlikely to bring in too much money — certainly not enough to fill its $4.5-billion hole.
Moving Toward Dominance
The bigger message to take away from Uber’s announcement is that it’s getting more serious about its desire to further expand its services, with a focus on getting a foothold in the rapidly growing dockless bike-share market that’s reaping havoc in Chinese cities and increasingly crowding the sidewalks of US metros. And there’s likely a good (financial) reason for it.
Uber’s accelerating move into more transportation modes — musing about launching buses, buying a bike-share company, and partnering with auto-rental and transit-ticketing services — certainly indicates its desire to become the private provider of transportation services, and it may be moving more aggressively in that direction because of its finances.
The hole in Uber’s balance sheet is so large that it can’t be closed with efficiency savings, self-driving vehicles, or by pulling out of a few markets
The reality is that the hole in Uber’s balance sheet is so large that it can’t be closed with efficiency savings, self-driving vehicles, or by pulling out of a few markets. In order to survive, it needs to raise fares, but it can’t do so while it has strong enough competition that its user base would simply be siphoned off by companies that don’t yet feel the same pressure to get to black.
Counter to the common narrative, Uber’s competition is not the personal automobile, but other ride-hailing companies, taxi companies, and public transit. A growing number of studies show that ride-hailing services are taking riders from public transit, in part because the number of vehicles they’ve added to city streets are making traffic congestion worse, resulting in less reliable bus services. Those studies also show that 91 percent of ride-hailing users have not made any changes to their car ownership status.
In order to survive, Uber needs more people using its app, and adding more services could help to attract more people who want a full transportation solution. But it also needs to decimate its competition so it can raise fares without risking passenger flight. Uber’s deal with Grab is in jeopardy precisely because it gives Grab a virtual monopoly over the region, which local governments recognize will not serve users well. However, that same anti-monopoly sentiment went out of style in the United States decades ago — to the detriment of average people.
Uber intends to dominate urban transportation networks through acquisition and attrition because that’s the only way it can achieve the monopoly position it needs to survive. Investor cash is running low, and the SoftBank injection should get it to a planned IPO in 2019, but that will only bring more scrutiny on Uber’s terrible financial position and will further increase the monopoly pressure.
We shouldn’t allow ourselves to be fooled: Uber’s quest for monopoly is not driven by a desire to better serve its users or lower prices, but rather by a need for power and profit — goals that do not align with a twenty-first century transportation system that’s designed with everyone in mind.
