Uber making further push toward becoming a multi-modal MaaS company
Company seeks to find sustainable footing as it prepares for a 2019 IPO
TL;DR
- With increasing competition in the on-demand economy, ride sharing is becoming commoditized
- Uber and Lyft are bleeding cash in driver and rider incentives
- Uber has been exploring ways to diversify its revenue streams in areas like Uber Eats and bike sharing
- Now, after years of squabbles with regulators, the company has been partnering with city transit providers to create a larger transportation offering
$0.02
Uber’s CEO Dara Khosrowshahi has said that, within a decade from now, ride sharing will be less than 50% of Uber’s business. The company has realized that, in the larger pursuit of disrupting transportation, it will need to rely less on the service that’s helped it achieve hyper growth.
Let’s first look at what Uber touts for most public disputes: the fact that Uber reduces congestion in busy cities. There are mixed reports around this claim. While it may be true that the uptake in ride sharing may dissuade a person to buy or rent a car of their own, it’s also created a growing network of driver partners that have bought or rented cars to become Uber drivers. The net effect is currently unclear but it would be in Uber’s best interest to have more cars on the road to increase supply and accommodate varying levels of demand on its app. In order to practice what it preaches from a social disruption perspective, the company would need to look to other forms of transportation.
In fact, it would also be in the company’s best interests because most analysts’ primary concern for Uber ahead of its IPO is its ballooning costs. According to an excellent deep-dive analysis by CB Insights, in Uber’s aggressive global expansion, it has paid out exorbitant amounts in driver incentives and promotions, coupled with mass marketing. However, driver churn is extremely high so these costs are recurring and growing. Only about 20% of drivers remain on Uber’s platform after one year, The Information has reported — equivalent to about 12.5% monthly churn. On top of this, more competition is forcing Uber to drive down prices and / or pay for time-boxed promotions to persuade users to remain on the app. This effect is causing outrage amongst the driver community, which has been earning so little money that some regions have instituted a mandatory minimum wage.
Toward the future, how can Uber stave off these costs? One opinion is to invest heavily into autonomous vehicles. By eliminating driver costs, Uber can have a 24/7 fleet available for its service. However, since the company’s primary current advantage is leveraging drivers as contractors, rather than full-time employees, autonomous vehicles would require the company to possibly own its own fleet, which would be concerning for its balance sheet. Perhaps vehicle manufacturers would develop a subscription or rental model for Uber to leverage? This is yet to be explored. Another concern is that tech giants like Google and Baidu are concurrently working on driverless car technology. And they have far more engineering horsepower to do this more quickly and effectively. And further down the road, these companies may choose to license out driverless technology of their own to fight Uber.
This brings us to Mobility as a Service (MaaS). Uber’s long-term strategy is to create a multi-modal transportation network. It wants you to input your starting point and destination, and then it will help you get there, across a variety of methods. We’ve seen this kick off with the company’s acquisition of JUMP to leverage the company’s scooter and bike fleet. And we’re also seeing the company partner with more cities to integrate buses and trains into its platform.
The way I envision it to look is across three options: price, convenience / effort and time.
- Price — if you’re looking to get from city A to B in the cheapest way possible. The app will tell you to get onto a cheap scooter that’s outside of your condo and take it to the station. You then board a bus with a ticket that’s already been paid for and when you arrive in city B, you hop on a bike and head to the destination. Likely to be the cheapest option.
- Convenience — you want to get from city A to B with minimal effort. A car picks you up from your front door and gets you to the door of your destination. The most expensive option.
- Time — a balance of the two previous options. You have two hours to get from A to B and would prefer to have some moderate savings. You take a bike from your front door to the station since it’s surge pricing for cars at the moment. You take a train between cities. And then you take a relatively cheaper Uber to complete the last mile.
Uber differentiates itself here by leveraging a full network of vehicles and people in one convenient platform. Its payment system will help modernize public infrastructure; its use of more public transit and cheaper vehicle-alternatives will reduce car congestion; its security and transparency will help improve safety; and its convenience will help people get between places more effectively and efficiently.
But the company has a long way to go until this materializes. And it’s likely going to make a lot more enemies along the way.
