Ride-hailing firm Uber Technologies Inc has agreed to sell its Southeast Asian business to bigger regional rival Grab, the firms said on Monday, marking the U.S. company’s second retreat from an Asian market.
The industry’s first big consolidation in Southeast Asia, home to about 640 million people, puts pressure on Indonesia’s Go-Jek, which is backed by Alphabet Inc’s (GOOGL.O) Google and China’s Tencent Holdings Ltd. A shake-up in Asia’s fiercely competitive ride-hailing industry became likely earlier this year when Japan-based SoftBank Group Corp’s (9984.T) Vision Fund made a multi-billion dollar investment in Uber.
“It was really a very independent decision by both companies,” Grab President Ming Maa told Reuters, adding that SoftBank CEO Masayoshi Son was “highly supportive”.
Uber will take a 27.5 percent stake in Singapore-based Grab and Uber CEO Dara Khosrowshahi will join Grab’s board. Grab was last valued at an estimated $6 billion.
“It will help us double down on our plans for growth as we invest heavily in our products and technology,” Khosrowshahi said in a statement.
For Grab, the deal will help its meal-delivery service, which will now merge with Uber Eats, compete with Go-Jek, according to a person close to Grab. Go-Jek is a dominant player in Indonesia, the region’s biggest economy, and has rapidly expanded beyond ride hailing to digital payments, food delivery, on-demand cleaning and massage.
“Go-Jek is such a different app, with different behaviors, it is something I can’t see Grab competing with well in Indonesia for a long time, like at least a year,” said Vinnie Lauria, partner at Southeast Asia’s Golden Gate Ventures.
Ride-hailing companies throughout Asia have relied heavily on discounts and promotions, driving down profit margins and increasing pressure for consolidation. Uber, which is preparing for a potential initial public offering in 2019, lost $4.5 billion last year and is facing fierce competition as well as a regulatory crackdown in Europe. Uber invested $700 million in its Southeast Asia business, less than the $2 billion it burned through in China before ceding its operations there to Didi.
Uber anticipated making more deals with rivals, but said it had no plans to do another sale in which it consolidates its operations in exchange for a minority stake in a rival.
“It is fair to ask whether consolidation is now the strategy of the day, given this is the third deal of its kind ... The answer is no,” Khosrowshahi said in a note to employees that was shared with Reuters.
“One of the potential dangers of our global strategy is that we take on too many battles across too many fronts and with too many competitors.”
A source familiar with Uber’s strategy said the company was going to step up its battle with Ola in India, another competitive and costly market where rivals have heavily subsidized rides in an effort to gain market share. Uber has close to 60 percent of the market there, by some estimates.
India accounts for more than 10 percent of Uber’s trips globally, but the company is not making money there yet.
“Southeast Asia was really difficult for Uber. In India, that competition is not across so many different fronts,” Lauria said.
Uber previously retreated from China and Russia under former CEO Travis Kalanick. The deal with Grab is the first operations sale by Khosrowshahi, who started in September. Rajeev Misra, chief executive of SoftBank’s Vision Fund, had urged the company to focus less on Asia and more on profitable markets such as Latin America, according to a person familiar with the matter.
He saw opportunities for mergers and joint ventures between SoftBank-backed ride-hailing companies, particularly for collaborating on R&D, but the investor would never get actively involved with management decisions, the person said. SoftBank is also one of the main investors in other ride-hailing firms including China’s Didi Chuxing and India’s Ola.
Uber includes the United States, Australia, New Zealand and Latin America among its core markets – regions where it has more than 50 percent market share and is profitable or sees a path to profitability.
A Grab spokeswoman said all Uber employees in its Southeast Asia operations would be offered employment in Grab.
Uber Technologies Inc should be classified as a transport service and regulated like other taxi operators, the European Union's top court said in a landmark ruling on Wednesday that could impact other online businesses in Europe.
Uber, which allows passengers to summon a ride through an app on their smartphones, has transformed the taxi industry since its launch in 2011 and now operates in more than 600 cities globally. In the latest of a series of legal battles, Uber had argued it was simply a digital app that acted as an intermediary between drivers and customers looking for a ride and so should fall under lighter EU rules for online services.
"The service provided by Uber connecting individuals with non-professional drivers is covered by services in the field of transport," the European Court of Justice (ECJ) said. "Member states can, therefore, regulate the conditions for providing that service," it said.
The case follows a complaint from a professional taxi drivers' association in Barcelona that Uber's activities in Spain amounted to misleading practices and unfair competition from Uber's use of non-professional drivers - a service Uber calls UberPOP and which has since been suspended in Spain and other countries.
Uber has taken the fight to regulators and established taxi and cab companies, expanding from a Silicon Valley startup to a business with a valuation of $68 billion. The company is planning an initial public offering in 2019.
The European case had been widely watched as an indicator of how the burgeoning gig economy, which also features the likes of food-delivery company Deliveroo, would be regulated in Europe. The ECJ said Uber "exercises decisive influence over the conditions under which the drivers provide their service" and that without the Uber mobile app "persons who wish to make an urban journey would not use the services provided by those drivers."
The decision is unlikely to have an immediate impact on Uber's operations in Europe, where it has cut back its use of unlicensed services such as UberPOP and adheres to local transportation laws.
"This ruling will not change things in most EU countries where we already operate under transportation law," an Uber spokeswoman said in a statement. "As our new CEO has said, it is appropriate to regulate services such as Uber and so we will continue the dialogue with cities across Europe. This is the approach we'll take to ensure everyone can get a reliable ride at the tap of a button."
Following changes in top leadership and a series of legal battles, Uber recently adopted a more conciliatory approach under its new chief executive, Dara Khosrowshahi, who took the job in August.
In a tweet Wednesday, Khosrowshahi said that the ruling was "not a setback, since we've already changed our approach in the EU to follow transportation laws and work with professional drivers."
He said Uber will "keep talking with EU governments to enable affordable transportation services for millions more Europeans." Khosrowshahi in October met with regulators in London, where Uber is in the middle of a legal battle over its right to operate in its most important European market. Bernardine Adkins, head of EU, trade and competition law at Gowling WLG, said the ruling provided "vital clarity to its (Uber's) position within the marketplace."
"Uber's control over its drivers, its ability to set prices and the fact its electronic service is inseparable from its ultimate consumer experience means it is more than simply a platform connecting drivers to passengers."
TAXI LOBBY CHEERS
IRU, the world road transport organisation, which includes taxi associations, cheered the ruling as finally offering a level playing field for providers of the same service.
"In the area of mobility, the taxi and for-hire sector was one of the first to embrace innovation and new technologies," said Oleg Kamberski, head of passenger transport at IRU. "Finding a solution that allows both traditional and new transport service providers to compete in a fair way while meeting the service quality standards became necessary."
EU law protects online services from undue restrictions and national governments must notify the European Commission of any measures regulating them so it can ensure they are not discriminatory or disproportionate.
Transport, however, is excluded from this. The tech industry said the ruling would impact the next generation of startups more than Uber itself.
"We regret the judgment effectively threatens the application of harmonized EU rules to online intermediaries," said Jakob Kucharczyk, vice president of competition and EU regulatory policy at the Computer and Communications Industry Association. "The purpose of those rules is to make sure online innovators can achieve greater scalability and competitiveness in the EU, unfettered from undue national restrictions," he added.
"This is a blow to the EU's ambition of building an integrated digital single market."
Creative Media Works, operating as BBM Messenger, has partnered with Uber, the world's largest on-demand ride-sharing company, to launch the Uber ride-on-demand service within BBM Messenger. Users around the world will have access to this new service, including Indonesia - BBM’s largest market - Africa, Asia, Europe, North America, and the Middle East.
The tie-up between two of the world’s leading technology platforms means that BBM Messenger users – both Android and iOS - can book an Uber ride via the Uber icon in the BBM Discover menu, without leaving the BBM app or having to have the stand-alone Uber app on their phone.
BBM Discover is a high-valued space within BBM Messenger, designed for high impact and reach while giving partners access to the power of social chat. Uber Ride sits as an icon within BBM Discover’s existing ecosystem of content and services.
When launched from the Discover menu, the new Uber service asks riders to sign in with their mobile number or connect with a social media account. Once riders log in, the service accesses their profile and settings, automatically detects their location, and loads a map. Riders simply enter their destination, tap the Request Uber button as well as payment option, and wait for their ride to arrive.
Chan Park, General Manager, South East Asia, Uber, says: “Millions of people around the world use BBM Messenger to stay in touch. This partnership means they will now be able to request an Uber from within the BBM ecosystem. A safe, reliable and affordable ride is now at the fingertips of even more people.”
“We are excited to be working with BBM Messenger - our first partner in Asia Pacific to use the m.uber platform to request an Uber ride for their users without ever having to leave the BBM app. With this partnership, BBM users can quickly request an Uber ride via BBM despite variations in quality of location, network speed, or device features.”
Chan added that the collaboration enables millions of BBM users globally to access safe, reliable transportation at the push of a button - whenever and wherever they are.
Compatible with all modern browsers, m.uber is a web client for the global market that offers an app-like experience regardless of location, network speed, and device.
“Uber has grown to play such a key role in so many parts of the world today. We’re happy to connect our millions of active users with the service, giving them an easy and reliable transportation option at their fingertips within the BBM eco-system,” said Matthew Talbot, CEO of Creative Media Works, the company which operates and runs BBM globally.
An Uber driver Abdoulie Jagne, has been arrested in Georgia, U.S., after he was accused of raping a 16-year-old female passenger earlier in the week. The 58-year-old Jagne, who was arrested on Thursday, was booked into the Gwinnett County Jail in north central Georgia.
Authorities told Fox 5 Atlanta that Jagne could face more charges. The teen told police she had been drinking at a bar with friends on Sunday night, WSB-TV Atlanta reported.
One of the girl’s friends then called an Uber ride for her, and that’s when Jagne picked her up, authorities told the station. The driver allegedly committed the crime after stopping the vehicle along an unincorporated road. The girl told police she was dropped off at a nearby apartment complex, where she started banging on several doors, seeking help.
Police found the teen to be intoxicated, with her pants around her ankles, Fox 5 Atlanta reported. She was transported to a nearby hospital for treatment. Uber officials told the paper that Jagne had worked for the company for a couple of months. They released the following statement. “What’s reported here is horrifying beyond words. Our thoughts are with the rider and her family during this time. This driver has been permanently removed from the app.”
Three senior managers in Uber Technologies Inc's security unit resigned on Friday, an Uber spokesperson said, days after the company's new chief executive officer disclosed a massive data breach and criticized past security practices.
Uber's CEO, Dara Khosrowshahi, who was installed in the top job in August, disclosed the data breach last month shortly after learning of it himself, saying that "none of this should have happened." Uber's security practices are also under scrutiny in a high-stakes legal battle with self-driving car company Waymo, an Alphabet Inc subsidiary.
Uber last week said it fired its chief security officer, Joe Sullivan, over his role in the 2016 data breach, which compromised data belonging to 57 million customers and about 600,000 drivers. The resignations Friday came amid mounting frustration within Uber's security team over Sullivan's dismissal and the company's handling of the public disclosure of the breach.
The three managers who resigned were Pooja Ashok, chief of staff for Sullivan; Prithvi Rai, a senior security engineer and the number two manager in the department; and Jeff Jones, who handled physical security, the Uber spokesperson said. Ashok and Jones will remain at the company until January to assist in transition, the spokesperson said.
A fourth individual, Uber's head of Global Threat Operations, Mat Henley, began a three-month medical leave, said a separate source familiar with the situation. The departures include most of Sullivan's direct reports.
None of the four immediately responded to requests for comment. Emails in connection with the departures, described by the separate source, complained of emotional and physical strain from the past year.
Sullivan in August told Reuters that his security team totaled around 500 employees.
Leadership in the unit has been in turmoil since the termination last week of Sullivan and a deputy, as well as Uber's admission that it paid $100,000 to hackers to delete stolen data from the October 2016 breach and keep it secret, while failing to report the incident to regulators or warn customers that their phone numbers and other data had been exposed.
In the Waymo case, testimony at a pretrial hearing this week focused on claims by former employee Richard Jacobs that Uber had a special unit within its security team that tried to obtain programming code and other trade secrets from rivals.
Uber launched an investigation in response to Jacobs' claims, which were outlined in a 37-page letter sent to Uber's in-house attorney and the U.S. Department of Justice. Board members received a report before Thanksgiving on the findings of that investigation, run by law firm WilmerHale. The report has not been shared publicly.
Henley, who was among the Uber security managers named in Jacobs' letter, said in court Wednesday that the unit at Uber that Jacobs had accused of acquiring rivals' trade secrets no longer exists.
In addition to having a technical team dedicated to obtaining data from competitors, Uber also had a "human intelligence" team to spy on people and record their conversations without them knowing, according to testimony in the Waymo case. In one instance, a security vendor hired by Uber recorded a conversation between executives of rival ride-hailing firms Didi and Grab, Nicholas Gicinto, a security manager at Uber, testified in court Wednesday.
Uber's general counsel, Tony West, on Wednesday sent a note to employees, which was seen by Reuters, saying that human surveillance of individuals would no longer be tolerated. West said he did not believe the activity was illegal, "but, to be crystal clear, to the extent anyone is working on any kind of competitive intelligence project that involves the surveillance of individuals, stop it now."
Uber Technologies Inc. agreed to buy 24,000 sport utility vehicles from Sweden’s Volvo Cars to form a fleet of driverless autos.
The XC90s, priced from $46,900 at U.S. dealers, will be delivered between 2019 and 2021 in the first commercial purchase by a ride-hailing provider, Volvo said in a statement Monday. San Francisco-based Uber will add its own sensors and software to permit pilot-less driving.
Uber’s order steps up efforts to replace human drivers, the biggest cost in its on-demand taxi service. The company has agreed to use 100 XC90s for self-driving tests in Pittsburgh, while also striking a deal to include autonomous vehicles from Daimler AG’s Mercedes-Benz in its network at some point.
“This new agreement puts us on a path toward mass-produced, self-driving vehicles at scale,” Jeff Miller, Uber’s head of auto alliances, told Bloomberg News. “The more people working on the problem, we’ll get there faster and with better, safer, more reliable systems.”
For carmakers, news of Uber buying vehicles at a commercial level means potential new sales, but also looming disruption to a business model that sees autos largely sold to private owners. Uber’s $70 billion valuation already puts the group almost on a par with Germany’s Daimler.
The deal will boost sales at Volvo and should also help lower the cost of the Chinese-controlled group’s own fully-autonomous cars planned from 2021. Volvo engineers have been working closely with Uber to develop a base vehicle with core driverless technology that the ride-hailing company can then augment. Volvo plans to use those cars for its own future offering.
“The automotive industry is being disrupted by technology and Volvo Cars chooses to be an active part of that disruption,” Chief Executive Officer Hakan Samuelsson said. “It’s a new market that’s emerging and we’re the first to be delivering into that segment.”
Ride-hailing service Uber Technologies Inc. is growing rapidly in sub-Saharan Africa and considering moves into more markets, despite sometimes violent opposition from metered taxi drivers, a senior executive said on Tuesday.
Uber's service has triggered protests by rivals from London to New Delhi as it up-ends traditional business models that require professional drivers to pay steep licensing fees to do business.
"We are bullish on Africa. The growth here is still substantial and we think that given the right regulatory environment, the growth could be even better," Justin Spratt, head of business development for the sub-Saharan region, told Reuters.
"Africa's growth thus far has been faster than America and a large part of that is because there is such deficiency in public transport ... that talks to the latent need, the pent-up demand for citizens to travel more within cities," he added.
Spratt said Uber was talking to governments, regulatory authorities and metered taxi associations across the continent to address grievances that have seen some of its contract drivers attacked from Kenya to South Africa.
"We realize that we need to work with cities and the regulatory framework to help build out ride-sharing regulation," he said on the sidelines of an African telecommunications conference.
Uber, which operates in Nigeria, Kenya, Ghana, Tanzania, Uganda and South Africa, has around 15 million drivers globally and is struggling to meet demand in Africa for drivers to become contractors, Spratt said.
The service, which launched in sub-Saharan Africa in 2013, is looking to new markets in Senegal, Ivory Coast, Mauritius and the wider southern African region, but has not yet taken a decision on where it will go next, he said.
Uber has announced the appointment of Lola Kassim as its new General Manager for West Africa.
Lola worked as a Management Consultant with McKinsey and Company where she led teams providing strategic business advice and implementing organizational and operational improvements in the energy, public, and financial services sectors in West and Southern Africa.
A seasoned professional with over 10 years of global experience working at senior private sector and government levels in Africa and Canada, Lola will be responsible for driving Uber’s overall strategy for West Africa, which includes improving reliability and service levels for uberX and creating additional value adds for driver-partners.
“I am immensely pleased to be joining Uber at a pivotal point in the company’s growth and expansion curve. My vision for West Africa, in particular, is to ensure that we are aligned with Uber’s overall objective of creating sustainable, alternative modes of mobility. In addition to creating value for driver-partners and riders, I will also be focused on ensuring that we continue to engage with our key stakeholders and relevant partners with a view to continued positive impact across West Africa.”
Speaking on Lola’s appointment, Alon Lits, General Manager Sub-Saharan Africa, Uber said: “As a company that is deeply committed to diversity and inclusiveness, we are excited to have Lola join the team of other incredible women at Uber – who are pushing the envelope towards achieving the global vision of creating value for riders and driver-partners alike. In West Africa, Lola will be supported by a highly skilled and enthusiastic team covering Operations, Marketing, Communications, Legal and Policy. As we often say at Uber, we are #superpumped.”
Prior to joining Uber, Lola spent 3.5 years as a Management Consultant at McKinsey and Company. She also worked as a Governance Advisor with the Liberian Presidency through the
Africa Governance Initiative, supporting a unit driving delivery of Presidential infrastructure priorities. She began her career with the Canadian government where she served as Policy Advisor to senior officials and managed units developing policy, strategy, and business cases regarding socio-economic development programming for Canada’s Aboriginal communities and foreign policy.
A Nigerian-Canadian, Lola holds a Bachelor’s degree from Harvard University and an MSc from the London School of Economics where she was a Chevening Scholar.
Every day there’s more news about the inevitable arrival of autonomous vehicles. At the same time, more people are using ride-hailing and ride-sharing apps, and the percentage of teens getting their driver’s license continues to decline.
Given these technologies and social changes, it’s worth asking: Should Americans stop owning cars?
We’ve conducted an analysis of the all-in cost of car ownership, and we found that mobility services such as ride-hailing and ride-sharing apps – which few people today would consider their main mode of transportation – will likely provide a compelling economic option for a significant portion of Americans. In fact, if the full cost of ownership is accounted for, we found that potentially one-quarter of the entire U.S. driving population might be better off using ride services versus owning a car.
From dream to brutal reality
America’s love affair with the car and individual car ownership took off after World War II, aided by inexpensive fuel, a rising consumer class and a vast national network of highways. A new generation of young professionals moved away from the urban core to the suburbs and abandoned mass transit for transportation enabled by personal car ownership.
This shift transformed the modern American landscape, triggered a new approach to city planning and enabled urban sprawl. Cities that blossomed before WWII – New York and Boston, for example – already had and continue to use their mass transit systems. By contrast, cities whose growth mostly occurred in a post-war boom like Los Angeles, Atlanta, Houston and Denver were built and effectively designed around car ownership. It’s still typical for an American family to buy a house that has a large garage to store cars.
But for many people, the 1950s concept of driving as an expression of personal liberty has been replaced by the brutal reality that driving is often a tedious chore. With an average price of US$35,000 apiece in the U.S., cars are used about 4 percent of the time, during which drivers are often subjected to congested traffic.
On its face, spending so much money for an appliance that starts losing value immediately, takes up vast amount of our free time and is rarely used seems ridiculous. Is it time to consider a whole new approach to personal transportation?
To answer this question, we built a comprehensive calculator that includes the costs of car ownership and compares it with an alternative of using mobility services, such as ride-hailing and ride-sharing apps, full-time to replace personal car ownership. The results might surprise you.
The costs of traditional car ownership go far beyond the price tag: There is also interest paid on car loans, insurance, taxes, fuel and maintenance. Some expenses are non-obvious, such as parking, property taxes and construction costs for home garages, and the value of our time.
The value of an individual’s time – that is, the dollars per hour you would assign to the time you spend driving – is one of the most important factors in our calculations.
The average American spends 335 hours annually behind the wheel driving over 13,000 miles. Add in the hours we spend maintaining, cleaning and managing our cars, and it becomes clear that America’s focus on personal car ownership is costing us a significant amount of time, arguably our most precious asset.
How much would you pay to avoid the stress of driving around town? How much would you pay to use that time more efficiently, such as catching up on email, reading a book or taking a nap? What if you could do work-related tasks while riding? Some professions are more suited to using time riding in a productive way: It’s probably easier for a lawyer to clock billable hours while riding to work than a plumber, for example.
When these costs are included, mobility services might be the economically preferable option. To be clear, this analysis is focused on full replacement of personal car ownership in which an individual would shift to using ride services for all trips, rather than purchase a new vehicle.
The decision for owning a vehicle or using mobility services is unique to every individual. If you purchase a highly efficient vehicle for less than $25,000 and drive it more than 15,000 miles per year until it falls apart, then you should definitely own a car if your goal is to save money.
But, if you drive less than 10,000 miles per year, face long waits in traffic, or place a high value on your time that would otherwise be spent driving, our calculations show that mobility services might be the cheaper option. Geography can also play a role – it’s not a coincidence that there have historically been so many taxi cabs in New York City, where the high cost of parking and slow pace of traffic consume time and money.
Outpricing human drivers
The rise of autonomous vehicles used for carpooling and ride-sharing services could make mobility services even more compelling, particularly when you consider the economics from the service provider’s perspective.
Assume for a moment that you operate a fleet of vehicles that provide mobility services. Let’s also assume you can purchase the vehicles in bulk for $20,000 apiece and that they will operate full-time for five years (the average age of a New York City taxi was 3.6 years in 2015). The median annual pay for a taxi driver is approximately $25,000. This means that it will cost you $145,000 to purchase the car and pay a driver over five years of operations (ignoring fuel, maintenance, registration and other miscellaneous operating expenses).
Using common accounting practices, we calculated that if you could buy an autonomous vehicle for less than $114,000, a service provider would be better off never hiring a driver.
For the average customer, a price tag of $114,000 is unimaginably high for a car. But, for a company like Uber that might someday operate a fleet of autonomous vehicles, a price tag north of $100,000 might look like gold when compared with paying drivers, a major contributor to operating cost.
As the price for autonomous vehicles goes down, the cost of delivering ride services goes lower. That means more consumers are more likely to use them, expanding the overall market.
Uber, Alphabet and many of the automotive companies understand this. It’s one of many reasons why there is an epic race to capture market share and eventually be the first to deliver fully autonomous vehicles.
On the other hand, if the price of autonomous vehicles falls far enough, maybe individuals will buy their own and recapture the time they currently spend driving themselves, obviating some of the value of mobility services.
But, another question remains: Do Americans really want to give up their cars? Even if mobility services with carpooling and automation are a less expensive choice, the service might still not be adopted quickly since people purchase cars for many reasons beyond simply price (for example, they buy cars for convenience, status, fun, identity and so forth).
For many decades, the car has been a critical part of the American culture, often used as a tool to flaunt wealth and showcase the unique personalities of the drivers. Will Americans want to ride in cookie-cutter cars that are part of a larger automated fleet? Will they trade off the idea of car ownership as an extension of identity to gain back some of their free time?
Some trends do appear to be working in favor of increased use of mobility services. As the United States, and the world more broadly, continues to adopt ever greater levels of digital communication, more people will be able to complete work while on the go. And, the movement toward cities during the past decades has resulted in denser urban centers, increasing traffic congestion and making the case for alternatives to traditional car ownership.
Even changes in how different generations consume goods and services might be playing a role. Millennials have shown tepid interest in following in the footsteps of prior generations when it comes to car ownership. It will be interesting to observe whether Generation Y shows more desire for cars as they begin to enter parenthood and push toward suburbs in pursuit of affordable housing.
How the transition will play out is still unclear. If we were to postulate, it seems the most likely outcome is that the future transportation system will be a mix of personal car ownership and mobility services, using both systems as complementary. If more people use carpooling services in particular, these complementary systems of personal car ownership, mobility services and public transportation might make our roads and cities cleaner, faster and more affordable.
In addition to common mobility services today, Uber and Lyft might soon be joined in force by microtransit operators, like Ford’s Chariot shuttle service.
As mobility services become more mature, we will likely see new solutions emerge to make it even more convenient to meet specific needs, such as transporting youths, the elderly or disabled people, and even assist in disaster recovery efforts. The increased level of service could create a virtuous cycle that reinforces the value of mobility services, producing greater adoption, which further lowers costs and leads to even greater adoption. When it’s all said and done, the ease and economic benefits mean that the transition to mobility services might take place faster than we think.
Researcher Zhenhong Lin, Ph.D., from the Oak Ridge National Laboratory contributed to the research in this article. Gordon Tsai of the University of Texas also contributed.
F. Todd Davidson, Research Associate, Energy Institute, University of Texas at Austin and Michael E. Webber, Professor of Mechanical Engineering and Deputy Director of the Energy Institute, University of Texas at Austin
Following TfL’s decision to withdraw Uber’s license to operate in London, there has been a widespread picking over of the ride-hailing app’s recent history – and speculation about its future. A fairly common conclusion is that Uber needs to become more ethical if it is to survive.
I want to suggest that this may not be possible. After the calamitous year Uber has had, it should not be difficult for the company to improve its reputation – simply by avoiding many of the unnecessary embarrassments heaped upon itself in 2017. However, merely improving its PR will not get Uber out of the hole it has now dug for itself. It is looking as though, in many territories such as London, Uber’s survival will rely on concrete measures to better care for both its drivers and customers.
Herein lies the problem. It is not that Uber is incapable of such ethical measures. But for this company specifically, the additional cost that is required to look after drivers and customers is likely to be too great. It all comes down to the economic model on which Uber is built.
There is a great tendency among commentators to focus on the capabilities of Uber’s app, when making sense of its explosive growth across the world. This is a mistake. Figuring that Uber’s app explains its growth is like putting the birthday cake’s appeal down to the candle on top. The engine of Uber’s growth to date has been the US$11.5 billion it has raised from banks and investors. The company has never made a profit, and in 2016 alone lost nearly US$3 billion.
These are staggering amounts, and to make sense of them we need to understand that Uber’s business model is the same as Amazon’s. Amazon became the largest online retailer on the planet by burning through huge sums of investment on the way to becoming dominant in an ever-increasing number of sectors, and a de facto monopoly in some such as books.
Now Amazon is able to use its position to generate the vast profits expected by those that funded its expansion. Effectively, what both companies surely rely on is investors subsidising the prices customers pay in the short term, in return for a long-term monopoly with higher prices.
In reaching this point, Amazon has itself received plenty of criticism, particularly around its tax arrangements and working conditions in its Orwellian “fulfilment centres” (warehouse to you and me). But Amazon has benefited, throughout its growth, from a trump card: its use of a virtual shopfront makes its overheads significantly lower than bricks-and-mortar rivals.
Uber’s fundamental problem is that it does not have this advantage. In his comprehensive critique of Uber, transport expert Hubert Horan made a key observation about the taxi business, which separates it from retail. While shops have used economies of scale to operate first nationally, then internationally, for over a century, taxi companies have remained highly localised. The reason for this, argued Horan, is that the economies of scale are not there for the taking in this market. Some 85% of taxi company costs are drivers, cars and fuel, and this applies whether you cover one city or a dozen.
Not only does Uber not avoid these costs, its model actually introduces new ones. Most dramatically, the costs of becoming established in new markets is vast. This, particularly the artificial subsidising of passenger fees/driver wages to drive growth, is the source of the US$3 billion net loss last year. Ultimately – whether in the form of debt or equity – these sums will have to be paid back, and then some.
Eventually, this additional cost will be felt. Either the driver has to bear it, and so is motivated to look to rival employers, or the customer does, with the same outcome. Uber’s hope must be that when it gets to this stage there will be no alternatives left to chose from.
So can Uber afford to become ethical? Its growth to date has been so costly that even after the raft of regulations it has managed to sidestep, and measures forcing down the income of its drivers, it is losing billions every year. In a properly regulated market, in which Uber has to give its drivers appropriate employment protections, and passengers the safeguards they need, its goal of apparently aping Amazon becomes even harder.
If Uber can achieve market dominance before it runs out of funding, the inefficiencies in its model cease to matter. Society will simply have to carry the cost of higher fares and lower driver wages.
If it fails to achieve near monopoly status and has to continue to compete against local firms, in my view it has little hope of ever repaying its investors. For customers that travel to different cities frequently, Uber’s scale gives them a clear edge. For everyone else, is an app slightly shinier than its competitors’ clones enough to outweigh the higher fares that should come with Uber’s model?
Should Uber ultimately fail, it would open up the possibility of a taxi company fit for the 21st century. One that harnesses the possibilities of digital technologies not to enrich venture capital, but drivers themselves, in the form of cooperatives like the one currently developing in the absence of Uber in Austin, Texas.
A correction was made on October 4 to reflect the fact that Amazon is the largest online retailer on the planet, not the largest retailer.