Uber thinking goes beyond taxis
From its beginnings in the early days of the last decade, Uber was clear about its plans for long-term disruption to the transport system - and of a willingness for self-disruption too. Keen observers recognised the company’s long-term goal was more than simply helping users ride in other people’s cars. It sought the eventual ability and role of letting those looking for travel facilities book any option within its app. It was not the only startup with a vision of a fully tech-enabled transportation future of this kind, of course.
Uber was upfront with its mission from the start in 2009 to be more than just a ride-hailing service. And it was a key part of the pitch Uber Technologies Inc. made to investors ten years later in 2019 as the company prepared for an initial public offering.
In fact, some of Uber’s new lines of business may actively dissuade people from calling one of its cars. As well as having its eyes on public transport - and the relevant revenues - it was more than happy to embrace two wheeled travel.
Uber has never denied that cannibalisation of its ride-hailing business is part of its master plan.
Just as the startup disrupted its black car service years ago by offering lower-margin UberX rides, it has wanted to help forge the next shift in transportation. Indeed, growth has been slowing in Uber’s main business, meaning its other ventures are becoming more important.
Besides investments in areas like food delivery and trucking, Uber sought a future in bikes and scooters and in 2019 purchased Jump Bikes for $200 million, although in due course, it swapped that for an investment in Lime to which it transferred the Jump business. Other companies, including competitor Lyft Inc., are also working to integrate public transit options.
“It’s part of them subscribing to a vision that in a few years there will be one or two apps through which we access all of our transportation modes,” Arun Sundararajan, a professor at New York University’s business school has said. That could mean, for example, using one app to coordinate taking a bike to the train and then a bus or car to the office, instead of just taking a car. It’s in the phase of “building mind share and changing behaviours,” Sundararajan said, “and that is frequently accompanied by losing money.”
As the company dabbles in an increasingly wide array of businesses, it’s certainly spending quickly. Uber lost $1.1 billion in the third quarter of last year alone.
But if urban mobility eventually shifts away from cars to bikes, scooters or shared transport, Uber wants to be there.
Uber’s path to diversification now seems to be firming up, as it announced a significant list of new products and features last week. These major on adding more capability to its core app and it is interesting to speculate just how important that is to its overall plan. Some digital behavioural experts believe that our current clicking habits and flows are largely locked in to the culture now, but there are arguments the other way - that we’ll start to move to the super-app formula. Uber and Hopper are all-in on the concept, but the market doesn’t seem convinced yet as just over a year ago Uber was worth $112 billion and today it’s down to $43 billion.
In its new offers, you can see Uber’s eyes focusing on new business - more specifically, the market for pre-arranged bus and coach travel.
Fifteen years ago - before the arrival of the smart phone - there were cars driving around randomly, looking for people whistling, shouting and waving: they were called taxis. Meanwhile, people round the corner were running around in traffic hoping, by chance, to stray across one of them. This situation was ripe for re-invention by harnessing digital and geolocation technology driven through the capabilities of personal mobile devices.
A significant element of the bus and coach business is the same - a poor match between supply and demand. But unlike the private cars that Uber harnessed to provide its initial offer, buses are expensive - think £300,000-£400,000 a go. Buses don’t drive around looking for passengers randomly, but a lot of the time they either travel or stand empty. If it’s a coach, the mechanics of hiring one are cumbersome. To charter one, you call somebody for a quote. They may or may not respond, and they might tell you they’ll get back to you with a price later. And even then, it will be pretty specific and inflexible, with a rate for a simple transfer, or the standard four-hour minimum hire rate, regardless of the supply or demand for the day and time you need it. It’s not exactly digital interactivity. Business analysts and investors reckon there is money being left on the table all over the place in this market. The customer should arguably be paying much less, and the bus owner should be keeping his vehicle moving all day, making twice the revenue. It’s pretty much the exact same argument as Uber Ride many years ago.
Outside observers have long expected public transport to come up with a suitable online trading platform that better matches supply and demand, and a price and the relevant service, not necessarily running on fixed routes. Uber knows a thing or two about doing that. Whilst the new capability it is offering uses the language of charters and hires, it’s not a million miles from “normal” public transport. There are many people who have regular patterns of travel to work and school - and even leisure events - who might be in the market for bespoke shared transport arrangements by new suppliers. Buses could be moving all day long - switching between groups of customers, and to carry them the driver would simply need the relevant instructions via the app on his or her phone - at least for a few more years until we don’t need drivers! Some analysts estimate that the yield from the assets would be 3x or 4x the level of today.
Uber Charter, one of the products announced this week, will include vans, mini-buses, and full-size coaches. Simply dominating the bus charter business is probably not particularly interesting to Uber, but it’s an entry point to feeding value back into their super app. They could start Uber Pool with buses, and go into urban transportation, including commuting and leisure. It’s a big agenda, but it starts to look quite interesting and reflects those early indications of the direction they have been moving in.
This is a step on a journey, which of course might not be a smooth one, although it is a bet Uber clearly wants to make. Uber is pretty reliable, but a percentage of journeys don’t go as planned.
When you’re taking 60 people to work and something goes wrong, it’s a much more high-profile service failure. But Uber - and its AI systems - will learn, so it has to start somewhere. Sidecar, Uber’s previous competitor, was moving into this space in 2015 and didn’t make it. But they only raised $37 million in funding, which is a trivial amount for Uber. Rally (Uber for buses) has also been operating a similar model to Uber Pool since around 2015.
Such business moves are almost always about timing. This latest one from Uber has significant potential implications. Might it suit the fragile current state of the UK bus industry? It’s really going to depend on how far the company wants to take it. If they continue down the path, they’ll end up with direct connections to multiple fleets, providing work for expensive assets, and systems to communicate directly with drivers. And the platform will get more efficient with every booking, as Uber gets to know lots and lots about desired travel patterns.
Uber is not quite the same company it was - it’s had major ups and downs - and dealt with commercial and political imperatives to change. The leadership is different now and as a product, Uber (car) is hard to argue with. It succeeded because it’s just clearly more available and efficient than the taxi system.
What Uber will be looking for in the collective transport market is just their 10% fee, without the need to own any vehicle assets - and it might be a well justified return for the potential they unlock.
With the right plan, Uber could dominate - and potentially develop - the shared travel market. It might be a good thing for the mobility equation and the users too - except in the eyes of those who adulate traditional route-based public transport or worry about all powerful and all-knowing tech giants getting too big for their boots. The whole regulatory and supervisory framework for public transport would need to be rethought.
Perhaps the motivation for that would be changing how customers get easier and more attractive access to non-car travel and a few million cars replaced by a few thousand buses, creating a fraction of the CO2. Uber pockets a nice fee to add to the already healthy cash flow they are predicting for the existing business going forward. If anyone is going to shake up this market, Uber might be the most likely candidate. Watch this space.