Laura Bliss is CityLab’s West Coast bureau chief. She also writes MapLab, a biweekly newsletter about maps (subscribe here). Her work has appeared in The New York Times, The Atlantic, Sierra, GOOD, Los Angeles, and elsewhere, including in the book The Future of Transportation.
Amid PR scandals and shaky financials, some wonder if Uber’s last days are imminent. That may be wishful thinking—but cities can expect to benefit from competition moving in.
Predictions of the End of Uber are nothing new: Ever since the ride-hailing “unicorn” galloped onto the scene way back in 2009, observers have predicted its demise and questioned the sustainability of its buccaneering business model. As the company bridled at city regulations and trampled the taxi industry by slashing fares, it also earned stratospheric valuations from analysts (peaking at a claimed worth of nearly $70 billion in 2016). But reporters and economists are banging Uber’s funeral drum louder and louder after a recent series of controversies, legal setbacks, and PR mishaps.
To name a few of the most spectacular ones: In late January, a firestorm erupted over Uber’s perceived strike-breaking amidst protests against President Trump’s early immigration ban, which coined the #deleteUber hashtag (and boosted the fortunes of arch-rival Lyft). February saw a video emerge of Uber CEO Travis Kalanick’s callous treatment of an Uber driver, a gut-wrenching chronicle of widespread sexual harassment and discrimination within the company by the former engineer Susan Fowler Rigetti, and revelations of the company’s use of a potentially illegal enforcement-deceiving software.
If these weren’t enough blows against the Uber empire, there’s also the fact that the emperor might not be wearing any clothes to begin with. The company is reportedly operating on huge losses. Writes Ryan Felton on Jalopnik: “Uber is doomed because it can’t actually make money.”
Are Uber’s days numbered? If so, what will be its ultimate undoing: the elusive profits, the PR nightmares, the emboldened competitors nipping at its heels, or its failure to launch autonomous vehicles? Now that millions of urbanites have become accustomed to hailing an Uber, what would cities look like without the company in the picture?
Our conclusion: Uber probably isn’t as imperiled as some would like to believe, according to people who spend their waking hours thinking about this stuff. Whether or not the company emerges with its hefty slice of the ride-hailing pie (as much as 80 percent in the U.S.) intact is another story.
One thing seems certain: Even if Uber ends up being remembered by techno-historians as the Myspace of ride-hailing, on-demand mobility services aren’t going anywhere. Newer companies have an opportunity to capitalize on Uber’s instructive troubles and emerge better off. If cities are paying attention, people will be, too.
Aren’t those guys technically poorer than I am?
There are two key questions: Is Uber making any money, and can it in the future? Given that the company does not disclose its financial information publicly, it’s hard to say. Leaked documents obtained by Bloomberg apparently show that Uber burned through a whopping $3 billion in 2016, and roughly $2 billion in 2015. A series of posts by the aviation industry consultant Hubert Horan at Naked Capitalism (picked up by the Financial Times, and leaned on by Jalopnik’s Felton) picked away at some of that data to conclude that those losses account for subsidies. The company, Horan claimed, is covering nearly 60 percent of ride costs.
Uber seems to be banking, then, on the goodwill of its deep-pocketed investors and a reported $11 billion “war chest.” (Late-stage capitalism appears to be a battle fought on the backs of mythical beasts.) Once that (vast amount of) money runs out, “there’s little to suggest it has the bandwidth to survive,” writes Felton.
A few important things to note: Not everyone buys Horan’s accounting. Bruce Schaller, a transportation and taxi services consultant who served in senior positions with the New York City Department of Transportation, has performed extensive analysis of Uber’s performance in New York City (which obtains considerably more data on ride-hailing and taxi services than other cities in the U.S.) year over year. Average Uber fares are about 20 percent lower than traditional cab fares. Schaller says that’s probably enough to turn a profit. Like so many things, Uber trips are considerably more expensive in the Big Apple than in other cities, but Schaller wonders if lower marginal vehicle costs for drivers in less-expensive places (cheaper insurance, maintenance, parking, gas, etc.) might make up the difference. His recent report on the steady growth of Uber’s share across all transportation modes in NYC also suggests that demand for its services will only grow as time goes on (at least in that city).
That said, cheap fares (at least cheaper than taxis) fuel that demand, which Horan and others say can’t be sustained for much longer if they’re deeply subsidized in major urban markets. But there’s another way to look at this. Uber investors may know they’re in it for the long-haul: The company’s failure to earn profits in the present might not be as important to them as, say, the growth of the overall market, and Uber’s share of it. It’s hard to say what the exact size is, but one UBS estimate pegs the global ride-hailing market at $40 billion.
“That’s part of the economics of this,” notes Susan Shaheen, a shared mobility expert and the co-director of the Transportation Sustainability Research Center at UC Berkeley. It’s important not to look at this just in black and white dollars, she says: As the planet urbanizes and dependence on foreign oil proves thornier, many backers are putting money on a future far less reliant on the private automobile. That requires a longer-term outlook.
“Which companies do you invest in? Who will be part of this paradigm shift?” Shaheen asks. “A lot of people are betting on a combination of strategies.” They may be willing to look past a lack of near-term cash rewards if they believe a company is still on track to be at the center of that future world, one way or the other.
Upshot: Uber is probably not as screwed on the basis of cash-flow as you might think.
But I heard Uber wants to take over the world?
If turning profits isn’t likely in its near future, what is Uber’s game? Well, it could keep slashing prices and burning through its war chest in order to defeat all other ride-hailing and taxi services, thus entrapping all the passengers in the world in its maw, and then hike up its fares. Or it could significantly lower its fixed costs (i.e., its subsidies to drivers) so that it keeps more cash in its pocket.
For years, Uber seemed intent on pursuing the monopoly track, with its unending price war with Lyft and incentive-fueled competition for drivers. Observers figured that Uber planned to first dominate the market, then ratchet up prices. Step 3: Profit!
But that narrative may be changing. This January marked the first in years in which neither company preemptively cut fares; now both appear to be doubling down on keeping as much cash-per-ride in their coffers (rather than drivers’ pockets), with aggressive marketing of higher-efficiency “carpool” options and, apparently, cutting back on driver earning “boosts.” Single-handedly dominating the ride-hailing market seems increasingly unrealistic.
“Uber was never going to be a monopoly,” says David King, a transportation and planning policy researcher at Arizona State University who specializes in taxi services. “There is too much competition in this market for that.”
Upshot: Uber was never going to be the only game in town.
Will Uber at least get to keep all its championship rings?
The second route is to slash fixed costs but keep fares basically the same, in order to keep passengers and revenue. Uber does seem to be pursuing this, in its aggressive campaign to stuff more passengers inside high-efficiency UberPOOL rides, which are often only slightly cheaper for riders but deliver better returns to the company.
The promise of big-time future cost-cutting is likely at the heart of its investment in autonomous vehicles. Removing homo sapiens from the firm’s ledgers is a task that Kalanick has called “existential” to the company’s future. Already, Uber has begun piloting rides in self-driving cars (manned by human supervisors) in Pittsburgh, San Francisco (which ended in controversy, but Uber may be getting another shot), and now Phoenix. Once the puny humans are eliminated, the budget appears a lot easier to balance.
There’s just the non-trivial question of when Uber, or any company, will be able to get a fleet of truly self-driving cars on the road—and who will be in the most advantageous position to make that model work.
Uber has competitors, and worthy ones at that. Almost all of them are is thinking about how to automate their models down the line. Lyft, for example, has partnered with GM, which, like many automakers, is testing self-driving, share-able models. Ford, which promises to have self-driving models on roads by 2021, has also been particularly aggressive with its Chariot mini-shuttle service. Both of those companies have developed partnerships with U.S. cities to provide transit connections, a game Uber has also been playing. Then there’s Waymo, Google’s self-driving technology subsidiary, which recently partnered with Chrysler to produce share-friendly autonomous models. Google’s Waze is also expected to make an splash soon into the carpool-app world. It also seems to have announced itself as Uber’s mortal enemy with a lawsuit steaming with allegations of trade-secret theft. Though its shared-ride services haven’t been especially visible to consumers yet, the mighty Googs may prove Uber’s biggest threat to date.
Of course, barriers to self-driving cars, especially in dense, confusing city environments, are still numerous and considerable; some probably can’t be anticipated yet. But let’s say that Uber automates its vehicles faster than anyone expects and becomes the first truly all-robotic ride-hailing app to reach the market. There’s still no guarantee it’s going to stay at the top of the heap.
Except for its name recognition from city to city—which is nothing to sneeze at, admittedly—Uber has little in the way of a first-mover advantage. As it currently stands, the cost of entry is pretty low in the ride-hailing universe. Yellow cab companies are finally developing new app-based services for the on-demand crowd, and newer competitors have sprouted in niches created by the growing desire for press-a-button rides. The same stuff can happen if and when automation enters into play.
Look at what happened in Austin, Texas: When Uber and Lyft’s campaign to destroy new driver regulations failed in 2016, the ride-hailing giants stormed away in a a huff, leaving Austin as the largest market in the country without either service. New services quickly blossomed in their absence—Fasten, Fare, Wingz, GetMe, and Ride Austin, for example. These rely on essentially the same technology as the biggies, but with slightly different business models: The nonprofit Ride Austin gives a portion of every ride cost to a local charity; Wingz pick-ups are entirely pre-scheduled; the “pro-people” Fasten lets drivers keep more of the profits. As opposed to Uber and Lyft, which take between 20 and 30 percent of every fare, Fasten takes a flat cut of 99 cents. It’s served up some two million rides in Austin in less than a year, paid drivers more than $30 million, and believes it has about 60 percent of the local market.
“Our riders know and like the idea that most of our fare goes to the drivers, who deserve it,” says Kirill Evdakov, the co-founder and CEO of Fasten. That logic may help Fasten and some of the other younger players retain their riders when the big dogs come back to town, as Uber and Lyft are threatening to do; it may also help them as they expand into markets where the biggies are still dominating.
Upshot: To use a horrible phrase, there’s more than one way to skin a cat, or hail a ride. Uber doesn’t necessarily have the best model now, and it won’t necessarily have the best automated service in the land, either. So, who knows?
Will its shady business tactics affect it one bit?
Now, to return to the news. Uber’s competitors now sense weakness in the wounded titan. If it bleeds, we can kill it. Most notably, after the #deleteuber hashtag was launched some 200,000 users did just that. The outcry also seemed to encourage Kalanick to step down from his role on an advisory council to the president. Lyft briefly soared to the top of the App Store rankings, and the Wall Street Journal reported last week that Lyft has begun to seek an additional $500 million in funding from its investors. Longer-term trends may be pointing away from Uber, too, at least in some cities: Schaller's New York City research shows that although the overall ride-hailing market is growing, Uber's share is declining as new players gain steam.
Then again, as my colleague Bourree Lam reported at the Atlantic, it only took two days for Uber to regain its prominence as the top-downloaded ride-hailing app. Some users may die a little inside when they request a ride, but they’re still requesting, and seemingly more than with any other app. “People like the service and the fare is attractive,” says Schaller. "Those are the ingredients to maintain your preeminent position in the marketplace.”
This is not to say Uber hasn’t suffered real and lasting damage from these mounting scandals, which build atop years of animosity from local governments, taxi unions, and rider advocacy groups. The company’s ability to have its way, politically speaking, could be on the decline after this maelstrom: Compounded reputation issues could translate to other competitors getting a closer look from investors; it could also lead to valuable partnerships with public transit agencies and local employers going to other players, as well. “They are going to need to learn to work with everyone else in this space, and become more of a good citizen than they've been," says Schaller.
Perhaps Uber can rebuild its image. A reformed CEO could help; in his public apology after Bloomberg’s video story hit, Kalanick admitted that he needs to “grow up” as chief. Also consider that tech companies frequently trade in for new leaders in times that call for a change in strategy.
Upshot: History suggests consumers probably won’t follow through on punishing a company that offers cheap, reliable services just because their business practices are shady as hell. The public may fuss for a while, but General Motors still makes cars, even after the Corvair killed a bunch of people in the 1960s. Volkswagen watched global sales rise amid its emissions-cheating scandal in 2016; even U.S. purchases were heading up by the end of the year. Uber has been enraging people since day one—for its labor practices, its apparent disregard for law, and, oh, remember those alleged assaults by drivers? But again and again, passengers have demonstrated a willingness to look past that to get cheap ride in someone else’s nice air-conditioned car. Until that changes, or until that $11 billion stockpile finally dwindles, expect more of the same.
From Uber, on the other hand, changes in leadership and approach may be coming. Kalanick appears interested in general atonement; the company has supposedly launched an “urgent” investigation into the sexism and harassment alleged by Fowler Rigetti. And on Wednesday morning it announced it would cease the use of its law enforcement-evading software. Who knows? The company may emerge from this a better corporate citizen.
For drivers, riders, and those cities who’ve been on the losing end of so many battles with Uber, the survival of a humbled company may be a good thing, too. The ride-hailing environment is riper than ever for more competition. “Does the impact of one company diminishing foster the entry and evolution of more players?” asks Shaheen. She suggests it certainly won’t stop it.