Don’t let the price war between Uber and Lyft distract you from the ride-hailing companies’ real Kryptonite.
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By Brad Berens
There is little that is technologically defensible about Uber or Lyft. Both companies combine a handful of off-the-rack features: a smart phone app, map, GPS, credit card, and a rider/driver-matching algorithm. It would not, therefore, be difficult to clone a ride-hailing competitor.
For years, I’ve maintained that Uber the verb (“let’s uber there later”) will be with us forever. However, Uber the noun, the company, is doomed to find a corner in the elephants’ graveyard of rough-draft precursor companies (Napster, MySpace, Kozmo) that opened conceptual and behavioral space for successor industry titans (iTunes, Facebook, Amazon). The same is true of Lyft, although with its substantial GM relationship that company is more diversified and a bit less vulnerable.
Nothing about recent Uber news has changed my thinking. The company’s third-quarter revenue announcement, per The Wall Street Journal, showed that Uber’s losses “widened to $1.07 billion from $891 million in the second quarter.” The Uber Rewards program it then announced is long overdue, but since Uber will subsidize the program that only increases the company’s losses at a time where it can ill afford them.
Like the Uber Ride Pass program announced in October (a hostage scenario in which Uber holds a gun to its own head and threatens to fire unless riders subscribe to avoid surge pricing), Uber Rewards is a jazz hands exercise intended to distract the media from Uber’s never-ending string of unprofitable quarters.
What our work in the Future of Transportation Project showed is that—after almost miniscule exposure to transportation alternatives like Uber and Lyft—Americans develop surprisingly fluid ideas of how to deal with their transportation needs.
When asked if they would consider giving up having their own cars, 80% of Americans said no, which is a mere 20% consideration. However, when we zoomed in on the respondents who used Uber or Lyft or other Get-a-Ride Services (GARS) even once in a while, consideration doubled from 20% to 40%.
But a lack of loyalty towards car ownership does not therefore mean that Americans will develop new loyalty to Uber. Once Uber starts raising its prices from losing money to break even or profitability, it’s unlikely that customers will be or stay loyal to Uber no matter how many tendrils the company extends into their lives. Transportation customers are price sensitive, not loyal. Just ask the next taxi driver you speak to (if you can find one).
Nor do I think that Uber Eats or the rest of the Uber transportation ecosystem (scooters, bikes) will save the company. Uber Eats, for example, like Seamless and Grubhub, is ultimately bad for restaurants as it grinds kitchen staffs and sacrifices critical margin purchases like drinks, desserts and after-dinner cappuccinos that delivery customers won’t buy. (See this March CNN Money story from the spring for details.)
I’m not even going to talk about the lunacy of Uber’s “get me a mint julep and to the fainting couch, stat!” $120 billion proposed IPO valuation as compared to other companies (e.g. it’s worth more than all seven U.S. airlines… combined) because Scott Galloway already did it so well and so snarkily.
Instead, I want to dig into a nagging blind spot in the business models of most GARS that include both ride-hailing companies like Uber and Lyft as well as drive-yourself companies like Zipcar, Getaround, Car2Go, Fair, and more.
These are all for-profit companies that are either bound for IPOs (Uber, Lyft, Getaround, Fair) or have already been acquired by public companies (Zipcar is owned by Avis Budget; Car2Go is owned by Daimler).
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For years, I’ve maintained that Uber the verb (“let’s uber there later”) will be with us forever. However, Uber the noun, the company, is doomed to find a corner in the elephants’ graveyard of rough-draft precursor companies (Napster, MySpace, Kozmo) that opened conceptual and behavioral space for successor industry titans (iTunes, Facebook, Amazon). The same is true of Lyft, although with its substantial GM relationship that company is more diversified and a bit less vulnerable.
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Combine the ease-of-cloning I mentioned at the start of this newsletter with the need-for-profitability that GARS companies will eventually require, and the real Kryptonite for Uber, Lyft et al becomes clear: non-profit transportation companies.
At the local level, cities or municipalities might create their own subsidized GARS to offset traffic congestion or parking, and—unlike with Uber—those subsidies never have to go away.
Summit, New Jersey, already did something like this with Uber in 2016, subsidizing cheap Uber rides to and from its commuter train station in order to free up parking and avoid having to spend $10 Million on a new parking lot.
It’s a short step from a town working with Uber to rolling its own Uber clone. For municipalities that rely on parking lot revenue, capturing some of that revenue with a local GARS—rather than handing it over to Uber—would also be a benefit. And, following the marketing lead of state lotteries, local GARS could tie their revenue to schools or other services, encouraging riders to choose the local GARS rather than Uber or Lyft because “our schools win too.”
At a regional or national level, a non-profit auto insurance organization like USAA might anticipate some decline in revenue as car ownership wanes and get into the GARS business directly, perhaps also serving its target community by only hiring veterans as drivers. While USAA has to be profitable to survive, it does not require the same magnitude of profitability as a VC-backed startup like Uber.
None of this, by the way, even touches on how self-driving cars will irrevocably change transportation and put still more evolutionary pressure on car ownership.*
Local, human-driven GARS alternatives to Uber and Lyft are an immediate threat, whereas with self-driving cars the most appropriate idea comes from science fiction novelist William Gibson: “the future is already here; it’s just not very evenly distributed.”
Head-to-head, Uber-to-Lyft comparisons are easy to make and understand, but the competitive field is broader and more complex.**
* See this column by Center director Jeffrey Cole, the section on self-driving cars in the Future of Transportation report, as well as Lawrence D. Burns and Christopher Shulgan’s magnificent recent book on the subject, Autonomy.
** Note: A version of this article appeared last month in the Center’s “Collisions” newsletter.
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Brad Berens is the Center’s Chief Strategy Officer.
See all columns from the Center.
December 5, 2018