The New Uber Model: Best or Most Foolish Choice Ever?

Last week, the ‘new’ Uber CEO published their new model in which the company will start focussing on transportation methods other than cars only.

“During rush hour, it is very inefficient for a one-tonne hulk of metal to take one person 10 blocks,” he told the Financial Times in an interview. “We’re able to shape behaviour in a way that’s a win for the user. It’s a win for the city. Short-term financially, maybe it’s not a win for us, but strategically long term we think that is exactly where we want to head.” An important step and confession is made regarding Uber’s future as an “urban mobility platform”.

Across media outlets the news was received as the ‘turn’ of the Uber model. In my opinion exceptional statements, given the fact that this ambition didn’t appear out of thin air. (As was also covered in an interview with me in one of the major Dutch news outlets.)

This blog will be dedicated to a thought experiment (as I used to do in my weekly Dutch newsletter with a commercial move Deliveroo made) in which I summed up several points why this step would be the best or the most foolish choice ever. Not so in order to judge, but in order to make one or two things clear.

Why this would be the smartest choice ever for Uber:

  • The growth of taxi’s is very limited in every city: As we noticed in New York last week, it is only a matter of time until cities will limit the growth in number of cabs. In other words: The growth model has its boundaries;
  • Within cities roads are generally very busy, moving by car is in many cases not the best option;
  • Therefore it is much more interesting to offer several forms of mobility. Cars for the longer rides –in being more profitable for drivers as well– and other forms of mobility for the shorter ‘last mile’;
  • Whereas Uber is strongly dependent on (freelance) drivers in the current model, the company will have a much tighter control over supply side of the platform with shared bikes, scooters and walking bikes. (Except when everyone will trash the bikes in canalsand other waterways. ;-))
  • Currently, the Uber model is, regardless of their dominant position in many areas, particularly vulnerable. The network effect is weak (check video below). For both demand and supply, the switching costs of changing platform are extremely low. US based drivers usually rely on several at simultaneously. Altogether not the most reliable model make the step onto the stock exchange;
  • The one owning the leading app (the ‘urban mobility platform’), has a strong market position. It makes you less sensitive for competition (like Google being the platform almost everyone uses to start their searches) and with all data gathered, you should be able to create many benefits for both your client as your own organization.

Why this step could be Uber’s most foolish choice ever:

  • Despite weak network effects, Uber has built a unique brand. They control –up to a certain degree– the rides, have a launched a wonderful app, and even their turbulent past is slowly fading away. They also were the first on the market. So, why would they sacrifice their strong market position?;
  • Although Uber was the frontrunner on the taxi market, we notice many active strong players in other parts of the mobility market. Large platforms for bike sharing, shared scooters and walking bikes have some years of advantage. On top of that, these platforms have invested billions into this market. Where Uber entered a enormously fragmented and dropped off market, we now have a very different situation at hand. Which unique value can Uber offer in comparison with these platforms, which most probably have plans to expand their supply as well?;
  • The Uber taxi model is fueled by the capacity of others, which is managed by others and in which others cary the risks. The Uber driver will have to arrange for a car, make sure it is insured, tidy, well maintained, etc. That is the model which made Uber great. With this new step, the model is rigorously changed (maybe this is the biggest news about this step) to a model in which Uber will buy and manage the assets themselves. Will Uber be able to do so? Surely they have made the necessary investments in similar start-ups, but will they be able to roll out such a model globally?;
  • Although Uber’s arrival has lead to resistance in many cities, the company entered an already existing taxi market. People already ordered taxis, rules for taxis already existed (even though Uber didn’t always agree on them). To put it shortly: Uber entered an existing and reasonably stable market. The market of shared bikes, walking bikes and scooters is a entirely new market. Many cities don’t have any policy regarding these new forms of mobility and will have to start forming it in the years to come. On the other hand, users will also have to get used to it and adopt it into their ‘system’. This really is a long term project. Does Uber (and its investors) have the endurance to pull this off?;
  • This model is simply less scalable. It requires more time, human effort, adaptability and money to become successful in your own strength in a new city. Moreover, you are dependent on the legislation which still has to be written. They seem to be crazy….

When adding things up, I think Uber doesn’t have much to choose from. As the platform seemed to be the first app to combine all self-driving cars, it has meanwhile become clear that this is a too long-term scenario as well. On top of that, it has shown that this method won’t provide a solution for the growing mobility problems in our inner cities. They will have to come up with something different. Of course, there is an options for them not to invest in shared bikes, walking bikes and scooters themselves, but it is questionable if the larger parties that have joined the market are willing to offer their supply through a different platform. As this includes that they would provide a third party with their client contact and all their data. They will never do so. Actually, a model which makes participants offer their capacity to others on a central platform only works when the supply is fragmented. Something that isn’t the case in these market segments.

Will Uber be able to realize their ambitions? I don’t know. With Softbank as investor (which is taking part in almost all forms of ‘on demand urban transportation’) they might stand a chance, albeit with a heavy and interesting task to accomplish.

What we can state at this point is that almost all platforms had an overly ‘asset light’ start, but are investing more and more in owned material. Which indeed is a very interesting trend…

This post is also available in: Dutch

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