A lot of ink has been used writing about Uber, the ride-sharing program that has swept the U.S. It seems that everyone has to comment on whether it’s going to work and if the valuation is actually justified.
Neil Irwin wrote for The New York Times that one question is whether Uber can actually capitalize on the hype:
Most of the headlines about Uber, the rapidly growing transportation service, involve its battles to do business in more cities around the world. Not surprisingly, cabdrivers who have enjoyed being part of tightly regulated cartels in cities like Madrid, Miami, London and Los Angeles do not much care for the San Francisco-based upstart that brings them new competition.
But whether Uber will ultimately become the kind of wildly profitable company that will justify the valuation of $18.2 billion reportedly assigned to it by its latest funding round doesn’t come down to those regulatory battles. If the recent past is a guide, it will eventually win them.
The question for Uber as a business boils down to two words: network effects. That’s the concept in which users of a service benefit from the fact that everybody else uses the service as well. It isn’t much use being the only person to own a fax machine, or the only person to show up at a stock exchange. Things like these become more valuable the more widely they are embraced. Network effects are the key to the wild profitability of a firm like Microsoft; Windows and Office are hard to displace, even if a competitor offers a better, cheaper product, because Microsoft products are entrenched as an industry standard.
And when one company controls a market with strong network effects, it can be one of the few sustainable ways to generate huge profits, holding on to customers and fending off competitors. The billion-dollar question is whether Uber’s model for offering transportation services has some of the same network effects as those of great information industry monopolies (Microsoft, Google), or is more like, say, the travel website business, a brutally competitive industry of middlemen.
NPR pointed out in a story by Elise Hu that Uber is running into regulatory problems:
Cab drivers staged traffic-snarling anti-Uber protests across Europe on Wednesday. They say Uber isn’t competing on a level playing field, since the service doesn’t adhere to the same driver training, safety and pricing rules that regulate existing cabs. Similar fights are happening in American cities, too.
Uber launched in Miami, Orlando and Austin last week, even though rules in those cities say services like it aren’t allowed to operate. In Virginia, the company is openly defying orders to stop offering rides, running afoul of existing laws.
“I think that the laws can be changed to accommodate them, but until they are, they are in violation,” says Virginia Transportation Secretary Aubrey Layne. “I’d be the first to admit that technology is moving quicker than many of our laws. On the other hand, there is the safety of the public and there is the due process of law that needs to be dealt with.”
Donna Blythe-Shaw, a representative of the Boston Taxi Cab Drivers Association, says Uber’s drivers “are not properly vetted. Their prices are to lure you in, and so once they take over, then of course they can price and do whatever they want.”
Lisa Fleisher wrote for The Wall Street Journal that London cabbies are taking Uber to court as the service tries to expand:
Under a 1998 law, only the U.K.’s iconic black cabs are allowed to use meters, and Uber’s main services in London use drivers with private-hire licenses, different from the ones held by black-cab drivers.
The Licensed Taxi Drivers Association, the main body representing drivers, says Transport for London, which regulates the taxi industry, isn’t enforcing the law.
Transport for London, for its part, said it doesn’t believe the app is a meter under the law, but deferred the decision to the court. This has angered the city’s cabbies, who believe TFL is passing the buck.
The LTDA encouraged participation in a massive black-cab demonstration earlier this week.
Uber said it welcomed the London transport authority’s position. “Uber’s smartphone app is categorically not a taximeter as defined by TFL,” a spokesman said.
Uber is facing challenges as it tries to create a global business in an industry that is highly regulated at a local level, with different rules in every city. Meanwhile, local taxi drivers are struggling to deal with the rapid growth of a newcomer with new technologies that original regulations were never intended to address.
Michael Wolff wrote for USA Today that the business model could change the way people use transportation:
So much so that Uber, played out in a logical fashion, is a transformative threat not only to the taxi and limousine industry but to car ownership itself. With Uber, many of the more and more people who live in cities can easily and economically do without their own cars. (The urban young are already demonstrating a marked resistance to car ownership.)
That potential makes Uber the biggest business story of the day, and a massive economic disrupter, too — perhaps as big as or bigger than the shift from U.S.-made to foreign-made cars in the 1970s (this is not necessarily good news for the rest of the economy).
And Uber has ambitions well beyond this. It envisions itself as a new on-demand transportation infrastructure. In New York, an Uber driver will bring you, at your asking, an air conditioner. Uber proposes to be the Internet of the actual world.
While Uber has been the darling of the media and commentators on the new economy, it still remains to be seen if the company is actually worth its valuation. It has ambitious expansion plans, which seems to be capturing users, but if they stay will be the most telling thing.
