By Jonathan Lee '16
At the forefront of massive venture capital valuations many suggest signal a technology bubble, is Uber, a ridesharing service attempting to penetrate and fundamentally disrupt the taxi and transportation industry. In June of this year, Uber received investment valuing the company at a massive $18.2 billion valuation making it one of the most valuable startups in the world; to put it into perspective, that valuation puts Uber more valuable than household names like Hyatt Hotels and Hertz. Growing to an enormous valuation in just five years, Uber and other ride-sharing startups are prime to disrupt the transportation industry as we know it, but a recent strong backlash from regulators threatens to undermine services that have the ability revolutionize how we travel in the future.
Despite its size and global presence, Uber is just one ride-sharing service in what researchers believe to be a potentially $11 billion dollar taxi market alone; familiar U.S. names within the space also include Lyft and Sidecar all who are in stiff competition with each other burning through cash to compete for customers and market share. Their business models operate similarly; by taking advantage of today’s nearly ubiquitous smartphone access, these companies simply connect those looking for rides and independent drivers giving them, take a cut of the profits, and externalize nearly all the associated costs such as gas, insurance, and payroll. This effective business model has allowed the likes of Uber and Lyft to rapidly expand across the country and in the case of Uber, expand internationally to over 45 countries in the world.
Now however, these disruptive startups may face outside legal challenges as their services begin to be widely adopted. Recently in California, the district attorneys of San Francisco and Los Angeles threatened Uber, Lyft, and Sidecar by claiming they operated illegally in the state for misleading customers on purported background checks of drivers and not obtaining the appropriate operating licenses through the right bureaucratic channels. This isn’t an isolated incident though. In Germany, Uber was forced to cut fares amid legal battles with municipalities on the basis that their drivers also didn’t operate with the correct licenses, and in Paris, Uber faces fines upwards of 100,000 Euros for “deceptive business practices”. As legal battles being fought between ride-sharing services and municipalities rage on across the country and the globe, the fragility of an otherwise sound business model has started to shine through.
The legal battles are so hard fought by municipalities not just as an adherence to what Uber and Lyft hail as “outdated” rules and regulations that stifle innovation but as a means of sustaining critical revenue streams. Taxis provide essential inflows of revenue for cities; San Francisco taxis generate over $10 million in revenue for the city annually through payment for the infrastructure (roads, bridges, sidewalks, etc) that they use. Ride-sharing services like Uber on the other hand provide none. Nevertheless, these startups have no plans of slowing down. Despite legislation preventing Uber from operating in the state of Nevada, the company has launched a marketing campaign in Las Vegas and begun recruiting drivers in the city in preparation for what appears to be a climactic standoff between Uber and taxi operators and licensing regulators.
The upcoming years will be critical for ride-sharing services and this new technological innovation to cement itself as a feasible and consistent means of transportation. The interactions and decisions made by forerunners like Uber and Lyft will set precedent for the future of the ride-sharing industry. Two strategies remain predominant: either ride-sharing companies can divert resources to compete against regulators and expand their presence domestically and globally or they can attempt solidify their position against their direct competition in highly contested high profit areas such as New York City and Orlando. Ultimately, this most recent wave of regulatory backlash has effectively added in another participant in the cash burning war of attrition originally only between ride-sharing services; now, they must jointly compete against regulators as well for the sustainability of their industry.
Sources:http://www.alternet.org/labor/uber-and-lyft-get-lot-hype-ridesharing-parasitic-business-modelhttp://online.wsj.com/articles/uber-technologies-cuts-fares-in-germany-to-comply-with-law-1412935246http://www.kvue.com/story/news/local/2014/10/02/uber-lyft-still-not-legal-in-austin/16614297/http://www.sfgate.com/bayarea/article/S-F-L-A-threaten-Uber-Lyft-Sidecar-with-5781328.phphttp://www.forbes.com/sites/scottallison/2014/10/19/is-uber-getting-ready-for-a-showdown-in-vegas/http://www.breitbart.com/Breitbart-London/2014/10/17/Uber-fined-100000-in-Paris-for-deceptive-business-practicesPicture : Lyft Car http://www.sfexaminer.com/imager/lyft-has-signed-a-deal-with-san-francisco/b/original/2909713/2a37/lyft.jpg
