This is the 3rd together with concluding ship service inwards a serial of iii on the ride sharing business. In the first, I valued Uber together with looked at the development of its line of piece of occupation organization over the in conclusion eighteen months. In the second, I valued Lyft together with looked at pricing across ride sharing companies. In this one, I facial expression at the futurity of the ride sharing line of piece of occupation organization from the perspective of an outsider amongst no expertise inwards this business.
In my in conclusion ii posts, I first valued Uber, amongst its expansive narrative, together with so looked at putting numbers on Lyft's less ambitious storyline. In my Uber post, I argued that the ride sharing marketplace seat was proving to endure bigger, broader together with growing faster than I had estimated it would endure inwards June 2014. In the Lyft post, I examined how VCs were pricing ride sharing companies. In this post, I wish to consummate the even yesteryear looking at the electrical flow the world of the ride sharing marketplace seat together with for scenarios for the marketplace seat over time, amongst consequences for investors, automobile riders together with drivers.
In my in conclusion ii posts, I first valued Uber, amongst its expansive narrative, together with so looked at putting numbers on Lyft's less ambitious storyline. In my Uber post, I argued that the ride sharing marketplace seat was proving to endure bigger, broader together with growing faster than I had estimated it would endure inwards June 2014. In the Lyft post, I examined how VCs were pricing ride sharing companies. In this post, I wish to consummate the even yesteryear looking at the electrical flow the world of the ride sharing marketplace seat together with for scenarios for the marketplace seat over time, amongst consequences for investors, automobile riders together with drivers.
The Ride Sharing Market: The State of the Game
In my posts on ride sharing, I noted that the ride sharing marketplace seat has grown exponentially inwards the in conclusion ii years, drawing inwards novel users together with redefining the automobile service business. That growth tin endure seen in multiple dimensions:
- Anecdotal & Qualitative evidence: I am unremarkably wary virtually using anecdotal information but I conduct hold been keeping tabs on Uber usage inwards my travels together with I conduct hold been amazed at the company's global reach. This summer, I did seminars inwards São Paulo, Moscow together with Mumbai, together with inwards each venue, a meaning proportion of the attendants had taken Uber to the event. In fact, my children speak virtually Ubering to destinations unknown, rather than taking a cab, merely as xeroxing together with googling became synonyms for copying together with online searching.
- Operating metrics at ride sharing companies: The operating metrics at the ride sharing companies individually, together with inwards the aggregate, dorsum upwards the suggestion that this is a high growth business.
- Investor expectations: The increases inwards the values attached to ride sharing companies betoken that investors are also scaling upwards expectations of futurity growth inwards this business. Using Uber's estimated value of $51 billion inwards its most recent VC funding to illustrate the process, I estimated imputed revenues of $51.4 billion inwards 2026, which, if yous agree its revenue piece part at 15% (my assumption) yields an imputed gross billing of $342.8 billion inwards 2026. If I repeat this practise amongst the other ride sharing companies, the collective revenues beingness forecast yesteryear investors may overstep attainable revenues, an illustration of what I termed the large marketplace seat delusion.
| Company | Revenues inwards 2014 | Revenues (2015) | Growth Rate (2015) |
|---|---|---|---|
| Lyft | $125 | $300 | 140.00% |
| Uber | $400 | $2,000 | 400.00% |
| Didi Kuaidi | $30 | $450 | 1400.00% |
| Ola | $50 | $150 | 200.00% |
| GrabTaxi | $15 | $50 | 233.33% |
| BlaBlaCar | $30 | $72 | 140.00% |
| Company | Estimated Value (Price) | Revenue Share | Operating Margin | Failure Probability | Imputed Revenue(2026) | Imputed Gross Billing (2026) |
|---|---|---|---|---|---|---|
| Lyft | $2,500 | 15% | 25% | 10% | $2,800 | $18,665 |
| Uber | $51,000 | 15% | 25% | 0% | $51,418 | $342,787 |
| Didi Kuaidi | $15,000 | 15% | 20% | 0% | $20,044 | $133,629 |
| Ola | $2,500 | 15% | 20% | 15% | $3,927 | $26,183 |
| GrabTaxi | $1,500 | 10% | 20% | 15% | $2,392 | $23,923 |
| BlaBlaCar | $1,600 | 12% | 20% | 10% | $2,392 | $19,935 |
| Total | $74,100 | NA | NA | NA | $82,974 | $565,123 |
The growth inwards ride sharing has been accompanied amongst to a greater extent than intense contest together with rising costs, as tin endure seen inwards the large together with growing operating losses reported yesteryear the companies inwards this business. The reasons for these losses are manifold, as I noted inwards my Uber post. Some of the costs come upwards from intense contest for drivers together with customers, amongst companies following the Field of Dreams model, that Amazon has used to such effect inwards the in conclusion decade. Some costs come upwards from outside, higher insurance costs together with employee expenses, as ride sharing companies drib dead from beingness fringe players to larger businesses. Some costs menstruum from legal fights amongst regulators, licensing agencies together with other rule-writers, whose wish to command the line of piece of occupation organization clashes amongst the market-driven imperatives of ride sharing. The optimistic sentiment is that these costs volition drib dead smaller as companies scale up, but volition they? As revenues scale up, the release of drivers volition increment proportionately, together with unless the contest disappears, the costs of fighting for drivers together with customers volition continue. In brief, the existing ride sharing model looks similar a long term coin loser, unless something key changes.
Future Shock
At the jeopardy of playing marketplace seat prognosticator inwards a marketplace seat where I am a novice, I encounter 4 possible scenarios that tin unfold inwards this market, all possible, but mayhap non as probable.
- Winner-takes-all: The large prize inwards many technology businesses is that at that spot is a tipping point, where the winner ends upwards capturing much of the market. That is the template that Microsoft used ii decades agone amongst MS Office to capture the line of piece of occupation organization software line of piece of occupation organization together with that Google used to scale the heights of online advertising. The payoff to such a strategy is that yous non solely command the dominant marketplace seat part but that yous learn pricing mightiness (and higher profits). It does seem to endure the strategy that Uber is next inwards the ride sharing business, but at that spot rest iii route blocks that may brand it the way. First, yous conduct hold to take away your competitors from the playing plain together with spell Uber had the cash buffer together with uppercase raising upper mitt in conclusion year, that payoff has narrowed as a resultant of partnerships together with novel uppercase flowing into other ride sharing companies. In a perverse way, Uber's best conduct chances of succeeding at this strategy is if at that spot is a hitch or halt inwards the menstruum of uppercase to tech companies, though that may function against its objective of going world inwards the close future. Second, yous conduct hold to navigate your means through the anti trust together with monopoly questions that volition inevitably follow, non an piece of cake or an cheap task, as Google together with Microsoft conduct hold discovered over the in conclusion decade. Third, spell technology remains a focal dot for ride sharing companies, the automobile service or logistics line of piece of occupation organization needs physical infrastructure, making it to a greater extent than hard to save global networking benefits.
- The Losers' Game: While the winner-take-all is alluring, its logical conclusion, if yous conduct hold multiple players pursuing it, together with none winning, is that yous tin brand the line of piece of occupation organization a loser's game, ane inwards which the marketplace seat grows as promised together with companies generate high revenues, but brand really picayune inwards profits. H5N1 large line of piece of occupation organization tin sometimes endure a bad one, as I noted inwards this ship service on bad businesses together with why companies inwards these businesses drib dead along to invest together with grow inwards them.
- The Divide together with Rule Game: As the sometime colonial empires discovered a few centuries ago, together with the Sicilian criminal offence families realized inwards the tardily 1920s inwards the United States, the most profitable halt game, when contest is cut-throat (literally), is to negotiate a truce, where the spoils are divided upwards together with each rival is given command of a segment. In the ride sharing market, if the line of piece of occupation organization boils downwards to ii or iii large players, they may endure able carve upwards the global marketplace seat together with each usage musician volition learn a complimentary run inwards their carved upwards portion . This volition be, of course, terrible intelligence for drivers together with customers together with may attract regulatory or legal scrutiny, but for investors collectively, it volition endure most value-adding scenario. There are ii potential weak links. The outset is that this truce, yesteryear its really nature, volition non endure a friendly ane together with modest violations tin Pb to it unraveling. The instant is that it rests on the premise that at that spot is no exterior political party that is powerful plenty to measuring inwards together with conduct hold payoff of the soft spots inwards the market.
- The Game Changer: I believe that the existing ride sharing model is an unstable one. As I argued inwards my ship service on Uber, the really strengths of the models (bare bones infrastructure, drivers as independent contracts together with no automobile ownership) makes it unsustainable inwards the long term, since ride sharing companies conduct hold to compete for drivers on a continuous basis, offering them incentives to switch from competitors, together with customers, amongst special deals. It is thus in all likelihood that a novel model volition emerge, though it remains an opened upwards enquiry of whether it volition come upwards from ane of the players inwards the game, or from an outsider. Thus, Uber's hiring of robotics engineers may endure a precursor of a dissimilar ride sharing game, amongst driverless cars together with infrastructure investments, or it may endure Google or Tesla who learn inwards the moving painting amongst a dissimilar means of operating this business.
If these scenarios remind yous a picayune little of the prisoner's dilemma, where ii rational individuals are given a pick betwixt cooperating together with competing, at that spot are parallels. Consider ane possible version, where the ride sharing companies globally boil downwards to ii competitors: Uber, as a global ride sharing behemoth, together with the Not-Uber, an alliance of national ride ride sharing companies (Ola+Didi Kuaidi + GrabTaxi + Lyft..). The box below captures the possible outcomes of this game, which volition learn infinitely to a greater extent than complicated if at that spot is an outsider usage musician lurking on the fringes.
Based on my really express noesis of the companies inwards this space, I would give the highest odds to the ride sharing line of piece of occupation organization becoming a loser's game, attach virtually equal probabilities to it becoming a winner-take-all or a game changer emerging, together with encounter the to the lowest degree conduct chances that the ride sharing companies volition collude to maximize profits together with value. There are others, who know to a greater extent than virtually this line of piece of occupation organization than I do, who encounter this game evolving differently over time. Mark Shurtleff at Green Wheels Mobility Solutions, the ride sharing skillful that I referenced inwards my in conclusion ship service thinks that I am beingness also pessimistic on unopen to counts together with mayhap also optimistic on others together with feels that at that spot are modest start ups that are finding a improve line of piece of occupation organization model than the large players. There are unopen to who believe that I am underestimating the trace of the familiar together with that ride sharing companies, in ane trial established, volition endure hard to displace.
The Dance of the Disrupted
In a ship service from a few months ago, I looked at the the nighttime side of disruption, i.e., the businesses beingness disrupted, both amongst the intent of identifying the businesses most at jeopardy together with to facial expression at the stages, at to the lowest degree as I encounter them, of how the disrupted line of piece of occupation organization bargain amongst the chaos of seeing established line of piece of occupation organization models beingness upended. Using that 5 stage process, it seems to me that the taxi cab line of piece of occupation organization is forthwith at an advanced stage:
| Stage of disruption | The Taxi Cab Business |
|---|---|
| 1. Denial together with Delusion | This is long inwards the past, but inwards the outset twelvemonth or ii of Uber’s existence, at that spot were many inwards the conventional automobile service together with taxi cab businesses, who were convinced that non solely was this a passing phase, but that no client inwards his correct heed would wish to missy the comfort, convenience together with security of a yellowish cab experience. (Irony alert!) |
| 2. Failure together with False Hope | With each misstep yesteryear a ride sharing companionship (and Uber inwards particular), whether it endure an employee amongst a unloose natural language or a laid on yesteryear an Uber driver, the hope that this misstep volition seat an halt to the ride sharing line of piece of occupation organization rises amidst taxi operators together with regulators. However, solely the most delusional amidst these agree on this hope. |
| 3. Imitation together with Institutional Inertia | In the false belief that all that separates the ride sharing companies from conventional automobile service is an app, taxi operators conduct hold turned to putting apps inwards the hands of drivers together with customers. At the same time, whatever attempts to innovate flexibility into the existing automobile service line of piece of occupation organization are fought yesteryear politicians, regulators together with unopen to of the operators who do goodness from the electrical flow structure. |
| 4. Regulation, Rule Rigging together with Legal Challenges | This seems to endure the house where automobile service companies are making their stand, aided together with abetted yesteryear regulators, courts together with politics. By restricting or fifty-fifty banning ride sharing, they are slowing it’s growth but as I encounter it, the struggle is on its means to beingness lost, since it is the customers who ultimately volition decide the winner inwards this game, together with they are voting amongst their dollars. |
| 5. Acceptance together with Adjustment | It may endure irksome inwards coming, but a portion of the conventional automobile service line of piece of occupation organization is adjusting to the novel reality, sometimes because they realize that it is a struggle that is unwinnable together with sometimes because the fiscal colina is getting steeper to climb. This is peculiarly truthful for cab operators who conduct hold borrowed much or most of the coin that they used to purchase medallions together with are discovering that they cannot pay their debt. |
So what does the futurity hold? Will at that spot endure no taxi cabs left on the streets of New York, London together with Tokyo inwards a few years? I mean value that the taxi cab line of piece of occupation organization volition shrink, but non disappear, together with that it volition retain a portion of its line of piece of occupation organization inwards those world spaces where regulators conduct hold the most say, airports, develop stations together with world arenas. If this is the future, it is also clear that at that spot is to a greater extent than hurting to come upwards together with it volition conduct hold the shape of continuing reject inwards taxi cab revenues together with marketplace seat capitalization at these companies. As for the private automobile service business, it volition either accommodate together with part revenues amongst the ride sharing companies (which notwithstanding needs cars together with drivers) or focus on corporate relationships (offering discounted together with on-demand services to companies that do non wish their employees using multiple ride sharing services).
Coming shortly to a line of piece of occupation organization close you?
As I scout the traditional taxi cab line of piece of occupation organization flailing together with ride sharing companies grow at their expense, together with am tempted to laissez passer on judgment on the inability of those inwards the line of piece of occupation organization to accommodate to the set down that they alive in, at that spot are ii full general lessons that come upwards to mind. From the disruptor's standpoint, I mean value that the success of Uber together with its peer grouping inwards changing the automobile service line of piece of occupation organization is a reminder that existing line of piece of occupation organization models tin endure disrupted inwards curt guild yesteryear novel technologies, but the collective losses reported yesteryear these companies are also a reminder that making coin on disruption is much to a greater extent than difficult.
Looking at the same procedure from the perspective of the disrupted, it is a reminder that the hurting inflicted on the automobile service line of piece of occupation organization could really easily endure coming to the line of piece of occupation organization that yous are in. If yous are inwards the fiscal services business, the amusement line of piece of occupation organization or the wellness aid business, all of which are deserving of disruption, I wonder whether yous would react whatever to a greater extent than rationally than the London cabdrivers who went on strike to halt Uber, together with ended upwards getting many of their customers to assay Uber for the really outset time. I operate inwards the teaching business, a large together with extraordinarily inefficient business, together with at that spot is no grouping to a greater extent than resistant to alter together with to a greater extent than unprepared to accommodate than tenured professors at enquiry university. I cannot hold off to encounter this group, convinced of its intellectual superiority together with attached to unreal perks (minuscule teaching loads, enquiry assistants together with sabbaticals), go through the throes of disruption.
YouTube Version
Looking at the same procedure from the perspective of the disrupted, it is a reminder that the hurting inflicted on the automobile service line of piece of occupation organization could really easily endure coming to the line of piece of occupation organization that yous are in. If yous are inwards the fiscal services business, the amusement line of piece of occupation organization or the wellness aid business, all of which are deserving of disruption, I wonder whether yous would react whatever to a greater extent than rationally than the London cabdrivers who went on strike to halt Uber, together with ended upwards getting many of their customers to assay Uber for the really outset time. I operate inwards the teaching business, a large together with extraordinarily inefficient business, together with at that spot is no grouping to a greater extent than resistant to alter together with to a greater extent than unprepared to accommodate than tenured professors at enquiry university. I cannot hold off to encounter this group, convinced of its intellectual superiority together with attached to unreal perks (minuscule teaching loads, enquiry assistants together with sabbaticals), go through the throes of disruption.
YouTube Version
Ride Sharing Series (September 2015)
