I completely agree with Bill Gates : the so-called war between Uber and taxis is nothing but a momentary up-and-down. The real big change will happen when cars won’t need drivers anymore. That day both parties will be left back to back, hanging one’s hand because both will be out the game. When I say parties I don’t mean Uber and taxi drivers but taxi drivers and Uber drivers.
Uber won’t be impacted since, as I said here, it’s not a transportation company but a platform. Replace taxis by anything, Uber will still be able to do it’s intermediation job. And this “anything”, in this case, will be self driving cars. Ironically, it will also going to be a good way for taxi companies to achieve their transformation : by getting rid of drivers they’ll be on equal footing without having to carry the human burden of their past.
In the end drivers lose and Uber wins
Logically, this move is already on its way since Uber promised Tesla to by all their future autonomous cars. It’s not a genius trick since the move is logical and expected but it’s clear that Uber is going to move up another gear. On the other hand we may also consider that it’s going to be a big mistake and that investors may like it much less than customers will.
What’s the strength of Uber ? It’s ability to operate with low fixed costs, a big leverage effect (the platform) and variabilized operational costs (drivers are only paid when they work). It makes three things possible :
– Uber only spends money when Uber makes money. When there are no customers, the business is in a kind of financial hibernation.
– Uber can size its operations in real time.
– Uber can grow its fleet and tackle new markets (cities) at a close to zero marginal cost.
By buying cars, Uber will be introducing a branch in its well-oiled business model : fixed costs. I’d even say high fixed costs. Self-driving cars have, of course, an advantage over drivers : the only limit to their work is the duration of their battery. Yet it’s a major evolution of Uber’s business model.
No one invests in a tech startup to end up with a fleet operator.
Financial consequences will be huge since they’ll have to buy and maintain cars. The high profitability made possible by the current model may soon be a thing from the past. More, it may harm their ability to grow fast and means the end of the “zero marginal cost” model.
I’m not sure that investors will appreciate. When one puts money into a tech startup with an “asset light ” strategy, it’s not to end up with a company that operates a large fleet of owned car.
But Uber has a couple of solutions to minimize the shock :
– First, I don’t consider that a 100% self-driving cars policy is realistic in the middle-term. At least for production reasons and to be able to grow capacities if necessary. But managing a dual model (cars and drivers) won’t be that easy.
– Find a smart agreement with Tesla. There are classical options like leasing with a purchase option, so Uber will never own the fleet, what would be lesser evil. An even smarter approach would be a pay-per-use model that would help Uber to stay in line with its original model.
Let’s see what will happen tomorrow but one thing is sure : from my perspective, such a move will mean the end of Uber’s current business model with no guarantee that the new one will be as profitable. Or maybe they’re ready to say investors that “That’s the way we’re going, please shut up”. Dare it ?