Uber’s strategy has a new home — “mobility data infrastructure for YOUR city”. Blame it on competition and regulation.
There was this recent article by Eugene Wei around invisible asymptotes, defining them as the ceiling that a company’s growth curve would bump its head against if it continued down its current path. There has been a lot happening lately in the urban mobility market and it’s helpful to make a sense of the changes by thinking about the invisible asymptote of one of the key players: Uber.
Uber’s invisible asymptote has been the price of its service. Ubers are not a cheap mode of transport for vast number of use cases and a vast number of people, especially if you compare them with say the subway in New York. Uber has been aware of this invisible asymptote and has been continuously innovating to bring cheaper solutions such as Uber Pool and Uber Express Pool to market, and those have largely helped it grow at a healthy pace till date. Significant percent (though likely not majority) of Uber rides are now Pool.
While this is great, the mobility market has evolved and Uber’s invisible asymptote now seems to be more clearly visible. Uber doesn’t have many more tricks up its sleeve to continue to lower the price of its service. The result is a new strategy that is becoming the north star sooner that I had expected. Uber wants to be the mobility cloud for cities — the data infrastructure layer sitting between all the modes of transport and the apps/channels we use to access them.
Uber recently articulated this strategy by saying that it wants to take consumers from Point A to Point B even if it involves covering multiple modes of transport. There are multiple factors that have led Uber to this point and that make this strategy so compelling.
First, Uber has internalized the deeply geographical nature of the price competition. It found itself surrounded by deep pocketed competitors in international markets and figured that bleeding money through discounting wasn’t sustainable. It has ceded ground to Didi in China and Grab in Southeast Asia. This meant that some of the assumptions around the size of its user base supporting its valuation turned out to to be untrue, putting more pressure on it to penetrate its existing markets deeper to capture demand beyond taxis.
Second, the entry of bikes and scooters promised to substantially lower the price of short distance commute and shut Uber out. The users that scooters are going after are precisely the users that Uber is finding hard to win over because Uber is not cheap and, in this case, also not convenient. The only logical way to react to this was to acquire one of the companies and gain an entry into the market, which it did with its acquisition of Jump.
Third, it became clear that self-driving, which was Uber’s silver bullet to lowering the price of its service, won’t deliver for it. Self-driving won’t come soon enough (assuming a 2019 IPO for Uber) and Uber won’t be the one to get the self-driving technology right. In addition, there is an increasing threat that some players in the market might be able to cobble up a partnership to offer much cheaper rides to consumers w/o having to rely on Uber’s distribution. An example would be Waymo partnering with one of the big car manufacturers to have the capital muscle and expertise to deploy a fleet of self-driving cars in a city and enable consumers to hail them using Goole Maps which already has a large captive user base.
Lastly, Lyft, Uber’s primary competitor with a nicer brand image is becoming more aggressive with partnerships with cities (example Lyft’s partnership with the City of Phoenix), offering a path to lowering the price of service through subsidies. The entry of Uber/Lyft taught cities a lot about regulation and cities have realized that these new age transportation options are here to stay. They are finding that over-regulation (not allowing Uber/Lyft because of taxi unions) won’t work and so won’t under-regulation (letting city streets become scooter graveyards). Cities are increasingly trying to leverage their position in the mobility equation and are thinking of using Uber/Lyft as means to solving the urban mobility issues that the cities have always wanted to solve. If cities can subsidize Uber/Lyft rides to public transportation centers to incentivize higher usage of public transport, then its a win-win situation for Uber/Lyft and the cities, allowing them to offer a real alternate to car ownership.
This perfect storm of factors shaping the mobility market has resulted in Uber seeing itself more as the infrastructure layer for mobility, probably sooner than it might have imagined. This last point above around partnerships is the most important one because, going forward, cities will play an outsized role in defining the future of mobility. Bikes and scooters are not the last innovations in the space of urban mobility and Uber’s ability to capitalize on the future innovations will depend on whether it can be the data infrastructure connecting all the mobility options in a city which in turn will depend on whether or not cities allow it to do that.
If Uber can have all the mobility data and can offer cities a solution that optimizes the mobility options for price, convenience and utilization, then it surely will have a deeper moat than just offering a ride sharing solution. It is for this reason precisely that Uber is spending $500 Mn in ads to clean up its image and apologize for its past deeds. This campaign is not for consumers; it is to give city governments the cover to partner with Uber without the fear of a public backlash because governments don’t want to be seen partnering with evil entities.
Uber’s CEO Dara Khosrowshahi’s new positioning of Uber as a softer (less brash) is a pre-requisite for its push to be the mobility cloud. How open will this mobility cloud be is still a question but it’s now in Uber’s interest to push for a world where each city has at least one mobility cloud and it hopes that is can own the mobility clouds for most cities. In that sense, the change of guard at the top for Uber has been very timely and maybe one day, Uber will be able to tax all mobility the way AWS taxes all storage and computation.