Can a world of ride-sharing exist without Uber?

There are certain companies whose mere existence has so much of an effect on the world itself, that their name becomes a substitute for common parlance. Wherein once we would have looked something up, or ‘searched on Encarta 95’, we simply ‘Google It’. When looking for a quick method of note-taking, one may reach for a ‘Post It’ rather than anything less specific. And now, especially in the last decade, the preferred method of transport for many people has simply been to ‘Uber’’.

But with the name of their company literally becoming an active verb, and near-total omnipresence in both popular consciousness and in major cities around the world. What may come as a surprise to some people, however, is that for the last decade, Uber has been losing money. In fact, it is yet to turn a profit since day one. However, this was the revenue model employed by tech industry companies such as Amazon and Facebook, both who faced similar listing struggles. With Uber following their playbook, how come Uber’s IPO this year has not surged like opening the app after an AFL game in the rain after train delays?  

In May this year, Uber went public with its IPO priced at $65.85 a share. This placed the ride-sharing beast with a market evaluation of a whopping $120 billion, the largest IPO in 2019 – and indeed the largest since 2014. It was the culmination of a long decade of development for the company. 

Back in Paris, 2008, two friends by the name of Travis Kalanick and Garrett Camp attended an annual tech conference known as LeWeb, where ‘revolutionaries gather to plot the future.’ It’s reported that one winter’s night during the conference, the pair were unable to get a cab. This was the birth of the idea for a timeshare limo service and once the pair went their separate ways after the conference, Camp returned to San Francisco and bought the domain name UberCab.com.

After some development, Uber took the world by storm. In 2011, it raised $16 million Series A round of funding and Kalanick announced that Uber had also raised $53.9 million in Series B funding. Kalanick’s idea was to ‘kick the can’ known as profits down the street and kick-start the program by getting bums in seats, sacrificing short term profitability for long term ubiquity. 

Teams of employees were injected into cities and free rides were given out online and in town squares. His theory was that if you spend as much money as you can on getting people hooked, and by making Uber a daily part of peoples’ lives then you reach a tipping point where you can begin to hike rates and lower the pay of drivers. Once you take this model, replicate it for long enough and take over city after city, then eventually, a profit will come.

During 2015/2016, Uber was on top of the world. The company had opened in almost every continent and it was crushing all the competition. It seemed like Uber was primed for success. But then 2017 arrived. It began with a former employees’ sexual harassment claims within the workforce, and how senior managed refused to do anything about. In fact, she was ultimately criticised by staff for making complaints in the first place. Uber went on to fire 20 staff members after uncovering 215 other allegations of harassment. It also faced multiple other headline-grabbing scandals that eventually resulted in the CEO’s resignation.

While the maxim may be that ‘any press is good press’, for Uber the period was near enough to catastrophic. People started using the rideshare app ‘Lyft’, which was previously on the brink of collapse. Uber had to continue to kick profitability further down the line because competitors continually popped up, which forced Uber to spend more money attempting to reach that elusive tipping point.

No competitors originally existed for Uber and the company was making billions, but they were perhaps ill prepared for the inevitable market competition. Early on Kalanick would block investors from investing in competitors that would start to rise, and Uber was essentially remaking the economy. But as time went on, it was clear that its was the idea and the technology that people liked, and it was the company that was unfortunately replaceable. Unlike other mega-companies that struggled post IPO such as Amazon and Facebook, the ride-sharing industry can now exist without Uber. It didn’t build up a defense around competitors and people’s ‘loyalty’ to using Uber is wafer-thin. Uber pioneered a category in ride-sharing and on-demand services, but that can exist in a world without Uber.

 Fast forward to 2019 and Travis Kalanick and a plethora of executes are long gone. Uber recorded a $5.2 billion loss in its second-quarter (its biggest quarterly loss ever), and just two days after going public, its shares dipped 17% from $65.85 to $54.28. Of course, the original investors in Uber are stoked. One man parked $7k in the company early on and turned it into a $29 million investment. All anyone who bought early shares in Uber had to do was spot the idea and sit on the investment until it IPO’d. From there, the investors could sell their shares at an insane profit because the company was worth billions of dollars. 

While Uber has tried to frame an economy around reframing shareholder expectations as they search for their ‘tipping point’ in their profit model, what will be interesting to track is investors in technology stocks around the world going forward. Will investors specifically look to early-stage rounds of investment, and are people getting more nervous about the IPO model of profit reporting and the volatility that comes with the technological industry? Or will people perhaps look for longer-term investments in other areas?