Uber's recent investor day presentation (link here) is interesting if you're an investor or thinking about becoming an investor, but it's also interesting from an urbanism standpoint. Part of the promise of Uber was that it was going to help lure people away from owning cars. Looking at the data though (see below), ridesharing penetration is still pretty low in even Uber's largest markets: 3.9% for the US and 3.3% for Canada. Brazil is a leader here, which you might think is because of a lower cost per mile, but Australia isn't far behind.
At the end of the day, the vast majority of mobility trips are still being done through personal vehicles. This is certainly the case in the US with 6.6 billion weekly trips in personal vehicles versus 191 million on public transit and 22.6 million with UberX (all 2019 data). And for those taking Ubers, about 90% of riders are using some form of UberX -- that being a solo, on-demand, point-to-point trip with a 4-door car. So sharing a car with strangers and using different/multiple modes of transport hasn't really caught on here.
Last week Travis Kalanick – the cofounder who built Uber into the most highly valued privately held startup in the world – stepped down as chief executive at the request of his investors. This was the culmination of months of controversy related to the company’s toxic corporate culture.
So what’s next?
Benjamin Edelman, associate professor at Harvard Business School, recently argued that this is it for the company: Uber Can’t be Fixed – It’s Time for Regulators to Shut It Down. I discovered the article through a good friend of mine who has felt similarly since the beginning. Uber’s business model is predicated on illegality and that should not be misconstrued as “innovation”.
I have a few thoughts on this.
But let me start by saying that this post is not a comment on the company’s corporate culture or its internal practices related to lobbying governments. I have not really been following what’s going on internally and I’ll leave other, more informed, people to comment on those matters.
With that said, here are 3 thoughts.
One, shutting down the company feels like an extreme case of throwing out the baby with the bathwater. Lots of companies go through restructuring, assuming that’s needed, without completely capitulating.
Two, before Uber came along it was still challenging to pay for a taxi in Toronto with a credit card. More often than not the driver would tell you that the machine was broken or ask that you instead pay with cash. At that point, I would have accepted a clunky payment machine mounted to the rear of the front seats as an innovation.
To say that Uber’s technological innovations were all banal things that its competitors were already about to introduce is downplaying so much of what the company has done outside of its beneficial cost structure.
We got perfect information: Where is my car right now? We got full pricing transparency before even accepting a ride: Should I take an Uber or transit or should I drive? We got the ability to get in and out of a taxi without pulling out our wallets: I’ll quickly jump out at this red light. We got dynamic ride pooling and cost sharing: Let’s split this ride 3 ways to bring the fare down. And we got clean cars that didn’t smell.
Why weren’t any of the incumbent taxi companies do this?
Three, I fully agree that Uber (unfairly?) benefited from a meaningful cost advantage by operating in the unregulated side of the market. This was a huge boon for the company because, as the data suggests, the demand for taxis is highly elastic.
But I also believe that the incumbent taxi companies were perpetuating a marketplace that was anything but free enterprise. It ensured that the status quo was maintained and that those who historically benefited from the system continued to benefit from the system.
Because of this, I’m not sure that we would have seen the innovation that we saw without a company like Uber deciding to operate within a gray area and not ask for permission. Protectionism may have stomped it out. This may be why Hailo – which operated in the regulated side of the taxi marketplace here in Toronto – ultimately wasn’t able to survive.
Though I suppose you could argue that Hailo’s failure (at least here in Toronto) strengthens the argument that Uber was only able to thrive because of its illegal cost structure.
However, it’s important to remember that Uber got its start by actually charging more than traditional taxis. At the outset it didn’t have enough liquidity in its marketplace to compete based on speed and/or price, and so it decided to offer a premium experience.
UberX didn’t introduce steep discounts until later on and even today many people will gladly accept surge pricing at multiples of a regular taxi fare. Clearly customers are deriving some other benefits from the app.
Edelman ends his piece by referencing Napster as an example of another startup that defied legality and was ultimately forced to shut down. Again, shutting Uber down seems extreme to me, but I do agree with his conclusion. Regardless of what happens, the lawful innovations that Uber introduced are here to stay.
Photo by Carl Joseph on Unsplash
My friend Evgeny published a great blog post today called, On Car Ownership And The Future Of Transportation.
And in it he made the argument that instead of buying a car and an expensive downtown Toronto parking spot (average price: $40,000 - 60,000), most of us urbanites would be better of just taking a taxi or Uber.
This got me thinking: At what point does it really make sense to completely forgo owning a car? (Full disclosure: I own both a car and a downtown parking spot.) So I decided to dig into the numbers a bit more and compare 4 mobility options:
Owning a car ($25,000 upfront) + downtown parking spot ($40,000 upfront) and driving yourself everywhere
Taking a regular taxi exclusively ($3.25 base + $1.75 per km)
Taking an UberX exclusively ($2.50 base + $1 per km)
Or, taking a futuristic driverless car everywhere (here I assumed $1.50 base + $0.25 per km)
With the above numbers, I then assumed 15,000 km traveled per year and an average trip length of 15 km (so 1,000 trips per year). The trip length and number of trips per year matter because of the “base fare” that is charged when you take a taxi or Uber.
I also assumed that the cost of owning a car is $0.60 per km (estimated from this Globe and Mail article) and that there is an opportunity cost to NOT renting out your downtown parking spot ($200/month). That is, every month that you spend driving yourself around and parking your car, you are forfeiting parking revenue.
Finally, I looked at a 10 year time horizon and then “discounted” all the costs back to today’s dollars so that I could compare each mobility option.
So what did I find?
What this says is that if you’re driving 15,000 km per year (average trip length 15km), then you’re better off taking UberX everywhere, as opposed to going out, buying a car and parking spot, and driving yourself around.
But does this hold true at different travel distances?
Based on my model, once you hit around 18,000 km per year, then you’re better of with option 1 (owning a car). That’s because the per km savings associated with driving yourself around are enough to offset the upfront costs of the car and parking spot.
On the flip side, when you drop below 7,500 km traveled per year, even a regular taxi starts to make sense. That’s because you’re simply not traveling enough to reap the benefits of owning a car/parking spot. Again, high upfront costs; lower per km operating costs.
Of course, there are a number of things I didn’t consider in my model. For one, most people finance their car and parking spot (it is bundled into their home mortgage). So I’m sure there are ways that you could change the above outcomes using leverage.
At the same time, I didn’t account for the fact that when you’re being driven around (as opposed to driving around) you have the flexibility of doing work, responding to emails, and so on. If you want to attach a value to your time, then the scale would tip back in favor of taxis and Uber.
But all of this was really just to make one point: look how cheap it could be to ride around in a driverless car. When that becomes the reality in our cities, which it will, it’s going to completely transform our current beliefs around cars, parking, and many other things.
I guess that’s why General Motors just invested $500 million in the peer-to-peer ridesharing company, Lyft. They know the shit is coming.