Thursday, June 22, 2017

"Uber’s Biggest Problem: Its Business Model"

I seem to recall hearing that take at a couple other places over the last few years.
But only a couple.

From the Wall Street Journal, June 21, 8:44 am EDT:

The hard truth for Uber’s next CEO is that it might be more taxi company than tech giant
Memo to Uber Technologies’ next chief executive: The problems there may be bigger than you think.
Uber is currently trying to put out the fire that has culminated in the resignation of co-founder and CEO Travis Kalanick, a decision he made in the face of investor pressure following a damning report on its internal culture and missteps in its quest to be first to self-driving vehicles, among other problems.

But even when it steers through that thicket of crises, Uber will have to come to grips with a fundamental vulnerability that is increasingly apparent in the company’s business model. Uber may be great at technology, but unlike the businesses of Google, Facebook , Apple or Amazon, technology hasn’t proven to be a significant barrier to new entrants in ride-sharing. Across the globe, Uber has dozens of competitors, and in many markets they have grabbed the lion’s share of the ride-sharing market.

Even if Uber fixes all of its current problems, it’s increasingly unlikely that it can live up to the inflated expectations that come with the nearly $70 billion valuation that have made it the world’s most valuable startup. There are barbarians at Uber’s gate, and it’s sorely in need of a moat.
Mr. Kalanick, who initially announced a leave of absence last week, wrote then that the company must evolve into “Uber 2.0”, acknowledging it needs a complete overhaul of its corporate culture. But it’s not clear how Uber the caterpillar becomes Uber the butterfly.

“We think the company’s back is to the wall, and there is no more room for continued screwups,” early Uber investor Mitch Kapor said last week. Mr. Kapor, who in February co-wrote an open letter to Uber about the company’s “toxic” culture, suggested last week that Mr. Kalanick should only come back if he’s “genuinely committed to Uber 2.0.”

Assuming there is a magic pill to fix Uber’s culture, the next step will be fixing the business.
Uber’s original approach was more sprint than marathon. Believing he could pre-emptively wipe out the competition by amassing more money and market share early on, Mr. Kalanick employed a hyperactive management style that prized speed over integrity. But the finish line never really appeared.

Uber still believes that it has superior technology and data science that gives it lower costs per ride than competitors, says a source close to the company. If Uber is right and it can maintain an advantage like this in the long term, it could endure a long war of attrition with its competitors. But since neither Uber nor its competitors are public companies, no one knows the actual unit cost of their rides.

In the U.S., Uber’s biggest competitor, Lyft, has rapidly closed the distance with Uber by some of the most important measures, and has reached that point with far less investment. Lyft is now in the same number of markets as Uber, and in major cities can match Uber on both price and speed of service, says a company spokesperson....MUCH MORE