Ride-sharing – new name, old competitor?

One of the persistent disruptor stories of the last five years or so has been that Uber and other ride-sharing companies would replace individual car ownership, at least in metro areas, and particularly amongst the young.  A few news stories and anecdotes in the last couple weeks suggest to me that we reposition this threat as an evolution rather than a disruption, and one that is more relevant to the taxi industry than it is to the auto industry as a whole.

Last week, Uber reported that 6,000 sexual assaults had taken place in its cars over the previous two years, along with 58 killed in car crashes and 9 murders in 2018 alone.  As a result, the share price took another hit, now trading at less than $28 compared to the $45 IPO price.  Their London licence was also suspended again the previous week over similar concerns, though they continue to operate under appeal.  To be fair, these apparently shocking statistics have to be seen in the context of 2.3 billion trips taken in Uber cars over the 2 years, and we have no idea what the equivalent numbers would be for traditional taxi operators on a pro rata basis.

There were also reports from a Chinese analyst, TalkingData, who track smartphone app usage, that the number of active users of all ride-hailing apps in China had fallen for both riders and drivers.  It was the fifth consecutive quarter where driver usage had fallen and the fourth where the decline was over 20%.  This appears to reflect declining subsidies for drivers from the platforms as they struggle with their financial model.  Didi, the dominant Chinese player in the sector lost €1.4 billion in 2018, blaming driver incentives as the main reason.  Reduced incentives mean that driving a ride-sharing car no longer makes sense, and if there are fewer cars, the rider experience suffers.  This is borne out by my own Uber experience of longer wait times and more driver cancellations.

I also took a traditional taxi ride a few days ago where I was in the car for half an hour or so, so was chatting to the driver.  He said that he had been in the business for almost twenty years, and that in that time the fixed fares for airport trips and similar had not changed – despite increases in the cost of living and his direct operating costs.  He blamed Uber and others for the pressure to keep prices down.  In contrast a very happy Uber driver in New York told me that he was grossing $1700 per week, whilst the cost of a NYC taxi medallion – the licence to drive a yellow cab in the city – has fallen in 5 years from $1 million to $200,000.

Clearly there is a serious battle going on in the broader ride-sharing market.  Uber and other large players will have to find a viable business model that must involve either higher fares and lower subsidies or some other income source, such as the leverage of customer data for third party marketing.  In the meantime, they will continue to attract headlines for anything from driver exploitation to driver criminality.  The traditional taxi operators have fought back with Uber-type apps that offer more convenience and transparency, and it is possible that their price disadvantage will be eroded as the newcomers have to address profitability.  Higher pricing will deter some customers who will switch to other forms of public transport, or possibly back to a private car.

What none of this suggests is that the traditional car industry has anything significant to fear from Uber, Lyft, Didi or others.  They are new players in the public transport sector who will need to buy cars, and have them maintained regularly over intense usage cycles.  Through our work in Brazil (find out more HERE), we know that recent growth of long term rental operators is almost entirely down to the rise of ride-sharing.  This is an opportunity, not a threat – whether you call it a taxi or a ride-share car.