Wednesday, May 18, 2016

(The Big Disrupt) Uber: why Uber's dominance Rideshare app market is about to be tested

Uber have pretty much had their way in the on-demand transportation market by  aggressively disrupting taxi cartels in every country they've launched in but in China, the Silicon Valley based company may find cracking the Chinese market harder than first thought. 

Uber is by far the No.1 on-demand transportation platform in the world but currently find themselves behind the curve in China, potentially their biggest market. Uber are way behind the market leader Didi Kuiadi which currently has a vice grip over the local market, worth $25 billion, is backed by Alibaba and Tencent, and is comfortably raising funds recently raising $2 billion last week 1 and Apple dipping into their famously large pocketbook and investing $1 billion in Didi yesterday 2 

Didi Kuialdi has also partnered up with Uber's principal rival Lyft and competitors in other local and regional markets with Ola Cabs (India) and GrabTaxi (Southeast Asia) looking to bandwagon against Uber's aggressive expansion strategy. Didi's plan to seems to be working a charm as Uber has burned through cash to make a dent in the Chinese market to no avail. With results like these, it may be a matter of time before China becomes the first market Uber exits due to an inability to compete. 

Uber is also coming up against tough competition in India (it's third largest market) in the form of Ola Cabs with both services duking it out for customers and drivers. Uber have been able to expand setting up operations in 26 cities but Ola Cabs is spread across 102 and have market share though Uber have openly disputed Ola's supposed dominance of the local market suggesting that they'll be able to call themselves top dogs in India  in the near future 3.  

However Uber's loud claims that they've significantly cut Ola's lead in the local market is seriously undercut by reports last month that the company was considering buying Ola Cabs. Ola poured cold water on the rumors and strongly denied any approach from Uber but even the quiet suggestion that Uber was willing to buy a competitor rather than crush them in the marketplace is a credit to how well Ola has stood up to Uber's   infamous yet highly effective scorched earth strategy of dominating local markets through undercutting competitors and evading local regulations.      

Even Uber's dominance in the U.S is being tested as it fiercely competes for customers and drivers with rival Lyft. The Uber v Lyft saga has been one of most vicious marketplace competitions Silicon Valley has ever seen with both companies stealing executives and drivers from each other. 

However Uber, possibly the most cutthroat company to ever come out of the Silicon Valley ecosystem, had taken the contest to another level by launching "operation SLOG" which involved tactics designed to quell Lyft's growth such as ordering then cancelling rides to keep drivers from picking up real customers and using Lyft rides to poach drivers 4. Lyft has also used similar tactics but Uber's dominance of the US market that means they can make life difficult for Lyft at scale. 

Despite Uber's dominanceLyft manages to stay competitive attracting large investors and partnering with Uber enemies in crucial markets. 

However, for all the stiff competition offered by Lyft, Uber's biggest concern is the entrance of deep pocketed giants into the marketplace such as Apple and principal investor Google which recently announced a tentative step into the fray through it's navigation app, Waze 5. While Uber CEO Travis Kalanic isn't really going to lose any sleep over his company's largest investor dipping it’s toe into his company's local market, what should wake Kalanic out of his sleep is Google's intent to enter the market and dominate it with self driving cars. 

Google and Uber have been on a collision course for almost a year after Google made its intentions clear to make the rideshare app market their own forcing Uber to raid Carnegie Mellon for researchers and start their own driverless car project 6. While Uber aren't afraid of competition, Uber may find themselves in deep trouble should Google new service gain popularity and Google choose to scale operations further afield. should that happen, Uber could quickly find itself playing second fiddle in a market it's dominated for years. 

However, the biggest threat to Uber's domestic dominance is it's strained relations with drivers and local authorities. 2016 has so far been one of labour disputes, local authority showdowns or local market exits as Uber has continually failed to heed or ignored altogether the lesson that their continued success in multiple is a political feat as well as an economic one. 

Uber's abrasive approach to dealing with labour disputes is forcing it's drivers into the hands of unions as while their drivers are independent contractors (which can't form unions), they can still form associations which can make life difficult for ridesharing firms who depend on flexible labour markets 7. Uber's insistence that their drivers are independent contractors has the effect of externalizing costs Uber would have to absorb if their drivers were employees such as insurance and in San Francisco, business license fees 8. 

Uber's truly ill advised in-your-face strategy when dealing with local authorities and legislators has forced the San Francisco company to exit markets and add to their growing list of enemies. A prime example of Uber's in-your-face strategy blowing up in their face was its recent exit from Austin over a bill which would see their drivers fingerprinted. Instead of working with local legislators to reach a compromise, both Uber and Lyft spent millions fighting the bill as they thought fingerprinting their drivers was unnecessary and their background check procedures were extensive enough without them. After an Uber and Lyft backed ordinance (prop 1) replacing the fingerprint bill failed, both Uber and Lyft exited Austin, the fourth largest city in Texas.  

Much of the press covering the Austin exit has spun this as a show of force demonstrating how much power Uber wield in cities like Austin, it only showed that both Uber and Lyft are really bad at politics and aren't too bothered leaving both their customers and drivers in the lurch when they don't get their way.    

While Austin isn't exactly a large or strategically important market to Uber, it goes to show how the company reacts when posed with regulations it doesn't like even when they're not entirely unreasonable. It goes to show the dominance they have in the local market but should regulators and authorities in larger markets become more assertive and force Uber to adopt regulations it doesn't like, it's highly unlikely Uber would opt for an exit.  

In sum, Uber be is facing resistance to it's aggressive growth strategy in key markets from competitors across the board and if it fails to negotiate it, Uber stunning rise could come to a crashing halt.  

  1. V. Zarya, 2016, Uber's Chinese Rival Didi Kuaidi Has Almost Raised $2 Billion in Funding,
  2. J. Horwitz, 2016, Apple just invested $1 billion in Didi, China’s Uber rival,
  3. A. Baruah, 2016, Uber Closing In On Ola, 
  4. C. Newton, 2014, This is Uber's playbook for sabotaging Lyft, 
  5. A. Hawkins, 2016, Google's Waze jumps on the carpool bandwagon with new Bay Area pilot,
  6. M. Ramsey and D. MacMillan, 2015, Carnegie Mellon Reels After Uber Lures Away Researchers, 
  7. K. Kokalitcheva, 2016, A local union want to help California Uber and Lyft drivers organize,
  8. C. Said, 2016, Uber, Lyft drivers prepare for SF business license fees, 


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