July 6, 2015    3 minute read

Is Uber’s Growth Sustainable?

   July 6, 2015    3 minute read

Is Uber’s Growth Sustainable?

Uber, formerly known as “UberCab“, was founded in 2009 and underwent a period of aggressive growth unlike any other. Within a short period of six years (including a year of app development), Uber has landed its footprints in many parts of the world, dominating the taxi riding market wherever it goes. For the mere purpose of quantifying the company’s scalability, as of May 28th 2015, Uber’s service was available in 58 countries and 300 cities worldwide.

However, despite Uber’s impressive strategy of monopolising the global taxi market, its journey remains fraught with challenges, both financially and legally.

Financials

For the corporate financials, Uber had recently declared an operating loss of $470 million on its $415 million in revenue, according to information shown to its potential investors. While many have argued that Uber’s spending is justified by its business strategy of rapid expansion and penetrating depth into the new consumer markets, it is still early to assume that Uber’s business model will be sustainable in the long run. Especially when it is no longer able to provide free rides to its customers and compete against the traditional taxi companies through its price competitiveness.

Uber’s business demands scale and density within cities, thus it requires a lot of people placing orders for rides on their smartphones and a lot of drivers to come pick them up. Its strategy to hook customers on its mobile app in new cities includes keeping the cost of its rides low. To the extent that sometimes the fare charged to the rider is less than what Uber pays its drivers. The company uses the same strategy with its carpooling program, uberPOOL.

Legality 

Uber has also faced many legal face-offs with regulators and incumbent taxi companies worldwide, which impeded its ability to assimilate onto the world stage with ease. Taxi drivers all over the world has protested against unfair competition from Uber as the taxi industry has to operate under the city’s rules and prices, but Uber does not have to obey those requirements and has an unfair competitive advantage over licensed cabs.

For instance, officials in Delhi and India banned all app-based ride services to protect cab driver unions. In Belgium, the Netherlands, the Philipines, and South Korea, police forces conducted sting operations against Uber drivers who operated vehicles that were not licensed for commercial use. The issue of safety has also surfaced with the many accidents caused by the inexperienced and unlicensed Uber drivers, which had resulted in multiple lawsuits against Uber. These issues certainly came at a reputational cost to Uber.

On March 10 2015 Travis Kalanick, Uber’s founder and chief executive announced a partnership between Uber and the UN Women with the intention to invest in local communities and create 1 million jobs for women globally by 2020. However, after pressure from trade unions and women’s rights organisations, UN Women pulled out of the deal, citing Uber’s legal status, safety, and privacy concerns.

Thus, while Uber may seem to have dominated the taxi market worldwide, it is still too quick to judge if the business model is truly sustainable. In terms of its financials, any business owner will know that there will be no profits when the costs outweigh the benefits. In addition, the ever-changing regulatory climate could also deal a potential blow to hinder and even stop Uber’s expansion in the cities. Without achieving the necessary depth in the new markets, Uber will find it difficult to stay competitive in the new markets. To take on a protagonist point of view, the Uber story is definitely not as rosy as it seems.

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