Uber business risks

UBER business model starts shaking

Personally, I love Uber, and use it frequently. Even in case of the ride cost being higher when taxi fare I go for Uber because:

  • Drivers are motivated to provide good service
  • I can order a ride from the office and jump into the car right when it arrives (instead of hailing taxi or queuing in taxi line)
  • If something went wrong (for example an overcharge) – it is being fixed by Uber support right away
  • Probably most important: no cash required, I don’t have to keep the receipts and claim expenses

Uber’s marketing efforts don’t stop to amaze me: campaigns ranging from free beer delivery to helicopter rides to extremely discounted fares. No wonder Uber managed to attract investors such as Goldman Sachs, Microsoft, Google, Baidu and many other reputable persons and companies.

Recently, however, news start to reflect something, which was surely assessed as regulatory and social risks initially, but pushed aside on the uphill euphoria.

Uber’s challenges regionally

Spain:

Protests in Spain
Protests in Spain

Uber suspended it’s service in Spain after a series of protests by taxi associations. BBC article.

China:

Uber goes into China with Baidu
Uber goes into China with Baidu

After a series of scandals and confrontations between Uber drivers with Police, China is considering banning private cars from offering cab services via apps.

US:

U.S. District Judge Edward Chen, Northern District of California
U.S. District Judge Edward Chen, Northern District of California

Recent ruling challenges Uber as an independent party to service providers (drivers). Article, court ruling.

Hong Kong:

Uber driver arrested in Hong Kong
Uber driver arrested in Hong Kong (source: SCMP)

Taxi driver protests and claims in consumer council trigger government investigation.

5 Uber drivers arrested.

What now?

Generally, there are 3 scenarios for Uber I can see:

1. Compliance with licensing regulations in each country

This will definitely increase cost of service (just to name a few obvious expenses: insurance coverage, driver licensing and training, vehicle inspections). Also it will create a barrier for a driver to start earning: unlike currently, this will involve process very much similar to taxi driver training.

2. Operation “under radar”

In most countries, where Uber started operations, government attention was attracted upon public outcry: taxi driver protests, criminal actions of Uber drivers or customer complains to local consumer protection bodies. Basically this means that unless Uber attracts attention, it operates in a “grayish” area of regulations. This, of cause, should, will, and must be calculated in Uber’s financial evaluation.

3. Suspension of service

The most negative scenario would be suspension of service: to maintain and/or attract investor interest, company should be growing or/and post profits. Given estimated 5bn. already brought in by investors, expectations are high and growth is expected.

Current metrics

Uber has an impressive track record. Currently it operates in 57 countries with 160’000 drivers providing service.

Uber is being evaluated at over 51Bn. US$, which puts it ahead of Facebook in securing funds so far. It is reported that the company raised over 5Bn. US$ from various investors.

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