Will Uber still exist by the end of the decade?

Once the poster child of digital disruption, Uber is seeing its business strategy starting to crumble. Georges maier examines Uber’s strategy and wonders if this could be the first domino of a downfall of unprofitable digital platform companies.


For the past 12 years, Uber has attempted to ‘disrupt’ the taxi industry by focusing on a streamlined app-based customer experience and the idea that anyone with a driver’s license, a car, and a bit of free time can earn extra money by giving strangers a lift. The name Uber is now globally recognized, with operations in 69 countries as of 2019 – in the same year it secured its place as a publicly traded entity with an IPO on the New York Stock Exchange.

The meteoric rise of the company has made its name ubiquitous as a leader in the emerging ‘gig economy’ or ‘sharing economy’ – terms that have found widespread familiar adoption but fail to reach. academic circles for their lack of clear meanings or conceptual boundaries. Language disputes aside, Uber has undoubtedly set the tone for an economic period defined in part by the rapid expansion of digital platforms which have quickly become important players in the market. Whether or not they have disrupted the markets in which they operate, groups like Uber, Lyft, Airbnb, DoorDash and Deliveroo have cemented their names in the air and absorbed great attention from a wide range of stakeholders.

However, this boom was fueled by an influx of venture capital provided on the premise that the platforms’ business strategies had a profitable future in view; By examining four aspects of Uber’s strategy, I want to show that this premise seems increasingly fragile. If Uber becomes the new Blockbuster, a nostalgic icon of an unsustainable business model, then what does this mean for the wider market going forward?

Not a profitable business model

One of the main talking points, among value investors and spectators alike, is the fact that Uber has failed to produce a single profitable quarter since it started going public. In fact, Uber lost $ 8.51 billion in 2019 and $ 6.77 billion in 2020. Reported technological crisis in February 2021 that Uber is now attempting to define its own profit measure, which excludes 12 expense categories, in an attempt to define itself as profitable by the end of the year. However, under normal accounting rules, profitability remains a long way off. Many believed that Uber’s profit would come once it established a dominant status in the market – which seems less likely as the competition increases.

The monopoly has been fragmented

When Uber first launched in 2009, its business model was somewhat new – it quickly became the name in private rental vehicles in many international markets. However, there is little Uber can do to legally protect its platform-driven approach to the marketplace that initially set it apart, and competition quickly emerged from Lyft, Ola, and Via. Elsewhere, Uber has completely left the Chinese market, sell its Chinese activities to Didi which was the main platform competitor in the region with around 80 percent of the market share.

Successful legal challenges by drivers

The key factor that sets Uber apart for many venture capitalists is its scalability; being structured around a lean digital platform has enabled the company to expand rapidly into new geographic areas. She never had to worry about the increased overheads and risks associated with employment contracts and fleet management. This was contracted out to individual drivers who operated, according to Uber, as independent contractors. This arrangement, however, began to face significant legal challenges.

In 2021, the UK Supreme Court issued a decision that Uber drivers meet the legal definition of workers because of the degree of control the platform maintains over the way they work. As such, the court upheld the ruling that drivers should be entitled to minimum wage, paid vacation and other worker rights. In addition, these rights extend to the entire time that drivers are logged into the app ready to accept travel offers, not just when carrying passengers.

In California, apps like Uber and Lyft lobbied (spending more than $ 220 million) to introduce Proposition 22 – a legislative change that would exclude the engines of the economy from labor rights gigs. However, shortly after its adoption, the proposal was ruled unconstitutional and therefore inapplicable.

These challenges to Uber’s business model will undoubtedly introduce additional pressure. The platform had relied on offering a low-cost alternative to traditional taxis to support its rapid growth in new markets, but labor obligations will inevitably lead to price increases that will erode demand for Uber rides and reduce revenue.

Self-driving cars don’t materialize fast enough

One point of hope for many investors was the prospect of self-driving cars allowing Uber to make its service more efficient. In London, Uber takes around 25% of the income generated by the trips, with the remainder going to drivers to cover expenses related to driving the vehicle and provide them with income for their work. Replacing external drivers and their individually maintained vehicles with a standardized internal fleet of self-driving electric cars could, in theory, lead to substantial reductions in operating costs. Uber has invested billions in autonomous vehicle research through its subsidiary Advanced Technologies Group – before to sell this branch of its operations in 2020 to focus on its core profitability. Self-driving cars still face a number of key hurdles, while promises made by key pioneers in the field such as Tesla have repeatedly failed to materialize and facing accusations too promising features.

What would a failed Uber mean for the wider market?

He was argued that Uber is part of a larger trend of subsidized luxury consumption – that venture capital and exploited workers have collectively footed the bill to allow cheap prices on things that should always have cost more. We see this in many platform-based services, from private rental vehicles to food delivery, the latter having been supported by charging high commissions (often 30% of the menu price) to restaurants that have had to. hard to sell in person during closings. . If Uber’s business strategy fails, the momentum behind the app-based venture capital frenzy could fade – and we could see a return to a more risk averse strategic base that places more emphasis on the medium term, rather than the long term, profitability. Deliveroo, a food delivery competitor to Uber Eats, has traded significantly below its IPO price since launching on the London Stock Exchange in April 2021, showing potential growing hesitation emerging on the market. market for risky platform operators. If Uber fails, the “sharing economy” strategy will have to shift part of its focus from scalability to profitability.

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Remarks:

  • This blog post represents the point of view of its author (s), not the position of LSE Business Review or the London School of Economics.
  • Highlighted picture through Viktor Bystrov to Unsplash
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