- Uber has created a disruptive business strategy that can be applied in many industries.
- By decreasing car ownership rates, Uber could affect automakers.
- Uber bears a strong similarity to Google in its early days.
There's a simple reason why Uber's estimated value of $17-18.2 billion is justifiable. Unlike many technology ventures, Uber has demonstrated that it has a business model that is truly disruptive and, more importantly, actually makes money.
Uber has also shown that it has the potential to build on that disruptive model and create an ecosystem. An ecosystem is an environment in which others build up a company's revenues while making money for themselves. Uber does that by allowing its cab drivers (let's be honest, that's what they are) to keep 80% of their fares. It also allows Uber to leverage and profit from resources it doesn't own: the drivers' cars.
This arrangement also gives Uber something that most apps and tech startups lack: a steady cash flow. TechCrunch estimated that Uber accumulated around $1 billion a year in gross bookings, which would give the company $213 million a year in estimated gross revenue. Obviously, these figures need to be viewed with extreme skepticism because they come from "leaked documents." (Leaked documents is journalist speak for questionable information provided by an untrustworthy source).
Is Uber the New Google?
Such a business model has worked very well, at least for historically disruptive Google (GOOG, GOOGL). Like Uber, Google started out with one simple technology-a search engine-and employed a bottom feeding strategy of disrupting unsexy industries with a steady cash flow: Internet advertising, phone books, business directories, newspaper classified advertising, etc.
This got me thinking about what industries Uber could disrupt next. Uber has unveiled its next two disruption campaigns: uberX, a lower cost version of the app aimed at working and middle class passengers, and Uber Rush, a courier service designed to get a package anywhere in town for $15.
Okay, disrupting taxi cabs in a backward, corrupt, and moribund industry dominated by politically-connected monopolists is easy. Duplicating that kind of success in fields with effective competitors that understand modern technology is far harder.
Identifying potential Uber victims is difficult because disruption is a messy and complex process. Some of the companies hit hardest may not be direct competitors with Uber.
What Companies and Industries Could Be Disrupted by an Uber Explosion?
Here's a partial list of a few industries that could be disrupted by future Uber expansion.
- Courier services such as Quicksilver Express. These are very vulnerable because they are not as regulated or as politically protected as cabs are. The Rush service in New York uses bicycle couriers, but it could easily be adapted to drivers in cars or vans. Courier service would generate revenue and be a good test platform for delivery.
- Delivery. Competing directly with UPS (NYSE:UPS) and FedEx (NYSE:FDX) would be difficult. Both delivery giants have tremendous resources to play with. UPS reported a TTM revenue figure of $55.78 billion on March 31, 2014. FedEx reported a TTM revenue figure of $45.57 billion on the same day. Uber might be able to compete in that industry by concentrating on fields UPS and FedEx usually ignore, such as same day delivery. A good strategy here would be to link Uber Rush to Google's Shopping Express, Walmart to Go, or Amazon.com Prime.
- Pizza. One area where Uber Rush could truly be disruptive is in food delivery. (Note: the Rush service in New York currently excludes food.) A service like Rush could make local restaurants competitive with chains like Yum Brands' (NYSE:YUM) Pizza Hut or Domino's Pizza (NYSE:DPZ). Some overworked professionals might pay extra to have a high quality cooked meal brought to their homes, particularly if it were something other than pizza or offered them a wide variety of choices. It could then be expanded to other items, such as prescriptions, dry cleaning, and groceries.
- Rental Cars. As I've noted elsewhere, Uber's estimated valuation is already larger than those of Avis Budget Group Inc. (NASDAQ:CAR) and Hertz Global Holdings (NYSE:HTZ). Uber threatens these companies because its service is more convenient than car rental or their car-sharing offerings such as ZipCar. Part of the reason why the rental car business is profitable in most North American cities is the lousy or often nonexistent cab service. Note: Uber drivers present a potential stream of revenue for these companies if they could start renting vehicles to them.
- Automakers. By being extremely convenient, Uber takes away a lot of the incentive for car ownership, particularly in cities with lots of congestion, lousy public transportation, and a shortage of parking. There is some anecdotal evidence that a few upper income professionals have ditched their cars for Uber. Venture Beat writer Gregory Ferenstein has noted that UberX's price slashing could soon make Uber economically competitive with car ownership for middle class professionals in some cities. The rate of car ownership in the U.S. was already falling without Uber. In 2012, 9.22% of U.S. households lacked a vehicle, up from 8.87% in 2005, according to the University of Michigan's Transportation Research Institute. Much of the popularity of car ownership is based upon affordability; if Uber could deliver its service for less than the cost of vehicle ownership, estimated at $9,000 a year for the average American, it could accelerate that trend and General Motors' (NYSE:GM) problems.
Those, of course, are just the industries that might be affected by combining Uber's app with the automobile. It might be possible to create Uber for other devices and services: Uber instant maid or housekeeping services, Uber plumbing (the Uber plumber would provide his own truck and tools), Uber dog walking, Uber catering, Uber contractor or landscaping services, Uber snowplowing services, or an Uber for truckers (i.e., use Uber to call an independent trucker with a big rig to come and pick up your shipment).
By getting the public used to calling a service with an app, Uber might have hit upon an idea as powerful and as disruptive as Google, Amazon.com (NASDAQ:AMZN), or Wal-Mart (NYSE:WMT). It'll be fun to see if it can replicate that level of disruption in other areas.