Uber recently announced an investment from Toyota in addition to a partnership that provides drivers with car lease programs that can be paid off with Uber earnings. Details on the amount of the investment were undisclosed. The partnership between Uber and Toyota and similar ones between Lyft/ GM and Volkswagen/ Gett show that car manufacturers are turning to platformsto prepare for their future in the digital economy.
Ride-hailing platforms have created and cultivated new consumer behaviors in the transportation industry. They have also put into question the idea of car ownership. Oe can imagine that it will soon be less expensive to ride everywhere with Uber or Lyft rather than owning a car. The advent of driverless cars will certainly help realize this future state. This leaves the automobile industry scrambling to secure a future in the platform economy by writing big investment checks and introducing mutually beneficial initiatives.
So what's in it for Uber and Toyota?
For Toyota, this partnership introduces a new way of selling cars and evolves the relationship an individual has with a car. The transaction of leasing a car has always been considered an expense, but with this new program, a Toyota car can now be an income-generating asset instead of a depreciating asset. This program also gives Toyota an advantage over other OEM auto companies who have not yet partnered with successful startups.
For Uber, the alliance helps improve its marketplace liquidity. Uber doesn't suffer from consumer awareness. The battle to recruit and retain drivers is a lot more contentious. In order for Uber to remain successful, it needs a constant flow of both driversandriders. Without drivers it cannot attract more customers, and without customers it cannot attract more drivers. By creating incentives for people to become Uber drivers, the company will create both supply and demand, and improve marketplace liquidity. The partnership eases the friction of becoming a driver and increases the ways to become a producer on Uber's platform.
What do recent partnerships say about the future of the automobile industry?
With all these partnership announcements, there couldn't be a better time to be a driver or a passenger. With competition from all these ride-hailing platforms, the users win. And, so does the market leader in a winner-take-all market. Consolidation is inevitable. The ride-hailing industry will have one monopoly with over 50% market share, period. The question remains if the no. 1 and no. 2 scenario will mimic the competition between Apple's iOS and Google's Android or mimic Google's dominance in search and Bing in a distance second.
Uber is the dominant global player except in China, which has more rides per day than the US, but less dollars transacted because the monetization model is restricted by the Chinese government. Being third is a failure. Who wants to be Windows Phone? No one. Didi Dache and Kuaidi Dache merged in 2015 to create the largest ride-hailing platform in China. This was clearly to prevent Uber from eating their lunch. As a result of the merger, DidiKuaidi has gone on to raise billions in much needed equity capital to fuel their growth. But Didi didn't stop there. They proceeded to invest in Uber's competitors around the world like Lyft, GrabTaxi in Southeast Asia and Ola in India.
The ride-hailing industry is a global industry and there will be a #1 and #2 world player, rather than #1 and #2 players locally in each country or region. The only true force that can compete with Uber globally is a combined entity of ride-hailing apps around the world. Platforms can't burn cash forever and there are only so many strategic investors who can write billion dollar checks at an attractive valuation. Even the Chinese car companies have started to pick sides like Guangzhou Automobile Group investing in Uber last year.
Ride-hailing investment timeline
- Google - Uber
- GM - $1 billion in Lyft
- GM acquires left-over assets of Sidecar
- Toyota invests undisclosed amount in Uber
- VW - $300 million in Gett
- Apple - $1 billion in Didi Kuaidi
- Alibaba & Tencent - Didi Kuaidi
- Baidu - Uber
- Microsoft - Uber
- Guangzhou Automobile Group - Uber
- Didi Kuaidi - Lyft
- Didi Kuaidi - Ola & Grab Taxi
So, who else is left? Jeff Bezos invested personally in Uber, but Amazon doesn't have tons of cash it can throw around (it's still barely profitable). Maybe Facebook? But, that's not too strategic. More car companies like BMW or Daimler Chrysler? Sure, those are options. But, they are starting to run out.
Enter the initial public offering. It's rumored that Didi Kuaidi could go public in 2018 and that Uber China may try to IPO in China. Both companies deny these reports, but it's certainly something that they are discussing. The massive private investment rounds will eventually run out. The company that can A. balance operational expertise to become profitable while B. not hampering growth will emerge the victor. Of note, accomplishing A is much, much easier when you are the market leader. It's near impossible for the platform laggard to surpass the market leader while maintaining profitability.
Let's go deeper...Uber is the clear leader in the United States, the biggest market for ride-hailing in the world as measured by dollars spent, and they are reportedly profitable in the US and Canada as of Q2 2016. This is a big deal. They are losing $1 billion a year in China to fuel growth rates from 1% in January of 2015 to 30% in March 2016. Not bad! So, if Uber can lock-down North America and grow the market profitably, they can focus their war chest of cash on China and then India. See where this is going?
Hence, the inevitable consolidation of both investors and ride-hailing platforms. The only true competitor to Uber is the Anti-Uber Alliance led by DidiKuaidi in China, but also comprised of Lyft in the US, Ola in India, Gett in Europe, and GrabTaxi in Southeast Asia. The Toyota partnership is another move in Uber's game of chess to be no. 1.
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