Editor's note: Inc. Magazine announced its pick for Company of the Year on Tuesday, November 29. It's Riot Games! Here, we spotlight Uber, one of the contenders for the title in 2016.
When Uber appeared in Inc.'s Company of the Year package in 2015, the story was international expansion. Uber was hosting as many rides in China as in the U.S. Its promise lay in flexing its muscles as a taxi-alternative in China and other countries.
A lot can change in 12 months.
In August, Uber announced the merger of its China branch with domestic competitor Didi Chuxing in exchange for roughly a 20 percent stake in the Chinese company. The move served as a rare moment of deference, as the startup juggernaut effectively gave up its share of the rapidly growing Asian ride-hailing market. But you'd be mistaken to take it as a sign of weakness.
Rather, you might say the class troublemaker is finally growing up. In 2016, Uber looked to shake off its "taxi-sharing 2.0" moniker by expanding into markets outside of its core ride-sharing business. Among others, it launched into food delivery and kicked off a major effort into self-driving cars.
"In 2014, people talked about Uber disrupting taxis," says James McQuivey, vice president and principal analyst at Forrester Research. "In 2015, people thought it could disrupt taxis, rental cars, and car leasing. But it was 2016 when people understood--largely thanks to the self-driving car conversation--that Uber was targeting a much bigger question and had much larger ambitions. Uber's principal achievement in 2016, then, is in convincing investors, customers, partners, and ultimately an industry that the future of transportation is fully up for grabs."
Uber regional general manager Rachel Holt calls the company's choice to exit China tactical. While the company pumped roughly $2 billion into China, the outlay has turned into a $7 billion stake in Didi, a $36 billion company. The Chinese company also wound up investing $1 billion in Uber following its acquisition of Uber China, she said.
What's more, the consolidation also allows the company to plow resources elsewhere (food delivery, for instance) or into existing markets, thereby allowing Uber to widen its lead. The move also says something about how Uber operates as a company.
It means Uber can forgo lofty rhetoric to make itself a less-risky investment, says Arun Sundararajan, who specializes in the sharing economy at New York University's Stern School of Business. "It signaled a maturity the company has attained."
Holt touted Uber's ability to expand quickly despite already being a large company. Its latest valuation was $66 billion. Holt says the company passed a billion trips in December 2015, and then six months later reached the two billion trip mark. That's twice as many rides as there are people in the Western hemisphere.
But perhaps the biggest factor behind Uber's growth in 2016 came in the form of self-driving cars, which the company put on the road in Pittsburgh. Uber is sending the message to investors that it already has technology it will need to claim a stake in what Sundararajan estimates will be a $2 trillion market in the U.S. That estimation includes the current market for new and used cars and the cost of maintenance of those vehicles.
"Even if Uber can get 10 percent of that market, in the long run that still gives them a revenue of $200 billion [a year], which will make them one of the biggest companies in the world," says Sundararajan, who didn't divine when he thought this might happen.
Navigating Speed Bumps
Of course, there were some misses in 2016. The company dropped its instant delivery service in New York City from its food-delivery platform, UberEats, within one month of announcing its launch. And the company has run into legal issues and fines in France and Germany.
Lawsuits also dog Uber on its home turf. The San Jose Mercury News reported in July that the company was embroiled in more than 70 lawsuits in federal court. Forty-six were filed in 2016 alone. Cases range from drivers claiming entitlement to employee benefits, to issues of wheelchair access, to riders saying Uber should be held accountable in situations in which drivers are alleged to have committed sexual assault. These types of legal fights may show where Uber has the most room to grow in terms of acting mature as a company.
Sundararajan adds that Uber should also be concerned about investors pressuring the company to go after profit prematurely, say, by filing for an initial public offering. It's still in the company's best interest to remain private for a while longer, he says. That way, the NYU professor insists, it can make a greater leap into autonomous vehicular transportation.
"Investors have to realize that [Uber is] really going after a bigger pie here. They have to lose money to gain market share," he says.