All of the ride sharing (or ride hailing) companies have been under attack in the United States, pretty much from the moment they opened their virtual doors. They faced huge hurdles in establishing their businesses, mostly because of the incestuous relationships which exist between state or local governments and the cab companies and their unions. Lobbyists from that industry were sadly effective in their efforts to pressure politicians into holding back the new technology because of the daunting competition they would be facing. But it turns out that Uber, along with Lyft and the other major players, are facing uphill battles in other parts of the world. Two stories from over the weekend highlight this trend.
The first is a refreshing example of pressure not coming from corrupt government actors, but from actual competition. Uber is seeing a major challenge from a different service using similar technology in Asia. Over there, a company named Grab is raising major venture capital and, at least thus far, is beating Uber in the race to attract customers. (Reuters)
Grab, Uber Technologies Inc’s biggest ride-hailing competitor in Southeast Asia, said it expects to raise $2.5 billion in its latest financing round that will help bolster its leading position in the region and grow its payments platform.
Chinese peer Didi Chuxing and Japan’s SoftBank Group Corp, both of which are existing investors, will invest up to $2 billion to lead the current financing round, it said in its statement on Monday.
Grab expects to raise an additional $500 million, bringing the total to $2.5 billion in this round, which it said would be the largest-ever single financing in Southeast Asia.
Grab is expected to be valued at more than $6B very shortly and may be the dominant player in Southeast Asia. Unlike the aforementioned problems Uber faced in the United States, this seems to be legitimate competition in the open market. Nothing wrong with that at all. Uber and Lyft will have to fight for their share of the pie over there and if they can’t compete they will lose out as customers vote with their wallets.
The second story, however, is far more familiar and discouraging. It comes out of Spain, where cab companies are enlisting the aid of the government to try to squeeze Uber out of the market. (Associated Press)
The city of Madrid has asked Spain’s anti-trust watchdog to investigate whether Uber’s new airport transport service violates fair competition laws.
Uber, the San Francisco-headquartered mobile ride-hailing service, offers rides from 15-29 euros ($17-$34) from Madrid’s airport to the city center. The fare for taxis is set at 30 euros ($35).
In a statement Saturday evening, Madrid’s city hall says “(Uber’s) tariffs may violate several articles of the Law of Unfair Competition and consumer rights if they are below the cost of providing the service.”
The cab companies are relying on two different legal barriers which were clearly put in place to eliminate competition. One is a local law which states that there should only be one “private company vehicle” on the road for every thirty cabs. I have no idea how one gets a law such as that passed, but it’s certainly a sweet deal if you happen to be a cab company.
The other is some sort of “Law of Unfair Competition.” I suppose there could be cases where such a law might be useful if big companies with deep pockets are trying to shut out small competitors by intentionally selling at a loss until they drive them out of business. (De Beers is famous for doing that in the diamond industry.) But the fact is that Uber just has a business model with a lower cost of operation, with the majority of the revenue going to the driver. The article cites a typical fare from the Madrid airport as costing $30 because it is “set” at that rate. Uber’s flexible system delivers the trip for anywhere from $17 to $34. When you compare that to how much a ride costs in the United States vs taking a taxi, that sounds about right. But this may turn out to be one more example of the cabs being able to enlist the government in their war on ride sharing.
Just as a personal anecdote, it was only this summer when Uber was finally allowed to begin operating in western (upstate) New York. Due to the amount of time I spend in the region I had always been forced to take cabs (which I never do when visiting D.C., Philadelphia or other large cities where Uber is available). This month I hailed my first Uber up here and, yet again, I vowed to never take another cab as long as the ride sharing service was available. If the cabs can’t learn to compete and deliver the kind of reliable service that Uber and Lyft do, they’re going to be left with a market share composed of only those who can’t get a credit card or still won’t use a mobile phone. That’s a fairly small and less profitable target audience so they should probably get with the times.