A Case Against Uber

Yesterday I have had the honor to attend Professor Tuan Bui’s presentation (Shidler School of Business, U. of Hawaii) on the Uber phenomenon and how it has transform the business landscape. His powerful, thought-provoking oration has sparked many debates concerning the true nature of Uber, its strengths, weaknesses, as well as possible scenarios for its future. However, due to the unfortunate shortage of time, the debates had to be prematurely ended, leaving many curious minds unsatisfied, including mine. That dissatisfaction has prompted me to pick up my pen (OK, laptop) and put these boiling thoughts into words – words on what I perceive could cause Uber’s ultimate downfall, and the fate of other Uber-like businesses.

First, let us face this undeniable fact: Uber is mighty indeed. In a mere 6 years, Uber has gone from nil to a world-wide tech giant, operating in over 300 cities and having a valuation of approximately $50 billion. As with any other tech startup company – see Google and Facebook – the miraculous rise of Uber was met with criticism and doubts, with legal issues, controversies, with protests and resistance from other companies. Regardless, Uber still managed to captivate the hearts – and wallet – of many investors, raising billions after billions in capital. Its sudden emergence and subsequent success also spurred the copycats to birth a myriad of other services based on the same concept: connecting the suppliers and the consumers directly. Verily, there is no overstatement when Prof. Bui said that Uber is a phenomenon which has shaken up the entirety of the business world: One needs not to look too far away from the front page of every news source out there, respectable or not, for proof.

However, I think it is this very sudden emergence that may spell doom for Uber. It is this very sudden emergence that served as a wake-up slap for stagnant, slumbering taxi companies that had been content to provide sub-par services at an outrageous fare. Facing the imminent threat from Uber, these companies had no choice but to innovate themselves, to drastically improve their image and the quality of their services. So far, the main selling point of Uber, under the customers’ perspective, is on-the-go convenience, ease of payment, a multitude of options to choose from, and above average quality of services. These, in my opinions, are in no way unrealistic, unachievable goals for existing taxi companies; they were simply lacking an impetus to do so. With Uber being that much-needed impetus, those taxi companies will now implement changes to erode the advantages that Uber is now holding over them. Once those advantages are finally indiscernible, Uber will have very little to boast about themselves other than being yet another taxi provider. Had Uber’s rise to fame more subtle and more gradual, its competitors might have been lured into a false sense of security and failed to refresh themselves in time, thus resulting into a complete takeover by Uber. Unfortunately, that was not the scenario happening now.

So what, you may ask, if Uber cannot dominate the world? Uber has already grabbed a large share of the taxi market all over the world already, and it is unlikely that, even after its advantages disappear, Uber will recede into obscurity any time soon. Take a look at Apple who usurped the undisputed champion of the PC world Microsoft, or Google who usurped the once mighty now struggling Yahoo!, or Amazon who usurped the seemingly insuperable dominance of brick-and-mortar stores. None of those companies are going away, so the same must be true for Uber, right? The answer, in my opinion, is: Not really. Although Apple, Google, and Amazon all have had as drastic a rise as Uber’s, none of these companies relies on the same concept as Uber: Directly connect suppliers and customers. Now another question emerges: Why is that a bad thing, anyway?

One, the world economy shifted from the direct sales system to the middle-man system for a reason. Albeit convenience, fast, and easy, the direct sales system has many critical flaws that prevented it from being the preferred transactional method: Its logistics is a nightmare, prices vary widely and subjected to deceits and exploits, and regulation is extremely difficult and inefficient. Technology advances have helped Uber mitigate the logistics problem, thus making the “convenience, fast and easy” part more attractive. However, the latter two problems still remain, and they will catch up with Uber in due time.

Two, Uber is treading in a grey water area when the laws are concerned. Despite advertising themselves as being simply the ‘bridge’, the ‘connection’ between the suppliers and the customers, the fact remains that Uber is still a for-profit company, and it still holds sway over its pseudo-employees. Therefore, those who work for Uber will soon find themselves at its mercy with no way to fight back: After all, they are their own bosses who elected to ‘use’ Uber’s service to find consumers. As a result, drivers’ rights are left vulnerable and undefended. This prompted many countries to impose old laws on, devise new laws for, or even outright ban Uber. Lawsuits after lawsuits are plaguing Uber right this moment, and all these lawyers’ fees are not going to have a positive impact on Uber’s bottom line.

These two reasons together mean that Uber’s operation in many countries will be significantly altered. In France, for example, Uber was forced to treat its drivers as not subcontractors but employees – which equals insurance, social security and other benefits to the drivers. This law turned Uber into yet another generic taxi companies, with arguably a slightly better booking and payment system, no more no less. If more countries and cities follow suit, Uber would lose its pricing advantage, which in turn will further reduce the number of reasons to choose Uber other than the novelty.

It is true that even after all of the above, Uber may still retain its market share after its novelty wears off. There is still a final blow, however: Uber greedy strategy and voracious expansion may ultimately backfire and cripple Uber itself. Unlike Google and Amazon who deals with an invaluable but tangible asset – the Internet, Uber deals with tangible products and services, which requires careful planning before going worldwide. Even Apple, whose ubiquitous products have penetrated nearly every corner of the world, relies on the supply chains and other middle-man to achieve its present coverage. Uber, with its core tenet of “screw the middle-man”, will soon find itself scattered, unfocused and unsure of what to do next. I personally do not think Uber has the unlimited resources required to expand that quickly and yet still remain sound. And when one domino falls – when Uber finally concede defeat in one country to conserve its resources – the crazed investors will come to their senses and stop pouring more money into Uber. What results would be one of the most spectacular bubble burst in recent memory.

What would happen next? It is very hard to predict – after all, trying to predict the future is no more different than trying to guess which Shakespearean piece an army of infinite monkeys armed with typewriters would produce next. However, seeing as how money is still being poured into Uber, I think we can safely assumed that Uber is not going anywhere soon. It may lose half of its markets as it reorganizes and finally defines its priorities, but where it has already gained a strong foothold, it would be a significant player there. Unfortunately, that is also all it could do: Asides from those “home base” cities, elsewhere it would regress into nothing more than an interesting name, a novelty, a niche service. I think, that is also what all the Uber imitators would eventually become: A niche market. As Craiglist did not usurp Amazon or eBay, and as crowd computing did not usurp supercomputer clusters, Uber is not going to usurp anyone in the long run.