Why Uber may be just the beginning for fledgling ride-hailing industry

Ride-hailing industry observers are split on whether Uber will become the winner of its fledgling industry.

Lucy Nicholson/Reuters
A driver displays Uber and Lyft ride-sharing signs in his car windscreen in Santa Monica, Calif., May 23. While Uber has thus far dominated the ride-share industry, some economists still see room for competition.

Ride-hailing industry observers are split on whether Uber will become the winner of its fledgling industry.

Some say there’s only room for one dominant company in each international market. Yet others point out that there’s definitely room for more, given that it’s so easy to start a ride-hailing service: There are no infrastructure costs, few employees, and no reason for customers to get locked in. For riders, who can order rides quickly and easily through a phone app, the more competition the better.

"That one firm wins is a narrow and not accurate way to think about these firms," David Evans, chairman of the Global Economics Group and co-author of a recent book that discussed Uber, called "Matchmakers: The New Economics of Multisided Platforms," said in an interview with Reuters.

Of course, Uber, which started the industry in 2009, is doing everything it can to become the ride-hailing industry’s No. 1 worldwide. The company offers generous driver and rider subsidies, and reportedly recruits drivers aggressively from its biggest US competitor, Lyft, which appears to do the same from Uber.

It’s also fending off regulators in cities worldwide, and the traditional taxi industry, which claims the web app flouts taxi laws. There are also the class-action lawsuits brought by some of the company’s 1.5 million freelance drivers globally, who want to be treated more like employees.

Despite the challenges, the private company has raised more than $16 billion from investors and is valued at $69 billion, making it the most valuable startup in the world. Its biggest competitor is Lyft, but according to Bloomberg, Uber delivered five times more rides in July than its competitor: 62 million versus Lyft's 13.9 million. Lyft points out that this is because Uber operates in more markets.

"Uber's alleged market share is a misleading and skewed statistic," a spokeswoman for Lyft wrote in an e-mail to Bloomberg.

Uber's astronomical valuation aside, the company has lost $1.27 billion in the first half of the year, mostly because of its heavy investment in China, the company told shareholders this week. But last month it signed a collaborative deal there with its largest global competitor, Didi Chuxing, and is leaving that market. This should stem the flood of losses for Uber, says the company. Overall, the seven-year-old ride service has lost at least $4 billion in the history of the company, reports Bloomberg.

"You won't find too many technology companies that could lose this much money, this quickly," Aswath Damodaran, a business professor at New York University who is skeptical of the company's valuation, told Bloomberg. "For a private business to raise as much capital as Uber has been able to is unprecedented."

Of course, Amazon is also famous for losing money for years while growing its market share. But the company appears to have finally turned a corner and has been reporting consistent profits in recent quarters, largely thanks to its cloud computing business.

This report uses material from Reuters.

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