The 3 Biggest Predictions About Uber and Ridesharing in 2017 and Beyond

Ridesharing is in an interesting, transitional period. Services like Uber and Lyft are extremely popular in America and have devastated traditional taxi services in major cities in the USA. In addition, other competitors have cropped up as Uber has gone worldwide, such as Careem in MENA, Didi Chuxing in China, Grab in Southeast Asia, and Ola in India. It’s clear that ridesharing services aren’t going anywhere, and for good reason. They’re convenient, often less expensive than taxi services, and offer 21st century portability and easy on-demand ordering and payment.

But what’s going to happen to ridesharing, and to Uber, in 2017? Read on to see our top 3 predictions for Uber in 2017. And remember – as goes Uber, so go other ridesharing services.

1. UBER WILL CONTINUE TO EXPAND ITS ROBOTIC, SELF-DRIVING FLEET

Uber autonomous vehicle

Uber has already rolled out self-driving cars in Pittsburgh in September 2016, where they first tested the capabilities of a fully autonomous fleet. These Ford Fusion cars were equipped with fully automated driving systems for picking up passengers and taking them to their destinations, made up of high-end GPS systems, LIDAR laser radar systems, and a large complement of 3d cameras. And while they did drive themselves most of the time, in accordance with current laws, they contained two Uber employees in the front seats to resume manual control if something went wrong.

Uber hasn’t stopped there, and we doubt they will – they’ve recently begun testing a larger fleet of self-driving cars in the streets of San Francisco, with a larger fleet of more specially-equipped Volvo vehicles, and – despite some difficulties with regulators, and reports of one of their self-driving cars running a red light, it has become clear that Uber is going to continue testing, perfecting, and investing in driverless infrastructure.

The reason for this is simple enough – Uber needs money. In an effort to remain competitive, and to squeeze out competitors, Uber dropped their fare rates in 2016, and while this has led to an overall cheaper ride for users of the app and squeeze out competitors (although Uber maintains an 87% market share) the effects on the company itself have been nothing short of devastating – in the first half of 2016 after they lowered their prices, Uber lost $1.2B. Extrapolated to a yearly loss figure of $2.4B, that represents approximately 3% of Uber’s total market valuation.

Now, Uber still remains in business because they’ve made up their losses from investor capital – but that’s clearly only a stopgap solution. If they continue to do that, they risk ruining their credibility, as it will be impossible for them to ever turn a profit. This is a position that other tech companies like Twitter, with high market valuations but low abilities to offer actual, real-life ROI, have encountered. As we see in Twitter’s case, after their IPO, things didn’t go well.

twitter ipo

Twitter IPO. Source: Flickr

So Uber has two choices. Firstly, they could raise their fare again so that they at least break even on their rides – and as they continue to grow in popularity in 2017, we would not at all be surprised to see some rate hikes as they continue to choke out competitors and traditional taxicab services.

Second, they can lower overhead. Now, Uber doesn’t own any of the vehicles operated by its fleet of drivers, nor do they pay them benefits, give them insurance, pay for their gas, or give them any additional help. Given this fact, it may seem impossible for them to lower overhead any more than they have – their only overhead basically consists of infrastructure, employee salaries, and development cost for new features and hardware.

uber predictions

Source: Pixabay

So how can you get a return on investment when you’re not even investing anything in the first place?

Simple. Drivers that you don’t have to pay. With driverless cars, Uber can take the money it’s been spending paying drivers and invest it in a large fleet of driverless cars which, amortized over time, offer a great investment opportunity, and some hard assets that Uber can actually claim to own – meaning money spent on these vehicles isn’t wasted. Once fully realized, these cars will be able to offer constant, consistent service at incredibly low rates, and will likely squeeze out just about all human-operated competitors, and perhaps even have a negative impact on public transportation, if they are inexpensive and easy-to-use.

To us, this seems like the end goal of Uber – they’ve used their human drivers as a way to perfect their ride-calling technology and establish a business base, and now they’ve invested heavily in self-driving tech (even bringing in Carnegie Mellon researchers) in order to bring down costs, and further dominate the market.

ridesharing predictions 2017

Source: Flickr

However, full automation of Uber’s fleet – while likely imminent, is quite far off on the horizon, given the pushback from lawmakers and the limitations of current technology. So while Uber will continue to expand into the self-driving market in 2017, its drivers are likely safe – for now.

So how will Uber continue to fund its operations while preparing its robotic fleet?

2. Uber Will Begin Setting Up (Or Release) an IPO in 2017

uber predictions 2017

Uber is one of those extremely rare tech companies that becomes a “golden child” in Silicon Valley and with venture capital investors everywhere. In common investor parlance, a one-of-a-kind, can’t-miss investment is known as a “Unicorn”. But Uber has gone beyond that status, residing among giants like Snapchat and Palantir, to “Decacorn” status – companies that are worth tens of billions of dollars, and still have huge potential for growth.

As of December 2016, Uber was valued at about $68 billion, though some experts disagree on that number. However, in 2015 it was valued only at $50 billion, and in 2014, Uber was valued at $41 billion. Clearly, Uber’s growth isn’t slowing down – though as mentioned earlier, the company is struggling to turn a profit – and its continued iron grip on the ridesharing market in the US continues to turn heads.

uber growth chart

Uber is the most highly valued venture-backed company in the world at the moment, and this fact likely has not escaped the venture capital investors and executives in the company, who are likely set to make a small fortune if and when the company begins to sell stock to the public.

Given the fact that Uber has hit its higher market valuation of all time this year, and is still struggling to turn a profit, there are two ways we can see an IPO going, and which viewpoint you take depends greatly on whether or not you’re cynical about Uber and their business model, or if you truly believe that their continued growth is a good thing, and believe in the company.

If you’re a cynic, and don’t believe Uber’s market approach is sustainable:

The board and investors make a gigantic profit on Uber’s market valuation and leave the company to struggle while continuing to take huge losses, due to the failure to turn the massive profits that their valuation would suggest they’re capable of (and that the public would expect after an IPO). By selling off their stock and abandoning ship before the company goes completely bankrupt, they would make a huge profit, and as Uber falls, they would rise on a lifeboat made of cash.

uber and ridesharing predictions

Many are afraid of another dot com bubble bursting in near future. Source: Flickr

This is a basic “bubble-bursting theory”, and we’ve already seen several Silicon Valley startups go through this process – Since their IPO in 2015, Twitter has struggled massively, with stocks consistently reaching records lows after a promising IPO.

And while it’s a very different industry, Theranos, the beloved “unicorn” healthcare startup in Silicon Valley that offered “pin-prick”, painless blood tests and analysis, has had its valuation reduced from $9 billion to $0, after widespread allegations of corruption and misleading information released to the public. While Theranos hadn’t gone public, it surely was on the path to if its huge growth had continued, as it was boosted by some of Silicon Valley’s best and brightest.

So if you think Uber is just another tech company that’s built to attract massive amounts of cash and then go bust, there is a precedent for that sort of thing.

However, that’s not how we see things going for Uber – at least not as they continue to invest in technology like self-driving cars. This tech giant clearly has big plans for the future, and an IPO might be part of that.

The second way an IPO could go is:

An IPO gives the company a massive influx of cash, and they use this money to continue to invest in infrastructure and self-driving cars while continuing to use investor money to cover up stopgap losses due to lower fares. After doing so for several years, Uber will then roll out their massive fleet of self-driving cars, which will have an enormous market capitalization due to Uber continuing to squeeze out competitors with very low fares augmented by investor capital. In around the early 2020s, Uber will become the only game in town when it comes to ridesharing, totally obliterating competitors like Lyft and others by offering low-cost rides in self-driving cars.

“My politics are: I’m a trustbuster. Very focused. And yeah, I’m pro-efficiency. I want the most economic activity at the lowest price possible. It’s good for everybody, it’s not red or blue.” – Travis Kalanick, CEO of Uber

Of course not everyone is impressed by the above claim of Kalanick. According to the Social Costs of Uber report published by the University of Chicago Law Review, Uber “seems determined to alienate just about everyone else.”

And if it has to crush every competitor, it will need lot of cash. And an IPO would be one way to continue to get the cash needed to cover the low-cost rides that are currently being offered in an effort to gain a total monopoly on the ride sharing market. This course of action would require great trust on the part of the public if Uber does decide to do an IPO, because the continued losses required to totally squeeze out competition would have a deleterious effect on the stock prices of Uber.

However, Uber is running out of other places to get cash – after a gigantic investment from Saudi Arabia, Uber is surely still looking for other places from which to get a cash injection and continue their growth, and an IPO would be one of the best ways to do so.

Whichever way the IPO goes (or regardless of Uber’s IPO status, though all signs point to an IPO, including Uber Chinese competitor DiDi considering an IPO in 2017), Uber will continue to grow in market share, using investor money and its already huge presence to choke out competitors in other markets.

Which leads to our third prediction.

3. Uber will continue expanding worldwide

Uber’s investor capital will continue to fund worldwide expansion. In 2011, Uber expanded into France. In 2012, the UK. In 2013, Taiwan and Johannesburg, South Africa, and India – only a handful of countries each year. But as time has gone on, so has the rapid, exponential increase of Uber services in countries around the world. In 2016, Uber has expanded operations to 400 cities across the globe – representing 400% growth from their market share of less than 100 cities in early 2014.

This continued expansion is the third part of Uber’s overall growth strategy. Investing heavily in cities worldwide to help squeeze out local competitors, and using their system of augmenting the cost of rides to help undercut other ridesharing services such as Careem in MENA and DiDi in China, Uber hopes to become the premier ridesharing service not just in the US, where it has over an 80% market share, but globally, where Uber continues to slug it out with local competitors.

It is interesting how Uber chooses to compete. Lowest prices, poaching other ridesharing companies drivers, and twitter spats – all seem to be part of the war Uber has waged. Check out some examples of these below.

uber offers

Uber is taking full advantage of it’s enormous funding to crush it’s biggest rival Lyft. Source: Business Insider

A 2017 IPO would really help Uber continue to fund their rapid worldwide expansion, as the international operations of Uber are still not profitable – operating on spec and growing around the world rapidly while taking heavy losses, hoping to squeeze out global competition and capitalize on a near-monopoly once they have appropriate technology and market share.

And while Uber is facing stiff competition from other ridesharing services, continued worldwide growth is necessary for them to continue their market dominance, and ensure the largest profits possible once they begin moving away from hired drivers and into the self-driving market.

This expansion isn’t limited just to new countries, though – Uber has robust plans to continue to gain ground in heavily contested areas, such as in India – they recently announced a plan to purchase over 200,000 cars over the next couple years and lease them out to drivers who wish to work for the service. Uber also continues to battle over the Chinese marketplace, despite losing over $1B per year while fighting DiDi, a growing Chinese competitor formed from the alliance of two of the largest Chinese taxi services.

While it seems nothing stands in the way of Uber from becoming a huge monopoly within ridesharing, it seems there are a few hurdles which it has to deal with in order to make the above predictions true.

The Biggest Challenges:

As the saying goes, ‘the road to success is paved with challenges.’

Here are a few of the most challenges that Uber faces:

  1. The allegations of sexual harassment and sexism: On her personal blog, a female engineer and former Uber employee Susan Flower described a horrifying tale of how women have to face misogyny and even sexual harassment with the HR doing nothing about it.
  2. The Waymo Lawsuit: Waymo – a self-driving startup Waymo (created by Google’s parent company Alphabet) has believes Anthony Levandowski – a former Google executive stole around 14,000 files (around 9.7 GB of sensitive data) of their company to start his own self-driving truck startup Otto in February 2016. This startup was then bought by Uber six months later for a whopping sum of $680 million. Waymo is now doing all it can to stop Uber from “working on a competing self-driving vehicle that Waymo claimed could be using stolen technology.”
  3. Tech and Associated Legal Challenges: Of course the biggest challenges of all may be how safe and smart the self-driving cars are. Things like accidents (an Uber self-driving SUV was involved in an accident in Tempe after which Uber took its self-driving cars off the roads of Arizona) or failing to recognize a red light may not only be technically challenging but may force local governments to ban self-driving cars – at least until the technology is safer and better.
travis kalanick

“We’re totally legal, like totally legal, and the government is telling us to shut down. And you can either do what they say or you can fight for what you believe.” – Travis Kalanick. Source: Wikipedia

Conclusion:

“If we can get you a car in five minutes, we can get you anything in five minutes.” – Travis Kalanick’s Vision for Uber

While they may seem somewhat disparate, all of these predictions have one thing in common – Uber will continue to take major losses in order to invest in infrastructure, international and domestic expansion, and to ensure low ride costs for users of the app, all in an effort to remain the market leader and force competitors to run at a loss, or go out of business entirely.

uber

Source: Pexels

They will need money to do this – Uber does run profitably in the US, but as mentioned repeatedly, they’re suffering overall major losses due to their massive expansions and investments. One of the best ways that they can get more money is by offering a large IPO, and given that they’ve recently hit their biggest market valuation yet, 2017 is looking like a good year to do so.

Once they go public, Uber will likely continue to use the money gained to expand operations and offer lower fares, all while designing and perfecting their self-driving cars, which are already very effective. For the next couple years, we’ll likely see Uber continuing their massive expansion, and taking losses worldwide in an effort to establish themselves as international market leaders.

Then, probably in the early 2020s, when their self-driving technology is ready for market, and appropriate legal procedures are taken, Uber will begin investing very heavily in self-driving cars owned by the company itself, which will offer quick, efficient, and incredibly inexpensive service. We’ll likely also see a corresponding drop in human drivers working for Uber around that time, as they’re squeezed out by the much lower costs and higher efficiency of automated cars.

Once that happens, Uber will have cemented its status as the leading ridesharing service by offering cheaper rides than human-driven competitors, and if it hasn’t already established a total monopoly, we’d be surprised.

This is when Uber’s true design will come to fruition. They will stop taking heavy losses, as they don’t have to pay drivers, and if they’ve offered an IPO, this is likely when stock prices will start to rise, as the company finally begins to turn a profit.

Which of these three predictions come true, and which ones don’t will be a matter of record. Only Uber’s top board of directors and executives know exactly their path forward.

But signs such Uber’s high propensity to invest heavily in new technology and international markets, even at a loss, suggest that they have something bigger in mind than just being the top human-based ridesharing service in the world, and their gigantic investments in self-driving technology show them the most cost-efficient, profit-maximizing way forward.

So even if these changes don’t come to pass in 2017, it will certainly be the starting point. Advances in technology are changing the way we are transported, and Uber, always a market leader, will surely be at the forefront of this brave new world.

And of course, they have to ensure that they deal with the challenges they face (from sexual harassment to lawsuits from competitors) swiftly and quickly.