Uber has become a synonym for rise sharing facility; not only in the USA, but also across the globe. However, a recent incidence has literally shaken Uber’s position in the country. Reports suggest that software giant Google has joined hands with lesser known (or lesser used) ride sharing facility Lyft. According to these reports, Waymo, Google’s sibling self-driving-car technology company has inked a deal with Lyft to develop and test autonomous-car technology. This is a major threat to Uber and a likely result of its legal battle with Waymo.
Uber threatened with Google’s association with Lyft
Ride-sharing as a business category has been hot, with most of the activity concentrated in Uber and it’s roughly $68 billion market valuation. In comparison, Lyft is valued at $5.5 billion. However, both companies have a basic ongoing economic problem. The operational realities of costs versus revenue are ugly.
Companies use drivers who are treated as contractors, much of the gross revenue has to go to those individuals to cover vehicle costs, fuel, insurance, maintenance, and credit card and license fees before talking about pay for the drivers. This also benefits for those who try to do this full-time.
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For Uber, rideshare businesses can’t easily scale because the major operational costs outside of pay. These include fuel, insurance, fees, and all automobile costs which are borne on a per-driver basis. The companies cannot get too involved by providing mass purchasing or they stand to lose the huge tax and regulatory advantages of working with contractors.
Huber Horn, author of the Naked Capitalism articles mentions,
“Drivers, vehicles and fuel account for 85% of urban car service costs.”
This is the greatest lesson for Uber as it’s important to distinguish between strategy and tactics. Uber has often seemed to focus heavily on tactics. However, today’s smart tactics can be tomorrow’s foolish strategy. Hence, it is better to rely on strategies rather than tactics. Google’s association with Lyft is the example for this situation.
Date: 17 May, 2017