Uber’s impact on cities has been immense over its 10-year history. The ride-hailing app has gone from being a cheaper and easier black car service to a more convenient taxi service, but recently shifted its current orientation toward being a mobility platform with a range of transportation modes to suit the needs of ever more users.
As Uber prepares for its highly anticipated initial public offering — rumored for this spring — there are escalating concerns over the sustainability of its business model and what it’s doing to the cities it operates in. Addressing these concerns will be essential to the company’s future, but it’s still unclear if the company will be able to do so effectively.
As Uber approaches its initial public offering there are escalating concerns over the sustainability of its business model and what it’s doing to the cities it operates in.
In February, Uber reported its fourth quarter results, which showed it lost $3.3 billion in fiscal year 2018 once the benefits from the sale of its Southeast Asian operations to Grab are excluded. The company’s revenue growth has also significantly slowed. While the loss is an improvement on the $4.5 billion it lost in 2017, it’s still huge. Tech companies are known for losing a lot of money when they’re getting started, but Uber has lost massive sums since it was founded in 2009. Even Amazon, previously known for not making money, never reported an annual loss of more than $1.4 billion.
And that may not change anytime soon. A 2016 assessment of Uber’s financials by transportation consultant Hubert Horan showed that users paid an average of only 41 percent of the actual cost of their rides, as fares were subsidized to undercut competition and gain market share. Further, Uber’s initial plan to pursue an Amazon-like growth model didn’t translate from e-commerce to transportation. The vast majority — 85 percent — of its costs are driver salaries, who have to pay for their own vehicles — and those expenses don’t decline significantly with scale. While these numbers have likely changed a bit since 2016 — Uber has cut driver pay, but angered drivers and increased turnover in the process — there’s no reason to believe the picture is significantly different within its ride-hailing service.
Financials aren’t Uber’s only problems, though; a growing body of research confirms what some urban residents have been saying for a while: ride-hailing apps in general are also wreaking havoc on cities.
A report out of UC Davis in October 2017 looked at seven major metro areas — Boston, Chicago, Los Angeles, New York, San Francisco, Seattle and Washington, D.C. — and found that between 49 and 61 percent of ride-hailing trips either would not have been made or would have instead been made by taking transit, walking or cycling if Uber or Lyft had not been an option. The researchers also concluded that 91 percent of ride-hailing users had not made any changes to their vehicle ownership status, and when a household did sell a vehicle, it made up for the reduced driving miles by simply taking more ride-hailing trips.
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That report does not, however, exist in a vacuum. Another study by Boston’s Metropolitan Area Planning Council published in February 2018 similarly found that 59 percent of ride-hailing trips in Boston either would not have been made or were replacing trips that had previously been made through transit, cycling, or walking. The San Francisco County Transportation Authority also reported in June 2017 that ride-hailing services represented 5,700 vehicles on the roads during peak weekday hours — 6,500 on Fridays. The services made 12 times the number of taxi trips. On average, that meant a minimum of 170,000 trips and 570,000 miles of travel on a typical San Francisco weekday, mainly concentrated in the densest and most congested parts of the city, which are also the most walkable areas with the best access to public transit and cycling.
While Uber claimed that its service would allow people to get rid of their cars, the research so far hasn't shown this is happening.
So while Uber claimed that its service would allow people to get rid of their cars, the research so far hasn't shown this is happening. Uber also used to claim that by reducing car ownership, it would reduce traffic congestion. Instead, the research suggests Uber often converts transit, cycling and walking into vehicle trips, thus worsening congestion.
There’s been concern for some time that Uber was taking users from transit, especially as increased congestion made buses less reliable. In January 2019, researchers at the University of Kentucky released a report that quantified this phenomenon. Looking at 22 major U.S. cities, the researchers estimated that the introduction of ride-hailing services caused an annual decline of 1.29 percent in heavy rail ridership and a 1.7 percent decline in bus ridership. Since this effect accumulates over time, bus ridership in San Francisco would have suffered a 12.7 percent reduction since Uber and Lyft started operating in 2010 if all other factors were stable. That’s a staggering figure, especially considering how reducing car trips and increasing transit and cycling will be essential to meeting climate targets.
Faced with a still-unprofitable operating model and growing criticism of the negative urban impacts of its ride-hailing service, Uber has pivoted the company’s focus since the March 2018 fatal crash between one of its self-driving test vehicles and a pedestrian. Former CEO Travis Kalanick had positioned self-driving cars as the company’s path to profitability: by automating drivers, a significant cost would be eliminated, allowing Uber to finally get in the black. The crash highlighted how long autonomous driving technology will likely take to perfect, blowing the promised profitability timeline.
Kalanick’s replacement, Dara Khosrowshahi, has a new vision for Uber’s future — one that he hopes will convince investors to allow major losses to continue in order to achieve a larger goal.
Khosrowshahi is set on turning Uber into the “Amazon for transportation,” or the dominant digital platform in the transportation space, which has resulted in a shift in focus from the ride-hailing service to Uber’s app. Instead of imminent profitability, Khosrowshahi is instead promising investors monopoly, which will eventually allow it to extract rents from other transportation providers that will pay for the long-promised return on investment.
In order to achieve this, Uber has begun expanding its offerings. In April 2018, it bought Jump Bikes, a dockless bike-share service that has since expanded into scooters and which Uber claims is beginning to cannibalize its shorter ride-hail trips. The company has also signed agreements with third-party providers to expand the options in its app, including Lime’s scooter-sharing service, Getaround’s car-sharing service, Masabi’s transit ticketing — to name just a few. It also announced a partnership with Denver’s transit agency to allow its services to appear in the Uber app — notably, this news came just a couple of weeks after the University of Kentucky report on Uber’s negative effect on transit ridership.
These partnerships are certainly more convenient for Uber users, and could attract more people to its app, increasing its share of the trip-planning market. Uber also takes a cut of the revenue from each trip booked through its app — those are the rents I mentioned — which are low for now, but could increase as its dominance grows. More importantly at this juncture, the third-party services also provide Uber with more data on urban transportation patterns so its trip-planning functions are better than its competitors. More options and a better service will help to attract more users, which makes a great pitch to investors ahead of its IPO.
But government and transit agencies need to consider the implications of allowing Uber to control urban trip-planning. Instead of aiding Uber’s platform monopoly ambitions, as Denver did, transit agencies need to think about what’s best for their residents. Capitalism can enable innovation, but it rarely prioritizes the greatest social good.
There’s no reason why public agencies can’t innovate on their own: that’s what Berlin is doing with its new Jelbi app, which brings together public transit, bike share, scooters, car-sharing and taxis in a single convenient interface. American cities should be doing the same. The world has enough tech monopolies, and every week seems to bring new revelations about their nefarious behavior. Urban residents deserve better, and public agencies should step up to protect the public interest.