A job for the Ubermensch

While walking his 2 Roam’n war dogs, Trajan listened into the local NPR station where Marketplace was playing. Generally we consider Marketplace to be rather lightweight when it comes to economic news but there was an section on there about “Uber”. It apparently has been valued at $18 Billion.

The latest venture-capital investment in Uber, a mobile app that allows users to hail a ride in a town car or taxi, pegs the company’s value at more than $18 billion. That’s more than United Airlines or Sony, just shy of what car-rental Avis and Hertz are worth together. That may seem high for a company with direct competition like LyftSidecar and the entire taxi industry.

For Uber to be worth what investors are betting, the company might need to capture half of the worldwide market for taxis, says Andy Brennan, author of a recent report on that industry from IBIS World Research.  “I can’t see that ever happening,” he says. “Generally taxi customers are quite price-conscious.”

A ride in one of Uber’s town cars costs more than a cab. “The average person who gets a taxi is not necessarily going to use Uber on a regular basis,” Brennan says.

However, competing with taxis isn’t Uber’s goal. The company’s CEO has identified a much bigger competitor: The personal automobile.

$18B for an app that allows you to book a car at a higher price than a Taxi ? If the Venture capitalists are telling you this, then it is likely an example of “the Greater fool” theory. They need to stoke up the hype to get you to buy it from them during the yet to be determined IPO.

Not only that but the Uber model itself faces an uphill struggle for acceptance. In San Antonio, the police chief is threatening users of Uber’s sister app – Lyft  – with jail on the grounds that they do not conform to Taxi restrictions. Afterall, police have the protection of the cities revenue stream public safety  to consider.

Never underestimate the resolve of politician’s to protect their revenue stream: Try buying a new car without a dealer in Texas which is supposed to be the ideal free trade state. What about internet gambling in the US? Turns out the biggest lobby against internet gambling is not moralists but Sheldon Adelson. Who is Adelson, he runs Las Vegas Sands, a casino. He is also a big backer of Washington politicians.

We await to see if Uber / Lyft can survive long term as a viable business: Just because there is a niche in the business, it doesn’t mean there is a market in the niche. Normally innovation reduces costs to consumers but in the case, using this service will cost you more.  Not only that by Uber even appears to automotically add 20% tip to your charge

So why indeed would you use either of these programs especially as you will pay more? It may be easy to use on your smart phone but we don’t get it: Phineas Taylor Barnum would be delighted with this.

If Uber can control the market and take their cut per transaction, they will become rich indeed but don’t underestimate the push back of the entrenched interests. The cities have controlled the licensing of the taxi trade for too long.

Trajan