Hindsight and Uber

December 3rd, 2018

Electric bikes and scooters are becoming a big business. Lime and Bird seem to be taking the lion’s share of the market. Against this backdrop, Uber continues to invest in self-driving cars and their JUMP bikes seem to own a trivial portion of both marketshare and mindshare

Ben Thompson articulated this particularly well:

Uber’s investment in self-driving cars was a strategic mistake. Yes, its biggest cost is drivers, and a theoretical Google ride-sharing service could, were it at scale, completely undercut Uber, but that is the shallowest possible way to analyze how this market might have played out.

Lime and Bird have taken in total just shy of $1 billion in investment. In comparison, Uber has invested $2 billion in its self-driving business, with no end and no revenue in sight. The goal of self-driving cars was to reduce’s Uber’s primary cost (drivers). Yet, that’s exactly what electric bikes and scooters do for Uber’s most common and least profitable type of rides: short city trips (because of driver incentive programs). Had Uber invested that same money in electric scooters, could they have avoided the lawsuit and controversy with Levandowski? Would they have been able to push Lyft out of the market (by attacking their demand with a whole new mode of transportation with vastly better economics) and subsequently consolidate the US on-demand transportation sector? Lyft, bear in mind, was very short on capital at the time, so it’s unlikely they would have been able to compete in this very capital-intensive market.

Hindsight is 20/20. It would have taken foresight and steadfast pragmatism for Uber to have realized this in 2016, but certainly Uber’s hubris (that they could beat Google in their home turf of machine learning) didn’t help. Uber was clearly brilliant at logistics. They might have doubled down on this trait by investing in other types of transportation and partnered with Google on the self-driving parts (also thereby cutting off Google from investing/rescuing Lyft).

Going forward, it seems likely that Uber will buy one of the scooter companies for a billion or so. It might not be the “leader”, but rather based on the player’s position in various local markets where Uber is weaker in. Uber is grimly aware (after its China play) that winning markets isn’t just about having more money, because everyone’s got VC money now. Once Uber IPOs, acquisitions are going to get a lot easier because then stock = money and after growth, VCs love liquidity. The biggest downside for the scooter market is they have no technological moats: The bikes are all being manufactured by China. Unlike ride-sharing, dockless bikes are a one-sided market, which is much harder to protect.