Chinese powerhouse Didi Chuxing’s (滴滴出行) acquisition of Uber Technologies Inc’s China operations marked the biggest move yet toward consolidation in an industry that many investors and Silicon Valley pundits view as a winner-takes-all game.
On the day the Didi deal was announced earlier this month, Uber board member Bill Gurley said Uber’s rivals in other markets had a slim chance of splitting the market with the dominant player, just as Uber struggled to erode Didi’s share in China.
After China, the industry will consolidate in other markets, said Hans Tung (童士豪), an Asia-focused investor and managing partner at GGV Capital, which backed Didi and Grab, a Singapore-based ride service.
“There will be a dominant No. 1,” he said that same day.
However, the consensus of economists interviewed by Reuters suggests an entirely different scenario, one of perpetual competition in a business with relatively few barriers to entry.
“That one firm wins is a narrow and not accurate way to think about these firms,” said David Evans, chairman of the Global Economics Group and coauthor of a recent book that included Uber, Matchmakers: The New Economics of Multisided Platforms.
Ten other economists who have studied ride-hailing agreed that the growing industry, which UBS Group AG estimates to be a US$40 billion market, has room for at least two successful players and perhaps a few smaller ones.
The industry, they said, has none of the elements that traditionally have enabled single companies to control a sector. If it is the first of its kind, a company can dominate markets that have huge infrastructure costs, such as putting up cell towers or laying pipes; a large workforce of employees with specialized skills; and customers who get locked into a service and have difficulty leaving for competitors.
Ride-services, by contrast, are relatively cheap to start, depend on contract labor with no inherent loyalty or specialized skills and have free apps that can be downloaded in seconds.
“You may not want to try a new social networking site if your friends aren’t on it,” Evans said. “But you don’t care what app your friends use for ride-hailing.”
The question of whether on-demand ride services will remain open to new players has vexed start-ups and investors since Uber started the industry seven years ago.
Companies taking on Uber include Lyft Inc in the US, Grab in Southeast Asia, Ola Cabs in India and newer start-ups like New York City’s Juno. In the US part of Uber’s attraction to investors is the chance at grabbing the entire industry.
“The ridesharing industry around the world is highly competitive and innovative. That’s good for riders,” Uber said in a statement.
Gurley said that any competitor would need to pursue a different strategy — perhaps offering more luxury and high-end services — to successfully battle Uber in its strongest markets.
When business magnate Carl Icahn invested US$100 million in Lyft early last year, he told media outlets he saw “room for two.”
Chris Sacca, a prominent venture capitalist who invested in Uber, responded: “This is a winner-take-all game,” on Bloomberg television.
Lyft has hired an merger and acquisitions firm and recently explored the possibility of acquisitions by several companies, a source familiar with the discussions said, and reports of a possible sale stimulated talk of whether it could compete with Uber.
Lyft says it can.
In the US, it said it more than tripled its drivers to about 315,000 in the past year. Between October and May it nearly doubled its annual gross revenue to US$1.9 billion — although that figure does not reflect the many rider discounts and promotions Lyft offers.
Uber has 1.5 million drivers and projected US$26 billion in gross revenue globally this year, based on a presentation for investors last year.
Last year, Lyft hit another benchmark: the wait time for a ride is three minutes, on par with Uber, said president and cofounder John Zimmer.
At three minutes or less, a passenger will almost always complete the ride.
“You need a certain level of scale to get to three minutes,” Zimmer said, referring to the number of drivers and passengers. “Once you reach that, if someone else has more scale, it doesn’t matter.”
New York-based Juno has brought on 12,000 drivers since launching earlier this year and already has hit the three-minute wait time in Manhattan, cofounder and chef executive Talmon Marco said.
“This is a fairly local industry,” Marco said. “You can be a hero in New York and you can be zero in California, and it’s okay.”
In India, Uber and Ola are neck and neck about 45 percent of the market each after Uber’s market share fell and Ola’s rose last year, according to market research firm 7Park Data.
However, the challenge for new start-ups is that leading companies subsidize their drivers and passengers as they prioritize gaining market share over profit. Both Uber and Lyft have spent heavily on driver bonuses and rider discounts and promotional credits.
“Everything that has happened in this space is completely artificial and funded by a glut of VC money,” said Daniel Ramot, chief executive and cofounder of start-up Via, which completes about 200,000 rides each week in New York.
Economists argue that Lyft can be a profitable company with about 20 percent of a market, which would allow it to reduce expenses through economies of scale. Lyft and Uber only release market share statistics selectively, but Lyft maintains it has more than a 20 percent share in the majority of its top 20 regions.
An electric company, by comparison, would need massive scale to achieve enough efficiency to allow for profits, said Stephen Margolis, an economist and anti-trust expert at North Carolina State University.
Manhattan Venture Partners economist Max Wolff believes competition will thrive mainly because ride-hailing technologies are not overly complicated and drivers are not earning enough money to be loyal to a single company.
There is room for other players even if Uber is dominant, he said.
“They’re not as big, but they’re there, too. They’re not some wheezing, dying remnant,” he said.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
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