We always believed that with the present business model, Uber is essentially a big taxi business with a better customer experience rather than anything else.
And we are happy that the European Court of Justice (ECJ) agreed with us, through its ruling (https://curia.europa.eu/jcms/upload/docs/application/pdf/2017-12/cp170136en.pdf) that classified Uber as a transportation business rather than a technology one.
We also believe that if the business model is purely based on take-rate, it could not sustain the current valuation. The reasons are multifold but a key is that taxi is a local business, where global players can’t really achieve defendable economies of scale unless it keeps making large investments, an oxymoron-ish situation by itself.
This might not be clear to everyone back in 2013 – but it should be by now.
Therefore, Uber has to have another story that substantiate their investors’ imagination.
Driverless cars is one of them, well in fact the main one Uber has at hand. This does not seem to go well lately with all the patent-theft lawsuits and failed road tests. Maybe it is going well, but the message sent outside is not enough to convince the investors and the public.
Also realising that, Uber’s competitors in Southeast Asia, Go-Jek and Grab, are both aggressively moving into payment space, which would, theoretically, give them a much better story, and much more defensible position.
They are continuing (and will continue) to invest a lot in rides simply because they can’t lose the market share of ride-hailing, which is a carrier for them to achieve the payment dream.
So Uber is right to shrug off the ECJ ruling, because it can’t argue otherwise. The key here is how to develop a good story to keep the valuation up, while defending its market shares across the global.
In that way, Softbank’s investment should provide a respite: potentially reduced competition should allow them more time, and resources to develop that story, be it driverless car or something else.
By the way, here is an excellent analysis on “Why can’t Uber make money?” (https://www.forbes.com/sites/lensherman/2017/12/14/why-cant-uber-make-money/) recently published on Forbes.
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