A voice for startups

Uber is disrupting transportation permanently

Shots fired – Transportation is about to be disrupted and millions are about to loose their jobs.

I have maintained for a long time that the next big wave from the perspective of making money is going to be transportation. Or as I more broadly like to call it #MovingAtoms (things and people; on earth and beyond). I had spoken about the same during my TEDx talk as well.

Startups are businesses that possess an asymmetry between business growth and human resources.

The reason for the same in simple. When you buy a product and want large numbers of it, economies of scale kicks in making the price go down. Human resource, is finite and as you seek more of a kind of skilled resource, the cost of hiring the resource goes up. To make matters worse, they unionise and create more problems and use their negotiating power to undermine margins.

Most startups that have been active in the movement segment have suffered from the lack thereof. A food delivery startup is forced to recruit large numbers of delivery boys as the business scales. This makes the business financially unviable as cost goes up. Cab hailing companies have found a way around this problem by treating drivers as contractors. It would only be fair to argue that although this has helped the companies scale up quickly it has not been free of its own set of challenges.

In order to truly create a startup you need to automate the most critical task in the operations of the business

Travis Kalanick is painfully aware of the same and hence self-driving vehicles.

 

Legal Troubles

The legal issues that Uber has been facing across the world are unlike any that any other company has ever faced. Why?

Do you know any company that went from zero to having a MILLION people working for them in 7 years flat??

Uber operates in 76 countries and in a total of 473 cities across the world. This is the kind of scale that no business has ever been able to achieve in such a short period of time in business history. This has disruption written all over it already. The map below shows the geographical spread of Uber.

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Unfortunately for Uber, transportation is a segment that employs and serves a lot of people. These people have not been very happy with a new kid showing up and dictating the rules. Not only that, taxi services are highly regulated across most of the western countries. People who were at the top of this industry had lobbied for years and held that position. They suddenly found themselves losing their grip.

They were bound to mark their territories and fight for it.

At its heart Uber is nothing more than a ‘Demand-Supply’ platform. It connects the demand for transportation with the supply of cabs that are available in the city. They try to maintain a minimum quality of service on the supply side.

Angry people protest and sue in the civilized world. Hence, Uber has been protested against and has been sued. A lot. It has been sued so much that there is Wikipedia page on the number of countries and the number of issues that they have been sued over. Uber has cases running in 30 different countries and they have multiple issues to deal with in countries like India, Australia and USA. Everyone wishes to draw the boundaries inside which Uber must operate and the company has been openly defiant about obeying.

Why?

Because Travis Kalanick knows that these issues are temporary and in the long run, Uber will be a perfect startup. A business that scale asymmetrically with relation to manpower.

Technically, Uber can be called a startup even today; but the sheer volume of drivers working with the company has resulted in a myriad set of issues that the company must deal with. Although these drivers are contractors and not employees, their volumes mean that they can demand to be treated as such.

 

Self-Driving

Uber knew that in order to be able to automate their operations, they need to be able to get rid of the drivers who are the heart of the operations today. In order to do that, the move towards self-driving cars was imperative.

A little more than a year ago, Uber announced a strategic partnership with Carnegie Mellon University. The company lured away most of the researchers from CMU to head the self-driving car initiative. Some went on to describe the deal as an agreement between the fox and the henhouse.

Uber made two very interesting announcements yesterday which prompted me to write this piece. The acquisition of a company called Otto, engaged in making self-driving trucks. Not only that, they appointed the CEO of the company head of Self-driving vehicles at Uber.

Uber also announced that they are going to start providing service through self-driving cars! The service will be piloted in Pittsburgh and they will provide Volvo SUVs to cater to the customers. Uber has signed a $300 Million deal with Volvo for these cars.

Obviously self-driving technology has not reached perfection and hence one engineer will be always present in the car. The car will also hand over control to the human when crossing bridges since those are hard for the software for now.

 

So what now?

On the surface it seems like Uber is going for the kill and planning to leave no stone unturned as far as bringing self-driving technology to the real world is concerned.  The undercurrents though are even more interesting.

Cab rides are but one part of what Uber is going after. They are actually going after all kinds of movement. One of the key points in the Bloomberg article which broke the story and also what has been a part of the vision statement released at the 5 year anniversary of Uber is the reduction of parking requirements. These cars will not stop at all.

They are not just going after cab rides; they are going after everything.

  • Transporting people
  • Transporting products
  • Transporting food
  • Transporting goods (autonomous trucks)
  • Inter-city buses!?

Uber wants to dominate all kinds of movement. So what?

 

Change

We are at the precipice of a huge change. Autonomous mobility is coming and it will change the way businesses work; once again. The paradigm of how things and people get from place to place is going to change altogether. The degree of change that is going to be introduced will be comparable to the introduction of smartphones.

While Uber wants to dominate all of the segments of #movingAtoms as I like to call it, this change introduces opportunities.

If Uber is going to have autonomous vehicles on its app, I am certain all of these vehicles are not going to be under the ownership of Uber. There will be a huge fleet management business which will arise, who will buy these cars and deploy them on Uber.

There are also going to be a lot of other companies including Ford, GM, Mercedes, BMW and the likes who would like to bring their own platforms. The platforms will be necessitated by the fact that individual buyers are going to vanish quickly in a world of autonomous vehicles. The pride of owning a car will no longer exist.

Aggregation of these platforms will become an interesting play.

The same kind of play would be interesting from an inter-city trip perspective as well as from the perspective of goods movement.

It is one thing to source demand for cabs and its another thing sourcing demand for trucks. You could buy entire truck load or you could choose to buy a portion of it. Uber will get into this space but since they do not have a platform which is currently undertaking this, any startup which is able to build a viable product in space would be a prime acquisition target.

The way I see it, transportation is going to undergo a paradigm shift in how it functions. I think in the future the transport industry will resemble the film distribution space that we have today. Uber will be akin to the movie producers and fleet owners will be like the theaters that finally play the movie. The revenue share will be similar as well.

 

Can you think of business models you might be able to build on top of this?

What will happen to all of the drivers who currently drive for Uber?

Vivek Srinivasan

Vivek is a startup mentor who has been working with startups for the past 10 years. He is the founder of Startups Club and engages with startups across the country and overseas.