The sharing economy is growing at a rapid rate, as highly innovative companies transform existing industries or create new ones, such as Airbnb for accommodation or Airtasker for odd jobs.
One of the most dramatic changes arising from this movement is occurring in the private transport sector, where ride sharing company Uber has turned existing industry participants and policymakers on their heads.
Uber started in 2009 and is one of the fastest-growing businesses in the world. It is touted to have a $US50 billion ($68 billion) valuation.
Anecdotally, when you talk to residents of San Francisco, where the company is based, many recognise there are fewer cabs on the streets than five to 10 years ago. Some think the company is multiples larger than the taxi industry in that city.
Uber has achieved this success by creating a model that yields benefits for both drivers and customers. On average, drivers receive a handsome return as Uber takes 25 per cent of the fare, leaving the remaining 75 per cent for the driver. Passengers enjoy new and clean cars, thanks to Uber’s rules for its drivers.
Uber’s peer review system requires the driver and the passenger to rate each other, contributing to their visible rating that appears in the app. As drivers and passengers with a higher rating are more likely to be chosen than those with a lower rating, both parties are generally on their best behaviour during a trip. In particular, the incentive for future revenue means drivers generally go out of their way to provide a positive experience for passengers.
Even with these benefits, standard Uber fares are mostly lower than comparable cab rides. However, this is not the case when “surge” pricing is in place – increased pricing during periods of peak demand.
Uber Down Under
Australia is still an early-stage market for ride-sharing. Press reports have speculated Uber has about 1 million users with 15,000 drivers, most of whom drive part-time.
The legal position of Uber is still grey; driving for Uber is technically illegal. Forty drivers were recently fined in NSW and there are a number of other cases before Australian courts.
Policymakers, the industry and the general population have largely overcome initial concerns for the safety of Uber passengers. Following a recent Labour Day weekend attack in Brisbane, concern is shifting towards the safety of Uber drivers.
In the United States, the home of Uber and the birthplace of the sharing economy, the ride-sharing market is advanced and highly competitive. Uber is being stared down by Lyft and Gett, who are aggressively competing on price to boost their market share. In Boston, start-up Fasten has offered to take only $1 from drivers per ride, and its model has no surge pricing.
In China, which is one of the faster growing ride-sharing markets, the two leading players merged in February to form Didi Kuaidi. Uber has entered China and is working to increase its market share but faces strong local opposition.
Uber has responded to the global competition by launching Uber Commute, which allows multiple passengers to split their fare. Uber expects this will increase its usage for regular travel, such as morning and evening trips to work.
The driverless threat
The transport and automotive industry is repositioning for the shift to driverless cars, which is expected to occur in coming decades. Manufacturers are already building driverless features, such as Tesla’s 2015 model, which will self-drive 90 per cent of the time. We would expect that, if this shift eventuates, it will take longer than anticipated to enter each market and consumer adoption will be very slow, as it usually is with large disruptive technologies. However, the competitors in the automotive industry are already looking to ensure they benefit from the change.
Globally, taxi industries are effectively government-created monopolies. However, over the next decade, the transport industry will move from being a monopoly to an open, competitive marketplace where ride-sharing organisations compete with the existing taxi operators. While the price of taxi licence plates will continue to fall dramatically, we don’t think the number of plates on issue will fall as much.
The largest threat to ride-sharing is regulatory change and around the world numerous responses from jurisdictions have sounded alarm bells for the industry. However, these challenges have done little to slow the steep growth of companies such as Uber. This is largely down to the fact that in practice ride-sharing is very hard to police.
Consumer demand for a cheaper, cleaner trip using a ride-sharing app may eventually mean demand for cabs is drastically reduced. However, over time this reality may force the hands of governments to protect the cab operators. Governments will try to protect their revenue streams and will react over time to do so.
As a result, cabs will always be around, but in a much different form, where the costs will need to continue to adjust in line with reduced usage.