Monday 27 November 2017

If Uber turns to self-driving vehicles, what is to become of its brand?

Think of the sharing economy and Uber is usually the first company that comes to mind. What could be more appropriate than providing the infrastructure for the service, while the drivers supply their own vehicles. As the middleman, Uber simply brings together customers and drivers, taking a cut from the transaction. Even given the various legal issues and boardroom intrigues that have been plaguing the company, the fundamentals of the business model have remained unaltered, at least until now. But change may be on the horizon, as the company seeks to get ahead of the potential disruption posed by self-driving vehicles.

That is the gist of an article by Shira Ovide, published on November 20th as a Bloomberg Gadfly column. Ovide describes an announcement made earlier of last week, according to which Uber has agreed to buy from Volvo 24,000 SUV’s, meant to serve as the foundation for a future fleet of self-driving vehicles. The value of the transaction is approximately one billion dollars, with delivery to take place between 2019-2021. To some extent, the deal complements an earlier partnership transaction between Uber and Daimler, whereby Daimler will make its own self-driving vehicles available to the Uber network.

The upshot of the Uber-Volvo transaction is that Uber goes from being a mere middleman to the owner of substantial physical assets in the form of DUV vehicles. This carries with it all the obligations that come with owning a fleet of cars, such as readying them for daily use and maintaining such necessities as tyres and the interiors, all the while that the vehicles themselves will be subject to capital depreciation. According to the report, there are few details about how Uber ultimately plans to integrate these vehicles into its business.

In effect, the overarching question is: what kind of business model will emerge? It is true that a direct result of self-driving cars, if they take hold as a preferred means of transportation, will be that human drivers will be made redundant (although this blogger suspects that the transition to self-driving vehicles will be gradual and a certain sub-group of customers will continue to insist on human drivers). As Ovide has observed, will the company then seek to—
“make money by continuing to be a middleman for drivers and riders and for other categories including restaurant orders?”
Or will it simply—
“collect[] fees from rides, that looks more like Hertz than a traditional two-sided market place consisting of matching supply and demand?”
If the purchase of the Volvo vehicles presages (or even more, mandates) that the company will sooner or later need to reformulate its business strategy, then what does this say about Uber’s brand? Even within the current shared economy model, Uber has seen its operations effectively taken over in China by Didi Chuxing, while in some Asian jurisdictions, it is playing second fiddle (or no fiddle) to local competitors, such as Grab in Singapore. As for the US, competitors such as Lyft seek to nip at Uber’s heels.

But perhaps another way to view it as a bold attempt by the company to get ahead of the curve and remake its business model in light of the changes that will be wrought by self-driving vehicles. What comes to mind is Netflix, which began in the 1990’s as a DVD sales and rental business, before soon moving on to the DVD by rental business. When that model faced obsolescence due to the rise of video streaming, the company embraced the video streaming space that is identified with it today.

During each of these remakes, the company managed to enjoy the continuity of the Netflix brand as the badge of the company to the consumer public. Based on Uber’s current high valuation (Ovide indicates it is 68 billion dollars), there is both promise and risk in maintaining the value of the Uber brand in the face of a remake of the company’s business strategy. Stay tuned.

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