The fast rise of 21st century company brands such as Facebook, Twitter, Instagram, Pinterest, Whatsapp, Snapchat, Skype appeal to many. They all have been very successful and their founders became billionaires. What they have in common is that they are all about communicating text, voice, images and video. Taking digital innovation to the physical economy proves to be a bit harder. AirBnB and Uber, the frontrunners of disruptive innovation in the old economy, currently have a hard time convincing authorities and representatives from the old economy that they have a right to exist.
Just this week Uber was raided by the Dutch police for the second time this year. In March the inspection of Living Environment and Transport seized the administration of Uber’s Amsterdam office in order to get an idea about the size of the uberPOP service. The Amsterdam justice department again sized Uber’s administration as they suspected Uber of offering taxi services without a license and thus still breaching the Dutch act on people transport.
As Ubers market cap is currently estimated at $ 50 billion, the € 10.000 Euro fine per offense with a maximum of € 100.000 that was sentenced by the Amsterdam court in December 2014, is not much to worry about. However the disruptive innovator of taxi services is receiving more and more resistance from justice departments, fiscal authorities and the existing taxi sector and faces legal battles in Belgium, France, Germany, UK, Spain, Australia, Brazil, Argentina, Mexico, Canada and Portugal. Not to mentione the class-action lawsuits that are filed against Uber in numerous cities in the US.
To a lesser extent AirBnB, with a current market cap estimated at $ 25 billion, runs into the same kind of trouble. In cities such as Barcelona, New York, San Francisco, New Orleans and many more US cities legal action is taken by the hotel sector or the justice department since offering hotel facilities is strictly regulated. Interestingly, Amsterdam recently changed its policy regarding temporary housing rentals. It is now allowing housing rentals under strict conditions. AirBnB is overjoyed. But so far Amsterdam proves to be an exception rather than the rule.
Disrupting the old economy is not as easy as it seems. Turning a brilliant idea into an app and securing ample financial backing clearly gives these companies a huge advantage but it is not enough. Airbnb and Uber seem to be in similar situations but are in fact quite different. Both are riding the sharing wave and are disrupting the existing taxi respectively hospitality business. But Airbnb is just creating a bigger supply of B&Bs at the, mostly, low end of the hospitality market.
Uber on the other hand is taking on the traditional taxi sector as a first step in their mission to deliver cheap, safe, reliable taxi rides for consumers. While not owning any physical assets or employing any taxi drivers Uber makes its money with advanced algorithms that combine elements such as surge pricing, driver incentives and penalties, route optimization, real time track and trace, feedback loops and traffic analysis; all to deliver optimized transport for the millions and everything else at the lowest tariffs possible.
In the end lower tariffs can only be achieved by taking out more cost. The biggest chunk being the car and the driver. You need a vehicle for transport but getting a dedicated driver with it all of a sudden does not seem so logic. Ubers CEO Travis Kalanick made clear that the reason taxi rides are so expensive is because “… you’re paying for the other dude in the car. When there is no other dude in the car, the cost of taking an Uber anywhere is cheaper. Even on a road trip.” Kalanick made no secret that driverless taxis are the future of personal transport and that is what Uber is after. Apple, Google, Tesla are all experimenting and investing in the driverless car. If Uber wants to stay in the game it has to go driverless, no matter what promises they make to taxi drivers now.
In the mean time not all capital that has been raised by Uber will go into developing smart ride algorithms and driverless cars. Uber will have to fight an entrenched taxi sector and outdated 20th century legislation and will need to hire battalions of high paid lawyers. But as better and cheaper transport is in the interest of consumers the traditional taxi sector will eventually bite the dust. Yes, uberization of the taxi sector is great for consumers, as long as they do not work in the sector themselves. In the not too distant future, however, they will find out that just about every sector, including the one they work in, will in some way be uberized.