One of the odd things about traveling between the Bay Area and New York a lot is the asynchronicity of mass culture between coasts: That is, the things that get popular in the Bay Area (PostMates, Burning Man) don't always get popular in New York right away, and things New Yorkers think are a big deal (cronuts, Banksy) are greeted with shrugs in San Francisco.
Today, the inter-city hype gap I most experience is with Uber. In New York, most people who know about Uber see it as the fanciest of a handful of on-demand car services. (The way it works: You open the Uber app on your smart phone and choose one of several grades of cars — luxury SUV or Prius? — indicate where you want the vehicle to pick you up, and pay for your ride by credit card, with the rate varying according to distance and your choice of vehicle.) In New York, where the yellow cab market is functional and robust, Uber is seen as a good app, but not a life-changing one, and its use is still pretty much limited to young people with disposable income.
In San Francisco tech crowds, though, Uber is seen as the messiah. Other than Tesla Motors, there's probably no Silicon Valley company that has more insane expectations swirling around it. Plugged-in people in the Bay Area will tell you things that are hard to believe: Uber is the most exciting company in the Valley. Uber will be a $100 billion company in five years.
I assumed that most of this was tech-bubble hype. But in the past few months, after conversations with Uber employees, investors, and people familiar with the company's long-term plans, I started understanding the company's potential. And now, after a set of Uber financials leaked to Valleywag this week, I feel confident joining the bandwagon: Uber very well could be enormous someday, maybe bigger than Facebook.
I can sum up the bullish case for Uber in one word: Amazon.
Amazon began in 1994 as a bookseller, then quickly realized that the efficient warehousing and shipping infrastructure they'd built to sell books could be used to get all kinds of things to customers quickly. So they branched out, first to consumer items like kitchen tools and electronics, then to cars and art and all manner of other things, some of which weren't even sold by Amazon but used Amazon as a sales portal. Then, they started shooting up all kinds of other businesses – Amazon Web Services, a now-enormous cloud data service that hosts an insane number of websites, a Kindle e-publishing business, and a streaming-TV service to rival Netflix. Now, when you think of Amazon, you don't even think books, or any other single category. You think, "Here's a place I can go to get stuff."
Likewise, Uber's plan is to outgrow its car-service roots, and become, as investor Shervin Pishevar put it, "a digital mesh" capable of providing all kinds of transportation and logistical services to people in the cities it serves. Once it has you summoning cars from your phone, the logic goes, it can use that same back-end technology to hook you in for all other kinds of deliveries — food, clothes, Christmas trees. And eventually, like Amazon, it can become something akin to an all-purpose utility — it'll just be a way you get things and go places. There's a reason the company recently changed its tagline from "Everyone's private driver" to the much broader "Where lifestyle meets logistics."
Uber declined to comment for this story, but here are some facts about the company that are publicly available:
- It's one of the fastest-growing companies on Earth, having expanded into 22 countries and 60 cities, most in the last several months. (Uber launched in Guangzhou, Abu Dhabi, and New Delhi this week.)
- It's making serious money – according to Valleywag's leaked screenshot, its run-rate (estimated annual revenue, if you extrapolate the numbers we have out to a full year) is more than $200 million. By comparison, Twitter, a company worth $25 billion as of today, did $317 million in revenue last year. By those standards, Uber's last valuation – $3.5 billion – seems laughably small.
- It's hiring like crazy. Just look at its jobs list, or see that it plans to quadruple its staff from last March's level by next March.
- It's filled with experienced business operators and financiers, like Wall Street legend David Bonderman (the founder of TPG Capital, and a new Uber board member). In other words, it's not one of those Silicon Valley start-ups run by cocky 22-year-olds.
- It's now a financial services company.
On that last point: Last week, before its financials leaked, Uber did something huge. The company said it had lined up $2.5 billion in outside financing for low-interest car loans for UberX drivers – that is, making it possible for up to 200,000 drivers to buy their own cars at very low interest rates, under the condition that they use those cars on the Uber network for the duration of the loan. These drivers are locked in once they've agreed to the loan, unless they want to see their rates balloon. (I couldn't get specific rate information out of a company spokeswoman, though she confirmed that under the program, UberX drivers "agree to two financing rates: one that reflects the cost savings of them partnering with Uber and one that doesn't. As long as they remain on the UberX system, they receive the former set of terms.")
Why is this huge? Because it will solve two of Uber's problems at once: the supply of available UberX vehicles, and the stability of its driver force. Imagine that 100,000 drivers take Uber up on its offer for a low-interest loan. That essentially means that 100,000 drivers are pledging to work for Uber for as long as their loan lasts (a standard duration will be four years, the company says). And as more drivers come onto its network, Uber will be able to increase availability at lower prices. The UberX ride that costs $30 will soon cost $20, then $15, and you'll barely have to wait for a pickup. (Oh, and Uber will be minting money: the company has estimated that each Uber vehicle grosses $100,000 a year, meaning that all those additional cars could create tens of billions of dollars in sales.)
That's the short-term objective for Uber: to kill the taxi business, and become the cheapest, best way to get around major cities all over the world.
The medium-term objective for Uber is much broader, and has to do with what tech nerds call the "death of the ownership society." As Uber rides become cheaper and cheaper, there will be less need for people to own their own cars. This is already happening, to some extent. (Here's a blog post about a guy who sold his 3-series BMW because it was cheaper to use Uber instead.) But it will become more plausible as prices come down. And it will start to apply to lots of other products as Uber opens up partnerships with non-car companies. Why buy an expensive grill for a summer picnic, knowing that you'll use it maybe ten times a year, when for $40, Uber can deliver you a grill (and a few packs of hot dogs) in half an hour, and send a car to pick it back up the next day? (Unlike Kozmo and other companies that have tried similar schemes, Uber already has the fleet and dispatch system in place; it'd just be a matter of throwing a grill in the trunk.)
So, step one: Take over taxi industry. Step two: Kill ownership. From there, who knows what could happen in the long term? Uber could start using self-driving cars made by Google (one of its investors) to eliminate the need for human drivers, driving down its costs even more. It could introduce a near-instantaneous delivery service to rival Amazon's drones. It could roll out a subscription service, akin to Amazon Prime, that would include perks like predictive transportation, so that, for example, when Uber sees an appointment on your Google calendar for a cross-town meeting, it sends a car to your office automatically at the right time. There's no reason that other companies couldn't try to do these things, too. But Uber has first-mover advantage, and it's got most of the kinks – customer interface, payment, fleet management, supply-and-demand considerations – worked out already, making it a prime candidate to beat competitors to new product areas.
The result of Uber's efforts, in other words, could be the creation of a techno-metropolis, in which people and goods are ferreted around seamlessly and, perhaps, automatically. It would be like something out of a sci-fi movie. And Uber would be standing at the center of it all, collecting a cut of every transaction.
This all sounds sort of fanciful, and it is. A lot of things would need to go right, in succession, for Uber to achieve its grand plan for global domination. There's no guarantee that regulators (who have been trying to shut down Uber for ages) won't find a way to slow down or stop the company in new markets, or that foreign competitors won't pop up and take away the company's overseas ambitions. Drivers in some cities are already rebelling against the company's pay policies, which they say are unfair. And going public, as Uber is expected to do in the next few years, could introduce pressure to juice quarterly returns, rather than adopting the Amazon strategy of forcing competitors out of the market by keeping margins extremely low for years. So grains of salt are warranted.
What we do know is that Uber has demographics and economics on its side. More people are moving to cities, and all of them need to get themselves and their stuff around. Uber has developed a good platform for doing that. And even if it only achieves its short-term goal of replacing the existing taxi industry with fleets of vehicles using its technology, it will still be a huge, huge company. Unlike Facebook or Twitter, Uber isn't reliant on the flighty, unpredictable advertising market – its revenue is made when people buy stuff, with real money.
If you're a taxi service, a delivery app like PostMates, or a courier service of any kind, Uber's plans should scare the hell out of you. They're fast, they're ruthless, and they have the support of some of the biggest companies in Silicon Valley. All that doesn't necessarily add up to success, especially given the regulatory tightrope the company walks. But if they can pull it off, Uber might follow Amazon to massive revenues and a status as a "get stuff" company. In ten years, we might be scratching our heads: Wait, Uber used to be a car service?