The ridesharing start-up known as Uber is in the midst of another round of fundraising, and if all goes as planned, early reports suggest that the company everyone loves to hate will be valued around $62.5 billion. That's significantly higher than General Motors, which clocks in around $55.6 billion.
We first reported on Uber in October of 2010. At the time, it was called UberCab, and it wasn't registering individual drivers, only taxi companies. Since few if any of those companies had apps of their own, UberCab would've provided a centralized place for folks in need of a lift to find cabs in their area.
Before long, though, UberCab changed its course -- and its name. It stopped being an ally of taxi companies and became a massively disruptive competitor, allowing individual car owners to join its ad hoc network of drivers.
This has angered more than a few people.
Cab companies and longtime taxi drivers are upset that Uber has taken away their business. City bureaucrats don't know how to deal with Uber and its shadow army of vehicles that aren't painted bright yellow or plastered with logos. (The same people have been paralyzed by Airbnb, too.) Even Uber drivers themselves have voiced concerns over the company's diminishing wages.
Uber's new business model is also causing plenty of legal headaches. Perhaps the biggest issue that the company has had to confront is the question of whether its drivers are employees or contract workers. This has come to a head several times -- for example, when an Uber driver without a fare hit and killed a pedestrian in San Francisco (which led to a refinement of the company's insurance policy), and also when Uber faced a barrage of lawsuits alleging that drivers had sexually assaulted passengers.
Recently, judges have ruled that Uber drivers are, in fact, employees, which is going to diminish profitability going forward -- at least until Elon Musk hands over a fleet of autonomous Teslas. That will surely solve all Uber's problems for good, right?
MONEY, MONEY, MONEY: HOW DOES UBER DO IT?
Like Donald Trump, Uber hasn't just weathered the bad press, it's thrived. Over the summer, Uber announced that it had been valued at $50 billion.
In Delaware, the company has filed plans for its latest round of financing, which shows that Uber could soon be valued at $62.5 billion. The sum includes around $2.1 billion in new money from investors and $5 billion in other growth. Some of that $2.1 billion is likely to come from brokerage firm T. Rowe Price, while around $100 million is rumored to come from Microsoft.
How is this possible? How is Uber doing so well?
For starters, Uber works. If you've ever used the service, chances are, your experience was smoother and more pleasant than your average cab ride. There's no standing in the middle of the street, hoping for a cabbie stop, no calling and waiting for who-knows-how-long until your taxi shows up. With Uber, you open the app, you hail a ride, and you see a pic of your driver, as well as an estimate of how long it'll be until she arrives.
Also, the service is seamless. Even now, with so many regular taxis equipped with card readers, you still have to swipe, perhaps enter a PIN, wait for approval, and drop in a tip. With Uber, your card is on file. You get in, you're driven to your destination, and you get out. Everything else is handled behind the scenes. Tipping is still a problem, since Uber doesn't make it easy to do, but apart from that, the service just works.
Third, few cab companies have tried to compete with Uber's app. Not only is Uber making life better for passengers, but its competition isn't even really competing anymore.
Perhaps most importantly of all, Uber has little in the way of brick-and-mortar costs. It's essentially a social network. It lives on servers. Yes, there are offices and plenty of employees, but they can be spread out as they like to maximize profitability. Compared to many companies that need to be in very specific locations, that's a huge, cost-saving advantage.
And that's why Uber's valuation is soaring: it's got a unique service (though there are competitors like Lyft), it's providing something that people need, and its overhead is relatively low. Those give Uber huge advantages over manufacturers like General Motors, which produce millions of complex, physical products using thousands of components and thousands of workers amassed in specific locations around the globe.
Admittedly, the comparison is a bit of apples and oranges right now. However, many analysts believe that ridesharing and car-sharing services -- from Uber to Lyft to Zipcar to RelayRides -- are poised for significant growth in the coming decades. Depending on how far the trend goes, companies like Uber could eat away at the auto industry's business by making car ownership far less attractive.
Are you an Uber fan or foe? Share your thoughts on the company and its prospects in the comments below.
[h/t Randall Hamlet]