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Commentary By Nicole Gelinas

Why Uber's Investors May Lose Their Lunch

Cities, Cities Infrastructure & Transportation, New York City

Uber, the ride-hailing company, has had a bad year — capped off this month by the murder of a British diplomat by an on-duty Uber driver, and, less tragically, a European court determination that it’s a transportation company, not a tech company. Uber’s woes wouldn’t be a surprise to the company’s investors if they hadn’t assumed that technical innovation equals financial success.

To the average Uber customer, the company is successful. Seven years ago, it launched a concept that now seems obvious: Use an app on your phone to hail a car.

In New York, Uber has improved the quality of life for people who live far from mass transit and where traditional yellow cabs don’t want to go. It’s also convenient for Manhattanites who don’t want to chance waiting for a cab, particularly at rush hour.

“Tech is colliding with the real world — and the real world, for the moment, is winning, with Uber’s value down an estimated 30% in the past few months.”

None of this, though, guarantees a payoff for the global investors who valued the company at $69 billion early this year. Tech is colliding with the real world — and the real world, for the moment, is winning, with Uber’s value down an estimated 30 percent in the past few months.

Uber’s first problem is government power. For all its pretensions otherwise, Uber is nothing new: It is, as the European Court just ruled and as New York City has long held, a for-hire car service, subject to all the local rules around the world that govern such services.

The fact that Uber makes taking a car easier and cheaper actually means it needs more regulation, not less. As Bruce Scaller, former deputy traffic commissioner at the city’s Transportation Department, just noted in a report out last week, cheaper and more plentiful cars have caused oversaturation.

According to Scaller, although total taxi and for-hire car trips in Manhattan’s central business district increased by 15 percent on the average weekday between June 2013 and June 2017, total mileage for these cars in the same area increased by 36 percent.

The number of taxi and for-hire vehicles increased by 59 percent, but the number of unoccupied vehicles increased by 81 percent, with each for-hire driver waiting 11 minutes between fares. During the afternoon rush, between 4 p.m. and 6 p.m., 10,000 for-hire vehicles are trawling Manhattan. Taxis and other for-hire cars now account for more than half of daytime traffic on major avenues.

The conclusion: The only way Uber and its competitors can make each trip so convenient for its passengers is to flood the streets with empty cars. You may not wait standing on the street for a cab, but now you wait on the street in a black car, behind all of those other black cars.

This situation won’t last forever. When Gov. Cuomo unveils his congestion-pricing plan next month, as expected, he’s going to have to tackle Manhattan’s idle Ubers. Roughly the same problem — and solution — exists in other dense cities, Uber’s most lucrative markets.

Uber’s second problem, paradoxically, is government weakness. For all of its promise that algorithmic solutions would reduce the need for government-required background checks, Uber needs such checks to keep its customers safe. The driver in Lebanon who strangled British diplomat Rebecca Dykes passed a government-mandated background check despite a criminal record.

Places where Uber wants to grow and provide a genuinely needed service — a safe ride home — are also places where fake documents, corruption and unsolved crimes are rife.

Uber also has more than its fair share of terrorists in the West, from the driver who committed a sword attack at Buckingham Palace this summer to New York’s bike-path killer, who had previously worked for the service.

Uber’s biggest problem, though, is that its technology is not that special. The company has formidable competitors, from Lyft at home to Gett in Britain to Didi in China, which has already won the battle for market share there.

Allegations that Uber stole trade secrets and spied on rivals aren’t just indications of the company’s poor culture. They also suggest the company is desperate for some advantage.

All this is why Uber lost nearly $1.5 billion last quarter alone, with no indication that it will stop losing money.

It’s a risk of capitalism that the world’s savviest investors, from the Saudi Arabian sovereign-wealth fund to the wealthy clients of Goldman Sachs, didn’t grasp. Uber spawned e-hailing — but ­e-hailing could well outlast Uber.

This piece originally appeared in the New York Post


Nicole Gelinas is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow her on Twitter here.

This piece originally appeared in New York Post