In the daily newsletter today, I mentioned that Uber’s new strategy makes it a kind of anti-Tesla in that it’s all about transportation rental and usage versus ownership. And I want to expand on that a little here.
Uber’s big plans
Since Uber is going public soon, the new CEO is making a lot of media appearances. And his interview with the Financial Times is insightful regarding where the company is headed.
Dara Khosrowshahi, the former Expedia head, is the new chief executive. And he seems to be expanding Uber’s push outside of the car rental business. Just to back up for a second, Uber started in a narrow market of executive limousine and limousine driver rental of UberX before opening up its model to include the ubiquitous peer-to-peer ridesharing model you see now. But like Amazon’s Jeff Bezos who started in books and then branched out, former Uber CEO Kalanick saw promise in entering ancillary markets. And Khosrowshahi is simply taking the company one step further.
Here’s the comment I want to focus on from his FT interview:
“There’s a $6tn mobility market, and no one product is going to be serving that whole market,” he said. “The ultimate competition here is car ownership, and boy is that a big market to go after.”
Media storage in the cloud as a model for Uber
Here’s the analogy I would use. Some ten years ago I was probably buying DVDs and CDs and keeping them in my own media collection at great expense. I have some 600 CDs and maybe 2 or 3 hundred DVDs I reckon.
But around that time, high speed internet data rates became good enough that companies like Netflix could dispense with the DVD rental business and stream movies to customers. Netflix’ streaming service, which began in 2007, had a lot more content than I did. And as their DVD catalogue improved and data speeds increased further, it became clear to people like me that DVD ownership was too expensive compared to video ‘rental’ via streaming services like Netflix.
The music market was a much more entrenched media ownership market. But it too has been displaced as companies like Spotify have made the need to buy CDs or Apple iTunes files obsolete. Why buy a song or album when you are signed up to a subscription that allows you to listen to the same music for free?
That’s where Uber is going. What it’s telling people is that owning a car is a hassle and it’s expensive. Why not use our service to make the trips you want and to get the stuff you want instead?
Tesla is the other side of this
This model is in stark contrast to Tesla, which inherently accepts the ownership model. Sure, when driverless technology becomes ubiquitous, Tesla’s could be owned by services like Uber instead of customers. But that’s in the distant future. For now, the promise of a Tesla is that you can own an environmentally-friendly car that is cool, reliable and high performance – something much better than the ordinary car.
What Tesla is selling is ownership. And much more than DVDs, which are often single use items, or CDs, which are multi-use but low-cost items, car ownership is a real attachment. People love their cars. They are a part of one’s identity as much as any possession – including a house. So I think selling ownership makes more sense than selling ‘mobility’.
I live in the perfect place to see the appeal. DC, where I live, is not as densely populated as European cities or New York City but it’s pretty densely populated. And I live on the outskirts of town – off of a busy road, right over the border in fact, a ten-minutes’ walk to the local DC Metro station. So the ubiquitous eScooters and docked and dockless bikes are all close by but not right at my doorstep. And from where I sit, car ownership beats mobility hands down. If I want to pop out to the local 7-11 just a half mile up the road, I’m not going to walk a half mile to get a scooter or bike to do it. And I’m not going to pay UberEATS to get it done either. I’m going to get in my car, on my bike or on my Rollerblades and get it done. That’s how I roll — literally.
So, this ‘mobility’ market is a lot more limited than Uber’s CEO would have us believe. If I, a guy living less than a mile from major shops, public transport, and restaurants in multiple directions, think ‘mobility’ is a hassle, I reckon the majority of people living in less densely populated areas in the US will too. They will choose ownership.
What’s the cost trade-off though?
On the other hand, if you told my sister-in-law who lives in Manhattan that ditching her car would save her insurance and maintenance costs plus the hassle of finding a parking space or parking in a garage but that she could rent an SUV for her family of four whenever she pleases, she would opt for the rental. And, in fact, she does – and has done for two or three years now.
Manhattan is a special market though. Most people don’t live in areas as densely populated. But her decision shows you there is a cost trade-off. And at some point, if the ‘mobility’ market is convenient and cheap enough, people will use it. What if I told you that you could rent any car with driver, any scooter, any food delivery service, any bike you wanted for a flat fee, how much would you be willing to pay me per month? You wouldn’t even have to give up your car, unless it made sense. But there has to be a price where you’d be willing to do it.
For me, that’s where this is headed. Uber may not be the company that gets us there though. Webvan was the pioneer of grocery delivery. It went bankrupt in 2001, three years after starting, a victim of the Internet bubble. Later it was folded into Amazon.
But I would be willing to pay a subscription fee to have limited use of ‘mobility’ services as long as those services were convenient enough and low cost enough to offset the use of my own transportation.
Tesla may not make it either
One last thing: you can tell I think car ownership is too deeply entrenched for this mobility platform idea to replace it. The two can operate side by side. But I think car ownership will dominate for years to come. That doesn’t mean Tesla will be the car ownership vehicle of the future.
Jaguar, Audi, Mercedes, VW, BMW, and GM are all building electric cars. And they have an installed base of customers and robust existing sales channels. When these companies get their act together, Tesla will face tremendous competition. And I have serious doubts that it will be able to fend off that onslaught.