The Future Of Car On Demand (And The Case Against Uber's Monopoly)

The most controversial thing to happen to the taxi industry was Uber's introduction of dynamic (surge) pricing. The premise was simple: we are already used to paying based on demand when buying airline tickets, so why should car rides be any different?

They were right. By forcing riders to pay more, drivers earned more and supply self-balanced, making sure that as long as one was willing to pay, one could get a ride, even on New Year's Eve. For riders and drivers this looks like a win/win, but what does this mean for Uber?

Over the past years, one service after the next has been introduced to the car-on-demand space. While Uber is still more reliable than any of the newcomers, they all offer the same: a dispatch service that gives access to the same drivers, cars and destinations.

Hence, car-on-demand is now a completely commoditized service.

It should be scary to Uber that the main reason I choose it over any of its competitors is out of habit. My affinity for the brand is low, loyalty programs are less than poor and there is no tangible network effect or social aspects that have benefitted me as a consumer.

To address this issue, I believe the future of on-demand taxi travel resides in aggregation.

Similar to shopping for flights, I'll use a taxi aggregation layer that will give me real-time feedback on how much each service is surging, what is the wait time, and then direct me to the best option to complete my reservation.

This will be great for consumers. Riders will always find the best rate and price transparency will slash the margins of the dispatch companies as they fight over the consumer's wallets. And with a massive market and a single leader who doesn't yet possess monopolistic characteristics, investors will continue to pour in money in startups that want a piece of the action.

Over the next year, the battleground will be bloody with so many of these companies subsidizing rides with venture capital in an effort to reach critical mass -- a goal that might turn out to be a mere mirage.

I believe this price aggregator is a new (as opposed to existing) company because the distribution must be location-based and real-time, suggesting it will be a native app outside of the DNA of today's leading price search engines. Google Maps would be a strong contender but for some reason, Google has historically been lousy in executing on price search and I see no reason this occasion would be any different. Because the service we procure -- a car on demand -- will be the same no matter which dispatcher, the aggregation model will look more like the ones for airlines than for hotels (where rooms and locations are different) and similarly it's likely that there will be more than one strong player in the space.

Where I see my prediction being wrong is in an underestimation of Uber's -- or some else's -- ability to provide strong network effects that will make the consumer experience meaningfully better. Such might be the future development of their Pool program (or Lyft's Line) that will provide benefits of scale that will push prices and ETAs down and create a massive barrier of entry for newcomers. It could also be proprietary technology for self-driving cars although, given the size of that industry, it's unlikely that such development would be controlled by a single service provider and might in fact have the opposite effect: it becomes even easier to enter the car on demand market.

On a final note, I believe Uber's stake in Didi alone is enough to be bullish about its future. While car-on-demand in the Western World might be a zero sum game, I believe that Uber will be a massively valuable company regardless.