Uber, Lyft need new business model to show profits – Automotive News

Uber, Lyft need new business model to show profits – Automotive News


Ride-hailing giants Uber and Lyft have changed transportation and mobility as we know it. And the sector is quickly evolving, with bikes, scooters and, in some cases, even helicopter rides available at the push of a button.

But with Uber having warned investors in its initial public offering prospectus that it might never be profitable, we may be witnessing the beginning of the end of a bubble.

While Uber, Lyft and their ride-hailing competitors produce software to connect drivers to people who need rides, they don’t own any assets, and they are branching out into numerous business models.

Investors have the power to rein things in. Uber and Lyft do not have the advantage of being given the benefit of the doubt by investors.

In my recent discussions with transportation mobility executives, they say they have failed to see monetization from their experiments with various new business models and services. As history shows, many of these new business models will fail.

Investors are sending a message with the Uber IPO that to maintain its valuation — which the company this month had estimated as high as $90 billion — it will need to modify its business model and determine which of the myriad businesses it is exploring are the right ones to prioritize investment and deployment. Consistent reinvestment with no profit will no longer be an option.

Uber compared itself to Amazon during its investor roadshow. “Cars are to us what books were to Amazon,” Uber CEO Dara Khosrowshahi once said. Amazon generated its first quarterly profit in 2001 and first annual profit in 2003, six years after the company’s IPO. Today, the company’s massive Amazon Web Services business fills its coffers and supplements reinvestments and radical attempts at innovation.

Uber has no such business as of now. And surprisingly, almost a quarter of its ride-hailing bookings come from just five cities: New York, San Francisco, Los Angeles, London and Sao Paulo.

Regulatory and wage pressure in these cities will be an ongoing, expensive battle among Uber (and its peers), local government officials and grassroots activist groups not only in the U.S. but across the globe. London once banned Uber from operating, and drivers staged a one-day strike May 8 across the U.S. These new business models are confronting challenges for monetization on all fronts.

Amazon has the war chest to invest in innovative new business areas because of its Web Services business. Tesla is lucky to have a CEO with a passionate fan base. But Uber, Lyft and their competitors are not being afforded the same leeway.

Perhaps this is the tipping point where ride-hailing companies evolve. They successfully disrupted transportation, but now they have to show a profit.

Going public means the rules of the game are changing: Quarterly pressure is real, and every dollar can’t always be put back into the business to expand and innovate. It might finally be time to “grow up” and show a profit.

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