Yesterday I made the case that Uber could wind up being a bigger deal than many people think — that Uber could not only come to dominate the taxi business, but could expand the market for taxi services as well. But evaluating Uber as a player in the taxi market could underestimate the company's growth potential.
To see why, imagine it's 2000 and you're trying to predict how big Google can get. Well, you might have tried to estimate this by looking at the size of existing services that help people find information: the Yellow Pages, encyclopedias, library card catalogs, and so forth. But of course, Google wasn't just a new kind of card catalog or a better Yellow Pages. Rather, it became the default way that people found all kinds of information online.
The bullish case for Uber assumes that (as I've argued before) self-driving cars will render consumer car ownership obsolete. In a world where renting cars is the norm and buying them is the exception, the services people use to find cars for rent are going to have a lot of power. And Uber has a good shot at dominating this market in much the same way it dominates the smartphone-based taxi market today.
Uber is well-positioned to dominate the self-driving car market
Even if self-driving car rentals will be a big market, that doesn't necessarily prove that Uber in particular will dominate that market. But Uber has some advantages that no other companies can really match.
There are two different types of companies that might compete with Uber to build apps to hail self-driving cars: tech companies like Google and Apple and car companies like Ford and Toyota. But neither type of company is as well-positioned as Uber to build a popular app for hailing self-driving cars.
The car companies' weaknesses are obvious: They are not in the software business, and non-software companies often struggle when Silicon Valley invades their turf. There's a reason that Apple, not the recording industry, popularized digital music. There's a reason YouTube and Netflix, not Hollywood studios, dominate the online streaming business. It'll be hard enough for car companies to make their cars full self-driving; creating a user-friendly car-hailing app and building all the digital and physical infrastructure required to support such a service will be an even bigger struggle.
Google will be a bigger threat, since it obviously does know how to build user-friendly apps and large-scale network services. But Google is likely to struggle with other aspects of operating a self-driving car service.
Running a transportation network requires a lot of communications with both regulators and customers. Google has generally avoided products with customer service needs — when's the last time you called Google for help with your Gmail account? And while the company has a large lobbying presence in Washington, it doesn't have nearly as much experience as Uber at dealing with officials in dozens of cities around the globe.
And while Uber has a reputation for flouting local regulations, its relationship with cities is gradually improving as cities become more accommodating. By the time self-driving cars arrive sometime in the 2020s, we can expect Uber to have deep and generally friendly relationships with local officials around the world. Those relationships will be extremely valuable as Uber tries to convince those same officials to allow self-driving cars on their roads.
Meanwhile, Google's most ambitious foray into a labor-intensive transportation service — Google Express — hasn't been doing very well. Managing people and physical infrastructure is a different skill than tackling hard technical problems, and Google just isn't very good at it.
A similar point applies to Apple, which is working on its own automotive products. Apple has struggled to produce reliable network services like Apple Maps, it's never shown much interest in the lobbying game, and it's never even tried to build large-scale physical infrastructure. Apple may be able to build a great self-driving car, but it probably wouldn't be good at managing a huge fleet of them.
All of which means that both Google and Apple might be happy to partner with a company like Uber to handle the boring logistical details of building a ride-hailing app, managing a network of vehicles, and handling complaints from regulators and customers. And if not, Uber's deep experience in these areas gives it a good shot at out-competing the tech companies — perhaps in partnership with carmakers.
A dominant self-driving car service would be huge
So if you want to figure out how big Uber could get, looking at the taxi market is way too narrow. Uber is vying to become the standard app that everyone — not just urban elites, but ordinary people in suburbs and small towns too — uses when they want to move around town.
To figure out how big that could be, you want to look at the automotive industry as a whole. Consumers currently spend hundreds of billions of dollars with these companies, and they'll likely continue spending hundreds of billions of dollars on in-town transportation in the future. If Uber plays its cards right, it could be come an indispensable middleman that can take a cut of every transaction.
And the service might not stop with moving people around. There are likely to be self-driving alternatives to FedEx, Domino's, and other delivery services. The company that manages the dominant network of self-driving cars for people would be well-positioned to manage self-driving delivery vehicles too.
If Uber does succeed in building the dominant self-driving ride-hailing app, it will make the company's rumored $70 billion valuation look downright puny.