Uber announced a good list of new products last week. Well, some are products. Some are features. To be fair, compared to Airbnb’s "biggest changes in 10 years" involving the addition of 1. categories and 2. a shopping cart, Uber’s updates are impressive.
Uber is becoming more and more of a super app with each of these additions. Whether the West will go down the super-app path is open to discussion. There are good arguments that say our current clicking habits and flows are largely locked in to the culture now. And there are good arguments the other way - that we’ll start to move to the super-app formula in Asia. Uber and Hopper are all-in on the concept. The market doesn’t seem convinced yet. Just over a year ago Uber was worth $112 billion, and was bigger than Airbnb. Today it’s down to $43 billion, less than two-thirds of Airbnb.
Uber Charter was one of the products announced this week. It seems like a minor tweak - there’s already an Uber XL. This is like Uber XXXL and will include vans, mini-buses and full-size coaches.
Nobody would argue it's particularly innovative. Sidecar, Uber's previous competitor, was moving into this space in 2015. Sidecar didn’t make it though. They only raised $37 million, which seems to be about what Uber spends on lunch. Rally (Uber for buses) has also been operating a similar model to Uber Pool since around 2015.
Innovative or not, though, these things are almost always about timing. This has much larger potential implications. It’s really going to depend on how far Uber wants to take it.
Fifteen years ago, there were cars driving around randomly, looking for people whistling, shouting and waving, while people a block away were running around in traffic hoping, by chance, to stray across one of them.
The bus business is the same (and buses are expensive - think $500,000). Buses don’t drive around looking for passengers, but most of the time, they sit empty. To charter one you call somebody for a quote. They may or may not respond, and they might ask you for a fax number. They will give you a rate for a simple transfer, or send you a standard four-hour minimum rate, regardless of the supply or demand for the day you need it. It’s archaic. There is money being left on the table all over the place. The customer should be paying much less, and the bus owner should be keeping that bus moving all day, making twice the revenue. It's simple economics, and it’s the exact same argument as Uber Ride many years ago.
It's the perfect target market to be platformized. It's a simple job of looking at supply and demand and coming up with a price. Uber knows a thing or two about it. In a smart and perfect world, charter prices would be fully dynamic. People would always take buses to work, to sports events - maybe even home from the pub. Buses would be moving all day long - switching between groups, and the only dispatch the driver (for a few more years until we don’t need drivers) would need is the app on his or her phone. Yield would be 3x or 4x the level of today.
Back to the real world: We are a million miles away from this scenario. Most bus charters are messy. They require coordination, planning, customization and flexibility. Most can’t be arranged with a simple start location, end location and a click on an app. Things go wrong. All the time. Uber is pretty reliable, but a decent percentage of journeys don’t go as planned. When you’re taking 60 people to a wedding and something goes wrong, it’s a whole different level of wrong. A large part of the industry is also long-term contracts - planned quite far in advance. These don’t have much room for efficiency gains. The benefits come from the last-minute bookings which fill the gaps.
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It all looks very easy on the Uber app. The truth is, the way it’s set up right now, it’s pinging a bus broker, who pings a bus company, who may or may not ask for a fax number. That’s fine. It’s not a bad way to start. A lot of platforms work like this - the front end works smoothly and seems fully automated, but behind the scenes there’s an army of worker bees doing a lot of manual tasks to make it happen. Uber will learn from this. Presumably, if they continue down the path, they’ll end up with direct connections to multiple fleets and will have access to communicate directly with drivers, and the platform will get more efficient with every booking.
With the right plan, Uber could dominate (and increase the size of the TAM) the bus charter industry, and almost everybody would probably benefit. They could easily add enough value to earn their 10% fee.
But dominating the bus charter industry is not (I assume) overly interesting to Uber. It’s still a long way around if it’s going to feed value back into their super app. To do that, they could start Uber Pool with buses, and go into urban transportation, including event transport, commuting and sightseeing. That’s a whole different animal again, but it starts to look quite interesting. It would fit very well with the direction they are moving in.
Uber may not be the most loved company in the world. Maybe even less so after the recent TV series on Showtime (if you haven’t watched it, you need to). That was then though. That old leadership is gone. As a product, Uber (car) is hard to argue with. It succeeded because it's just clearly better and more efficient than the taxi system.
I can’t really see a down-side to this move. Bus owners will increase utilization (make more money). Customers will have easy access to transport. A few million cars can be replaced by a few thousand buses, creating a fraction of the CO2. Uber pockets a nice fee to add to the already healthy cash flow they predict they’ll be generating in 2022.
Simple. What could possibly go wrong?
- Supply goes up (buses sit empty less often)
- Demand goes up (easy access to charters - more people make bookings)
- Price goes down
- Market Size (TAM) goes up
- Bus owners profit goes up
About the author...
Christian Watts is founder and CEO of Magpie Travel