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UBER: $40 billion Start-Up ‘Will Replace Car Ownership’

21st Century Wire says…

It’s the latest, greatest Silicon Valley IPO to hit the headlines, now emerging from its humble beginnings in a San Francisco niche market – into a potential global powerhouse brand… 

The Switch

As it puts together its latest round of fundraising, Uber has been valued at [40] billion. Many have found that figure eye-popping for a six-year-old ride-on-demand company. But at least some transportation scholars say that that figure isn’t so crazy. To understand why, it helps to think of Uber’s competition in the market not as taxi companies, nor even other alternative transportation options like Lyft or Zipcar.

Instead, says Arun Sundararajan, a professor at New York University’s Stern School of Business, Uber’s value is based on the bet that it will soon “become a meaningful substitute for people owning cars.”

Uber launched in 2009 in San Francisco as a high-end car service. It existed to serve those who wanted, in the words of chief executive Travis Kalanick, a “baller” way of getting around the city. But somewhat by coincidence, that luxury service also happened to be a perfect match for how masses of people wanted to travel. Young people in the United States aren’t driving nearly as much as they once did. That has put Uber in a position to suck up some of the billions of dollars that people might otherwise pour into cars, gas and auto insurance

“Uber’s strength is that it has tapped the mobility needs of a young generation of a networked people at exactly the moment their demands are changing,” says Anthony Townsend, senior research scientist at NYU’s Rudin Center for Transportation.

In part, Townsend says, that has to do with the rapid rise of powerful, Internet-connected mobile phones. According to the Pew Research Internet Project, about 80 percent of Americans between the ages of 18 and 34 own a smartphone, and “they don’t want to drive because they want to stare at their screens.” Add in that more young people in the United States are moving into cities, where Uber’s distance-dependent pricing is less painful than it would be in the suburbs.

As long as Uber keeps its customer service high and prices within reason, people will find it just as economical and perhaps more enjoyable to use Uber to get around than owning a car. With that in mind, considering Uber to be worth a mid-sized car company doesn’t seem so far-fetched.

But there’s more. Uber today isn’t just about getting yourself a ride. It’s about getting your stuff a ride to you. In some of the 51 countries around the globe where it operates, Uber is aggressively experimenting with flipping the equation so that cars and drivers are delivering everything from packages to flu shots to kitten snuggles.

“Thinking of them as a company that transports people from one place to another is one part of the story,” says Sundararajan, pausing our phone call to get into an arriving Uber vehicle. “But you wouldn’t come up with a billion valuation from just that. Their investors are betting on a behavioral change amount where a lot of people are willing to spend more than they do now to get things on demand.”

And when you can not only get where you need to go but also get what you need from the world without owning a car, the value of automobile ownership drops dramatically.

That said, cautions Townsend, Uber’s success for the next few years at least is premised on a non-car-owning millennial user base making the service a trusted part of their everyday lives. “And they’ve done everything they can to tick that generation off,” he says, pointing to recent comments by an Uber executive about the company’s willingness to expose user data and to investigate journalists who’ve written critically about the company.

“That ‘baller’ attitude that Uber has taken means the brand doesn’t seem to be maturing to match its user base,” says Townsend. “Alienating all of the women in North America is not a smart move.”

And once the world’s major car companies feel threatened enough by Uber’s success, argues Townsend, “they’re going to get into the game, too.”

There are already signs of that happening. BMW, for example, has launched i Ventures, a venture-capital wing inspired by the idea that “the emerging field of mobility services is in a continuous state of evolution.” That branch of BMW has already put money into a location-aware city services app, the online parking marketplace ParkatmyHouse.com and a New York City transportation start-up incubator.

Uber may well have enough money on hand to compete with a forward-looking BMW, which is valued at about billion after nearly a hundred years in business. But competing with the entire, energized automotive industry might prove a considerably bigger challenge…

Continue this story at The Switch  

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