Uber the next $4 Billion Start-Up? Why?!?

Google sure seems to think so.  Back in August, Google Ventures, along with several other smaller players, invested $360MM into the mobile app / ride share company, giving it a staggering $3.5 Billion valuation. 

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For those of you not familiar with Uber, and their funny pink moustache, Uber was founded in 2009 in San Fransisco, CA as a ride share program.  The company arranges pickups, using their mobile app, and connects private drivers with users looking for a ride.  While the company originally offered premium cars (7 Series BMW, S Class Mercedes, and the like), the fleet now contains a broad selection of vehciles that you can choose from, depending on how fancy you feel like getting around and how many folks are in your party. 

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In addition, Uber offers ride sharing optimization, where you and other riders can share a route together – splitting the cost.  The app handles all of the payment features, so there is no need to worry about having cash or calculating a tip.  When you request a pickup, you tell the app where you are going and it provides an estimate of how long it will take for the ride to get to you and how much the trip will cost.  At the end of it, you are able to provide feedback on the driver and that feedback can be accessed by all users to make sure that the drivers are held accountable.

Recall Google’s ongoing “Google Driverless Car” project.  Autonomous, driver-free cars, driven by Google’s software (codename “Google Chauffeur”), are being driven in several states.  States including Nevada, Florida, and California, and soon to be Texas currently allow driverless vehicles.  Google has a fleet of roughly one dozen cars and last year successfully logged over 300,000 miles of accident-free miles.  Pretty cool (if not somewhat terrifying) but Google admits that they have no commerical aspirations for this project.  I’m not entirely sure that I believe that!

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So why is Google willing to invest so heavily into a ride share app?   Sure, Uber is a great company, but do they truly have something worth $4 billion?  Well, aside from having a fair bit of cash, Google has a long history of purchasing promising start-ups in hopes of integrating advancements into their core products (think Waze, for example).  There are tons of areas where Google can gain intellectual capital, market share, and increase their advertising reach.  But if we think more creatively, there may be a longer-term play here. 

Imagine driverless taxis.  The most inefficient aspects of taxi service are excess capacity/downtime and the cost of drivers.  Uber helps minimize downtime by having a more efficient method of hailing a cab – no sitting at a taxi stand or slowly driving around the block.  Google’s Driverless Car project solves the human side of things. 

Admittedly, I hate taxi cabs.  I hate hailing them and I hate sitting in them.  It’s not a pleasant experience, and Uber helps in a lot of ways to make it a more enjoyable experience.  I like to be able to know when a taxi is coming for me, where it currently is, and how much it is going to cost.  Not having a taxi cab driver try to pull the “credit card machine is down” trick is always a plus.  Imagining a taxi cab that does all of that but also is cheaper, more efficient, and doesn’t involve a driver screaming on their cell phone while they try to figure out where I’m going is a huge win.  Apologies to anyone that is or has a loved one that is a taxi cab driver!

This could be a classic example of Google purchasing a promising start up in hopes to make a long-term improvement to their core businesses.  Uber has a ton of promise, and has made a huge impact in Boston and other cities, much to the frustration of livery companies and many local governments.  Google has the financial resources and technological initiative to make this long-term play.  As a standalone business, I just don’t think that there is enough revenue and growth potential to get the valuation up to that level. Adding the Driverless aspect, however, makes an easily scalable platform with higher margins and is just downright cool – something that Google has definitely not been shy of in the past.

What do all of you think?  Is this too far of a stretch?  Is Google just investing in a company that they think will be financially successful?  Remember, this is a $4 Billion valuation!  They must be on to something, right?

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13 comments

  1. Great post Daniel. The integration of Google’s driverless cars and Uber is a really cool idea and I agree with you that it is probably the basis of Uber’s huge valuation. I also know that Uber has faced opposition from government regulators and traditional taxi companies and I think that a backing from Google will help their leverage in licensing the service in many cities. The ride sharing component is a cool feature that can save money and the environment; especially this time of year when everyone is posting in the BC Facebook page trying to share cabs to Logan to go home for Thanksgiving.

  2. I am personally a huge fan of Uber so really enjoyed reading your blog post! Similar to your feelings, I highly dislike the taxi experience. I consider New York City my second home and no offense to Bostonians, but the Boston cabs are much worse than the NYC cabs. Way too often Boston cab drivers lie about their credit card machine malfunctioning on top of the overpriced total. Also, I find the NYC cabs to be a lot cleaner and smell nicer than Boston cabs. Uber has saved my growing hatred for Boston cabs this year. Ever since I have started using Uber, I have a very hard time scaling back to call Bay State or another Boston Cab company. Maybe Uber a great wake up call to Boston!

  3. This is an interesting post. There is a lot of value to Uber. I think it makes sense that Google would want to invest. Uber not only takes people from point A to point B, but they also have a lot of data on the people. It is possible that Uber revolutionizes how people transport objects as well.

  4. Wow, that was some great insights there Daniel. I loved how you pointed out the seemingly obvious conflict between Google’s commitment to both manned taxis and to automated unmanned driving. I knew of both, but never tried to piece the puzzles together and notice the inherent disconnect between the two pieces of investment. However, after your suggestion that perhaps they’re moving towards an unmanned taxi service… it’s like it all suddenly makes sense. That day will be a freaky, freaky day… I myself love driving, and will be so upset when I have to admit that an unmanned taxi service becomes more convenient and pleasurable than driving myself…

  5. First off, there is no way driverless cars will ever be passed by the legislature as consumer product distributed to the masses. It is a cool idea, but not practical, and there are too many liability issues.

    I really like Kim’s point howeveron Uber’s potential to revolutionize the way that people transport objects. With the help of Google, could an uber model change the way items are shipped? Sure there are message boys on bikes throughout new york and some other comparable services, but imagine a world where your packages within a 100 mile radius could be in hand within a 2 hours? That would be cool, and idea that, like Uber, fits into Google’s desire to make life much easier for everyone.

    Thank you for the post Daniel.

  6. Great look into Uber! My roommate had encouraged me to use Uber for the first time last month with a promotional coupon she sent me. I found it to be so convenient, because I too hate having to deal with hailing cabs and taking out cash for payment. Though this is a great app, $4billion seems like an overvaluation for a ride share app. Who do they think they are, Snapchat? I wonder how Google can justify this figure, since I cannot think how much further this ride share app can go in the long-term. However, who knows if Google is actually on the right track. As far as the driverless cars go, as others had mentioned, this initiative cannot be realistic. There are just some activities in which we need the human side in order to function; driving is one of them.

  7. I’m glad I’m not the only one that hates taxi cabs but I’m shocked that no one has any faith in driverless cars! Why do you think Google is then spending millions researching this as a project? What gives Uber such a high valuation?

    I think a few decades ago the idea that we would have commercial plane auto pilots that literally took off and landed themselves was ridiculous. Think about all the military drone planes – completely pilotless, extremely expensive, and carrying quite a lot of firepower.

    Forever is a long time :) Remember, these cars have logged almost a million miles, legally, in several states. I’m not saying “this is definitely the future”, but I certainly wouldn’t rule it out!

  8. I don’t think there is a problem with driverless cars, but some things society is just not prepared for yet and I think this is one of them. There was a time when people got freaked out because there was a more personal advertisement on a banner online. Like everything else, if the idea is that great, it will be adopted over time. As for Uber itself, I use it all the time. Sometimes during peak hours they will raise the rate up to 2 times normal fare, yet it is still fairly cheap, and the convenience of doing things like splitting it up between a group of friends, and never waiting outside makes it a no-brainer. I heard that cab companies are fighting back hard and city municipalities are giving them a hard time because they are drawing from a business that government is tied to. Apparently the CEO has to look at every individual state’s laws when they launch in a city to make sure they get through all the loopholes. It just goes to show you, if it is a good idea, because it is social media in a way, it is hard to stop people from getting what they want. Might as well just embrace it.

  9. Awesome post, Dan. I LOVE Uber. Their payment method is super easy. It is essentially like you always have a tab open on Uber. This makes it very convenient to use when you don’t have cash or a credit card with you. It also makes you more willing to use Uber rather than a taxi. By buying Uber, Google would gain a lot of information about consumers: where we are going, when we are going there, who is using car services. Chad brings up a really interesting point of using Uber almost as a local shipping service. However, I think that it would be too expensive of a way to get a good from one part of the city to another (It could be like a $25 shipping cost). I agree with Alyssa in that I think that Uber is overvalued. I just can’t see how Google would consider it to be worth more than Snapchat.

  10. Dan, I really liked this post. Although I was not aware of the app until mid-September, Uber has definitely caught on to the BC campus. A great alternative to a cab, people are sometimes shocked when they hear others don’t have Uber accounts. Last weekend when I asked the front desk of a hotel if they could call a cab, they told me to use my Uber account. This app is definitely impactful and doing big things. I think that the valuation is correct, and Uber will continue to grow in the future.

  11. Dan, I am also a huge fan of Uber. I think they do a fantastic job of creating referrals through promotions, as well as creating an overall more enjoyable experience. I absolutely agree with the valuation, and I think if cab companies do not begin to innovate, then they will not be able to keep up. This is an app that does a service, and does not run the risk that it may just be a social media “fad” that Snap Chat does. Also, this service instantly generates revenues through its functionality, and generates an incredible amount of repeat business. Also, every Uber driver I have spoken to tells me they love the way they are treated, which is exactly the opposite when dealing with a cab driver. Thanks for the Post!

  12. I too am a big fan of Uber. They have legitimized a practice that has been going on for years. I agree with Sean’s points for the large valuation as well as the potential to be integrated into so many different industries (hotels, convention centers, and virtually any company that has a need to shuttle employees or customers to the airport, around town, etc.). It’s also interesting how Uber drivers get to rate passengers and can plan who they pick up (or don’t pick up).

  13. spellmaf · · Reply

    I’ve said to my friends and family, of which one is actually an Uber driver, that Uber is eventually going to replace the standard taxi cab industry. I gotta think that Google’s valuation hints towards the fact that they feel the same way. Although I see this happening slowly and over a long period of time, I do think that Uber is on to something, and I think Google is talking out of their rear when they say they have no commercial aspirations for the automated drivers, lets be real.

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