I've been looking forward to this one. Let's get straight into it after a brief anecdote. When Grab came to Singapore to compete with Uber, they ran the best promotion ever. No joke, all my rides were SGD 6 for months. That can't even get me down the street anymore. Unfortunately, that is also not a joke.
What is the total addressable market?
The Total Addressable Market (TAM) of Uber varies. This is because Uber's business extends past just ride-sharing, and instead includes food delivery and freight. Since we are focusing on just ride-share, we can reference this study to see that the TAM was estimated to be $106.66 in 2023. This number is also expected to grow annually at 18.5%. Focusing just on the US, according to IBISWorld, the TAM in 2023 was $15.3 billion.
If you add up the market share that Uber and its competitors intend to capture, what is this number? If it is above 100%, why is Uber the winner?
For simplicity, we can focus just on the US market. The two biggest players in the space are, of course, Uber and Lyft. It is safe to say that Uber wants to assert dominance and aim for 100% of the market. Lyft intends to chip away at this, and its primary goal now seems to be capturing Uber's audience to the point of an even split. A study performed in March of this year shows that Uber is dominating the US ride-share space, contributing to 76% of the overall market sales.
Where is the company a price-setter? Where is it a price-taker?
Uber operates as a price-setter in markets where they have established dominance, or where there is less competition. We can look at the US market for an example, where Uber and Lyft set the price in some form of Oligopoly. Have you noticed that when Uber is expensive, Lyft is expensive? and vice-versa? Of course, there may be dollar differences, but it has become so pointless to compare the apps that I just stick to one.
The above graph shows how the average spend between the two follows almost the same trajectory. We can see that Lyft tends to be a few dollars cheaper, but this is a necessary sacrifice to grasp more of the market. Regardless, these two trend lines are painfully similar for the ride-share customer. Economics tells us that players in perfectly competitive markets are price-takers, however, in an oligopoly-leaning monopoly - Uber has a strong hand in price setting. This is also why you may see Uber and Lyft being so aggressive with their surge pricing; they know that there are no other players and that they won't undercut each other.
You will rarely find Uber as a price-taker. They have too much data and practice and they know that this market requires heavy cash flow. Before exiting Southeast Asia, Uber was constantly undercut by Asian players such as Grab. Unwilling to step down to the then-current market price, they withdrew.
What strategic differences are deliberate to separate Uber from Lyft?
To the ride-share consumer, Uber and Lyft operate as the same product. As I mentioned in a prior post, there is next to no loyalty, as customers just want the service offered for the best price. The main differentiation in Uber's strategy is to diversify its business lines. Uber has aggressively expanded into food delivery and scooters/bikes in the hopes of becoming a one-stop mobility platform. This also allows for multiple interest streams, allowing them to supplement their ride-share revenue. This, along with the next reason, is why Uber makes 9x Lyft's revenue.
Another key strategic decision is to target the global market. Uber has its reach across the world; according to Statista, it holds 25% of the global rideshare market. This is significant as Uber wants the phrase "call an Uber" to become synonymous with hailing a ride.
Are there any competitors that aren't competitors, but are pretending to be for fundraising purposes?
This is a really interesting time to mention the AI/self-driving space. I recently took a trip down to San Francisco, where I was kindly introduced to my first Waymo ride. Although mind-blowing, I was also under the impression that it was not (yet) a competitor with Uber. This left me with all sorts of interesting thoughts. Is Waymo trying to compete with Uber? Or is this just a proving ground for self-driving data? Remember, Waymo is owned by Alphabet, who for sure has cash to burn. That was, however, until this headline last week: "Waymo and Uber partner to bring Waymo’s autonomous driving technology to the Uber platform."
Huh. I guess that's something I don't have to ponder anymore. It seems that this is another crucial step Uber has taken in the mobility market. This may be a smarter move for Uber, as I do remember their (brief) foray into autonomous driving. Now, they reap all the rewards without the added billions to their R&D spend. I'm curious to see how this will pan out.
Would you invest in Uber or Lyft?
Based on the above analysis of market dominance and growth prospects, it seems that Uber's foothold in the rideshare space will only continue to grow. Lyft does what it can, but even with a cheaper average price, it seems to struggle to claw at market share. Until Lyft can take a significant portion of US customers, Uber can continue to expand into alternative markets while maintaining complete control of their price.
The one advantage I can see Lyft having is actually in their decision to focus on just the North American market. This would allow them for a more streamlined business model, which could lead to a more efficient operation and better margins in the long run. Unfortunately, Uber still outperforms them on growth predictions, so the benefits of this are yet to be seen.
FIN
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