Is Uber the future?

Uber: cabbies must adapt

I was visiting companies in London a couple of weeks ago when I noticed something off.

Even for London, traffic on the roads was awful. The whole West End was snarled up, it was gridlock.

It didn’t take long to identify the cause – an armada of black cabs, all with their engines turned off, blocking the streets and honking their horns.

So what had upset London’s cabbies so much, that they’d shut down their prime central London hunting ground in protest?

Black cabs have a lot to learn

Well, that day London’s cabbies were protesting against Uber, a smartphone app which connects drivers – and their personal vehicles – directly to passengers.

And it’s easy to see why – the Uber app looks like it’s going to prove stiff competition.

The service works like this: to order up a car, you simply tap your mobile. You don’t need to know where you are, because the driver is directed by your phone’s GPS.

At this point, the app gives you an estimated price for the journey. And when it’s over, no need to worry about having enough cash – payment is via credit card details stored on your Uber account.

It’s a lot more civilised than standing on a street corner waiting for a black cab, or having a minicab firm’s phone number to hand.

And it’s cheaper, too. This is why.

More affordable, more attractive

Part of it comes down to better utilisation of the cabs. When an Uber taxi drops off its fare, it’s immediately directed to the nearest customer waiting for a lift. This makes it a lot more productive. Far less time is wasted driving around empty looking for a fare, or idling on a rank.

This means prices can be lower while providing an economic return for the operator. There’s also less congestion when you remove empty cabs from the streets.

Uber argues that if you live in a city, before long you won’t need to own a car. Their efficient, app-based taxi system will be the more affordable and attractive alternative.

But is this end result really inevitable?

Don’t fight change

Well, the more regulated or unionised an industry is, the more it’s vulnerable to disruption like this. At some point the dam breaks and change becomes inevitable.

It’s not just a London thing. Drivers in Paris, Madrid, Berlin and Rome also downed tools in a co-ordinated defence of their privileges. Uber has also suffered a lot of opposition from vested interests in its native USA.

Of course, regulations are needed to protect consumers from rogue operators. But in some cities it’s not clear whose side the authorities are on; especially when there’s a lot of tax to be collected from issuing licences.

In London there’s also great pride in black cab drivers possessing ‘The Knowledge’. Drivers have to pass an exam on their detailed knowledge of central London streets and routes. It takes almost three years to complete, on average, and it’s certainly an impressive feat of memory.

But in these days of satnav and real-time traffic information, is it really the best way of guaranteeing an efficient journey? These digital driving aids have probably made a trained cabbie’s skills a lot less valuable, if not redundant.

So far, we’ve seen how the Uber app will compete against established licensed cabs – by being more affordable and simpler to use – and how tools such as satnavs have made encyclopaedic road knowledge less and less necessary.

Just one question remains.

How big could Uber become?

Uber was founded in San Francisco only five years ago, but has just completed a funding round which values the business at an eye-popping $18.2bn (the shares are privately held).

If the regulatory opposition can be overcome, there’s certainly a huge market for it to go for. But there are also other competing apps like Hailo, which is based here in the UK.

In the internet world, first-mover advantage is usually crucial. But taxis are a very local service; so it’s not clear that economies of scale will stretch much further than each individual city or region.

Building a strong local reputation for reliability and value will be key. So I’m not convinced that Uber will end up dominating this industry globally.

What I am convinced about is the need for taxi drivers to adapt to this new reality.

They need to realise that go-slows and protests won’t halt the march of progress.

This article is taken from our FREE penny share investment email Penny Sleuth.
Penny Sleuth is our FREE twice-weekly penny share investment email. Top penny share expert David Thornton will help you master the world of small cap investment. Each and every week he will pass on his simple, plain-talking insights and expertise that really could change your fortunes. Please enter a valid email address

To sign up enter your email address.



Information in The Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do

MoneyWeek magazine

Latest issue:

Magazine cover
In the balance

How May 2015 could hit your pocket

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Russell Napier: deflation is coming – hold on to your cash

Financial historian Russell Napier talks to Merryn Somerset Webb about the next deflationary bust – why it's coming, what it means for you, and how you can survive it.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


28 November 1660: the Royal Society is founded

After the restoration of the monarchy, members of the 'Invisible College' asked King Charles II to approve their scientific and literary society on this day in 1660.