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5 challenges Uber will face as it expands in Asia

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Uber originated in Silicon Valley as a solution to a Silicon Valley problem – there weren’t enough taxis in San Francisco, so founders Garrett Camp and Travis Kalanick created a smartphone app that connected the city’s pedestrians with limo drivers who had extra time on their hands.

More than four years later, Uber has expanded to over 40 countries spread across six continents. Its name is now one that is uttered alongside global big guns like Google, Facebook, and Amazon. Moreover, much of the excitement and controversy surrounding the company stems not from its vision of transportation, but for its ambitions beyond it. Given its recent dalliances in corner store deliveries and courier service, its not implausible that UberShop and UberShip will come to fruition in the coming years.

But as Uber begins to move beyond its Mercedes-for-hire roots, it will likely face numerous market-specific challenges. Uber in city A might look totally different from Uber in city B. Below we’ve outlined five challenges that the company will face as expands into Asia and adapts to local environments

1. Can Uber thrive in Asian cities where taxis are already cheap and abundant?

By now, Uber has entered enough second- and third-tier cities all over the world that it’s safe to assume that it wants to be everywhere. As it expands in North America, most US citizens probably wonder how Uber will gain traction in cities where cabs aren’t prevalent because almost every adult has access to a car. Owning an automobile is both a necessity and a rite of passage for most Americans. Uber bears might scratch their heads when they see the company enter Spokane, Washington (population: over 200,000) or Wilmington, North Carolina (population: over 100,000).

But many urban metropolises in Asia (not all) contain taxi markets that differ greatly from cities like Washington DC or San Francisco, where Uber filled a market void that was easy to spot. Let’s run through some rough numbers, just for fun (Note: Some figures aren’t authoritative, but I’ve done my best to take them from generally reliable sources. Population numbers refer to ‘city proper,’ as that’s where cabs are almost certain to be most active).

New York City: 13,437 taxis; population 8.3 million.
Seoul: over 70,000 taxis; population 9.8 million

Chicago: over 6,800; population 2.7 million
Taipei: over 30,000; population 2.6 million

Philadelphia: Over 1500 taxis; population 1.5 million
Kuala lumpur: About 67,000 taxis; population 1.5 million

Tokyo: Over 50,000 taxis; population 13 million

Singapore: Over 27,000 taxis; population 5.3 million.

We’re cherry picking here, and Uber’s success might ultimately rest on more than just taxi availability. Indeed, the company will regularly encourage critics to view it not as a substitute for cabs, but as something entirely different. “It’s not about the market that exists, it’s about the market we’re creating,” Kalanick told the Wall Street Journal. In a lengthy blog post, Bill Gurley of the California-based venture capital firm Benchmark described several alternative use cases for Uber that go beyond “Uber as taxi substitute.” They included – safe transport for kids, safe transport for elders, Uber as a rental car, Uber as a default ride for date night, and Uber as a mass transit substitute (the latter assuming prices stay low enough).

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It’s distantly possible that every car-less Taipei or Singapore resident will try Uber out of curiosity, love it, and slowly convert. Taxis might win on convenience in some cities, but it’s hard to beat cashless payment and good customer service. Still, the barrier to education remains higher in cities with so many cabs are zipping around. For all the emphasis Uber places on immediacy (note that there’s no pre-book option in the app, the message being “We’ll be here when you need us”), a seven minute pickup time means nothing to some consumers if there’s fifteen yellow cabs beckoning you down the street.

2. What will “big picture Uber” look like in Asia?

Right now, Uber’s basic premise revolves around using a smartphone to summon a four-wheeled vehicle that will take you to Starbucks or the airport. This is the case for the company in Beijing, San Francisco, Sydney, and the 150-odd other cities it’s currently in.

But Uber’s vision as a company extends beyond upending municipal taxi industries. As Kalanick said at Le Web “We’re in the business, today, of delivering cars in five minutes. But once you’re delivering cars in five minutes, there’s a lot of things you can deliver in five minutes. If someone is doing ‘Uber for X’, whatever it is, and it matches that lifestyle and logistics thing, you can count on Uber doing it.”

“Big picture Uber” remains in its infancy, and the company hasn’t revealed its specific plans for the future. But looking at the company’s history, it seems likely that big picture Uber centers around at least two two premises.

The first premise entails the global spread of “peer-to-peer” UberX, in which ordinary Janes and Joes drive their own cars around for cash, reaching every single market Uber is in. While peer-to-peer UberX is not yet in Asia (and also not yet in some US cities, like New York City), it’s absolutely necessary in order for the company to achieve high liquidity in its markets. As Yammer founder and former CEO David Sacks illustrated in his widely circulated tweet, Uber is subject to network effects. Growing its supply to meet demand requires putting as many drivers on the road as possible. If that means Uber must resort to hiring your uncle and his Chevy, so be it. Peer-to-peer UberX has the potential to profoundly impact the way urban (and rural) residents get around, so naturally, as the UberX pinball gets kicked around, all sorts of cultural and economic factors will come into play. Are there enough car owners in Jakarta to increase the supply of UberX drivers? Will these car owners find it makes economic sense to drive with UberX? Singaporeans might be ready to hop in a stranger’s car, but what about Manila residents?

The second premise of big picture Uber entails the company evolving into a transport network for things, instead of one for people. This too might take a different shape in Asia than in the US. Will Uber partner with sexy meal-on-demand startups? 7-11 Taiwan convenience stores? Rocket Internet ecommerce sites? Or will it invest in business-to-business logistics, like Hong Kong’s EasyVan and Gogovan?

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Of course, big picture Uber won’t necessarily happen everywhere. San Francisco might evolve to become some sort of Uber utopia (or dystopia? Take your pick). But Uber’s reach in other cities, say, Jakarta, might extend no further than UberBlack, used by travelers and people for whom even Blue Bird Taxi is unreliable. As Uber ramps up its efforts to penetrate our daily lives beyond taxi substitutes, expect an increasing disparity in its offerings city to city.

3. Will local competitors beat Uber to the punch?

Uber has faced a slew of less sexy rivals in the US, but its rollout in Asia and subsequent competition is taking on a very Asia-specific narrative.

Ubers competitors in Southeast Asia and China have taken a decidedly local approach. GrabTaxi, a venture-backed startup that’s active in Singapore, Malaysia, Thailand, and the Philippines, offers a taxi-hailing app as its flagship service. Users pay with cash, not credit cards, as credit card penetration in Southeast Asia remains extremely low. In some of its markets, GrabTaxi monetizes by charging taxi drivers SIM card-esque top up fees for accepting rides. Branding wise, is it a “taxi app?” Of course. It’s got “taxi” right in the name.

Uber will repeatedly tell the press that it localizes market to market, but that’s not entirely accurate. It enters almost every one of its new markets with UberBlack, its flagship high-end tier that usually costs 1.5 times more than a cab. This means that, on the one hand, Uber has to proactively disassociate itself from the taxi comparisons when it enters a new market in order to justify its higher prices. “Don’t think of us as a taxi app,” managers will tell the local press at its launch events. Then, once its UberX prices drop (as they often do), it has to shout “UberX is now cheaper than a cab!” Confusing consumers with mixed-message branding can be risky in markets where you’re teaching them new habits.

In addition, UberBlack and UberX never accept cash payments, regardless of local credit card penetration rates. It’s willing to limit the size of its potential customer base (in the short term) just to make sure that Uber remains associated with a seamless, cashless payment experience. Compare this to Rocket Internet, which has expanded in Asia just as quickly as Uber has, and offers cash-on-delivery in almost all of its markets.

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Some might accuse Uber of failing to localize effectively, but it’s more likely that Uber simply refuses to compromise. Uber apparently views its payments and branding dilemma as tradeoffs, or long-term investments. It will sacrifice short-term market share to uphold its dogmatic views on payments. As a brand, it wants consumers to always associate it as “The Mercedes on-demand company,” whether they used it to hail a taxi, a Toyota, or an actual Mercedes.

Of course, Uber runs the risk of losing out. If rivals like GrabTaxi in Southeast Asia or Olacab in India invest more in their taxi business than their town car business, and embrace cash payments alongside credit cards, they can in theory gain loyal users more quickly than Uber can. Once these companies achieve liquidity, they can flip the credit card switch any time they please.

4. Will protectionist policies affect Uber?

There’s no other way around it – Uber puts people out of work. Every check that Uber sends to the otherwise unemployed UberX driver in San Francisco is money that the San Francisco cab driver could have earned for himself. “Big picture Uber” makes taxis obsolete, along with the drivers, dispatchers, and medallion owners that profit from them.

The marginal value of one Uber car on the road is lower in Taipei, where cabs are abundant, than in San Francisco, where they’re scarce. But that doesn’t matter in the eyes of the cab drivers. More cars equals more competition, period. As a result, there’s no reason to assume that municipal governments in Asia’s taxi-abundant cities will take a less hostile stance towards Uber. Moreover, since Uber is a US-based firm, it’s particularly susceptible to protectionism from Asian countries with track record for xenophobic business policies.

Luckily for Uber, protectionism is a sucker’s game. When first attacking Uber, municipal governments and taxi associations usually default on the “Uber is an illegal taxi company” argument. But that argument never holds any weight – Uber owns no fleet of its own. Following that, it’s possible that governments might impose arbitrary rules on Uber, like the mandatory wait times in Paris or the vehicle caps that nearly passed in Seattle. But these can be difficult to enforce. As a result, the most plausible form of government pushback will probably come in the form of media coverage. Depending on how domestic media’s ties aligns with the state’s view, it’s easy to air segments on Uber horror stories, or publish pieces on arbitrary accusations against Uber made by obscure government branches (imagine the headline: Seoul Department of Motor Vehicles Accuses 50 Uber Drivers Of Inadequate Vehicle Inspections).

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To Uber’s credit, it’s won these battles before in the US, and it’s got a [team of lobbyists] working full time to win them in Asia. Thus far, Uber has emerged completely unscathed from the few kerfuffles it has been dragged into. Fist shaking from [transport bureaus in Manila] [and Seoul] have thus far come to nothing. Local authorities [reacted with indifference] when cab drivers in Taipei protested against Uber. As the company grows, it seems that competition will be the biggest of its worries, and that government regulations will be the least of its problems.

5. What will happen to Uber in China?

China is Uber’s “grab your popcorn” country. Most of the aforementioned points appy to Uber’s operations in China, but to a magnified extent.

Want to talk competition? China’s Kuaidi Dache taxi-hailing app is currently in over 300 cities, while the like-minded Didi Dache is in 178. Uber is in four. Both have hundreds of millions of dollars in funding from Alibaba or Tencent. Kuaidi Dache has launched a high-end service tier that competes directly with UberBlack, as has Didi Dache.

Support from Alibaba and Tencent gives Didi Dache and Kuaidi Dache easy access to the resources necessary to make “the big picture” happen on their own terms. Alibaba’s big picture ecosystem includes its Taobao and Tmall ecommerce sites, its widely used Alipay payment software, and logistics partnerships with China Smart Logistics Network and China Post. Tencent’s big picture ecosystem includes its massively popular WeChat messenger (which already supports bookings on Didi Dache), its 15 percent stake in logistically-savvy ecommerce firm JD and its fast-growing WeChat Payments product. The takeaway here isn’t that Alibaba and Tencent will put all of these assets in a blender and take down Uber in six months time. Rather, their diverse portfolio indicates that when they see a big opportunity, they don’t hesitate to go after it, even if it the opportunity has tenuous ties to the company’s core revenue streams (ecommerce in the case of Alibaba, games in the case of Tencent). If Uber is serious about “big picture Uber,” Alibaba and Tencent certainly are as well.

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Some people argue that the country’s block on software like Facebook, Twitter, Google, and Line is itself a form of protectionism (I disagree). Domestic media has a strong track record when it comes to bashing American firms with big-name brand clout. State media will slam Apple on a near regular basis, best exemplified by allegations over shoddy repair service that prompted Tim Cook to publicly apologize. Yum! Brand, Walmart, Microsoft, and Qualcomm each have and will continue to suffer from the domestic media’s spitballs. Uber, with it’s San Francisco gloss and loaded rhetoric (“We’re all about giving consumers choice…” “City XYZ has shown it does not support innovation…”) is setting itself up to become nothing less than a punching bag for local authorities and media outlets. That what’s makes the Beijing launch of UberPool (known as “the People’s Uber”) so shocking – the first city in Asia where the company has introduced a peer-to-peer ridesharing tier is a city where you’d think it’d get swatted down like a fly.

To date, mainstream Chinese media outlets have given Uber little attention, while Didi Dache and Kuaidi Dache make the news on a near-weekly basis. This is likely because the company has only been in the Middle Kingdom for less than a year. Despite this, Uber insists that growth in Chinese cities is strong, enough so that the company will expand to a dozen second-tier cities this year. Only when the media and the competition start noticeably playing rough with Uber will we know if it’s still testing the waters, or if it’s running with the big dogs.

Editing by Terence Lee; top image from Tech in Asia, rest from (top to bottom) Flickr users titicat, Andy Lawson, Stephen Barnett, lobsterstew, and foxxyz

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